June 30, 2006, 12:00 AM

Affiliate Marketing

Affiliate marketing-using one site to drive traffic to another-is the stepchild of online marketing. While search engines, e-mail and RSS capture much of the attention of online retailers, affiliate marketing, despite lineage that goes back almost to the beginning of online retailing, carries a much lower profile.

Yet affiliates continue to play a fundamental role in e-retailers’ marketing strategies. That’s the case at Abebooks, an online marketplace for new and used books that ranks No. 67 in the Internet Retailer Top 500 Guide to Retail Web Sites. At Abebooks, affiliate marketing drives 20% to 30% of sales. “It’s extremely important as a growth factor,” says Boris Wertz, COO.

But affiliate programs can be complex operations. The AffStat 2006 survey from consultant Shawn Collins found that in 2006, 29% of marketers had 2,000 or more affiliates, up from 26% in 2005.

Too much to handle

And handling that many affiliates is a daunting task. Just ask the 18% of merchants responding to the AffStat 2006 survey who said they have too many affiliates to manage effectively.

That can spell trouble for online retailers who fail to closely monitor affiliates. For better or for worse, an affiliate is the retailer’s representative. That means that any negative marketing tactics-spam, for instance-reflect badly on the retailer.

And illicit or questionable behavior by an affiliate can do more than just give a retailer a bad reputation. It can also land the merchant in legal trouble. Earlier this year, the Federal Trade Commission set out stringent affiliate-monitoring requirements in a settlement with several adult content sites over alleged violations of the Can-Spam Act created by the adult sites’ affiliate marketing partners. “It’s the first shot across the bow from the top consumer agency in the United States that the affiliate marketing world needs better controls and better answers to consumer protection issues,” Trevor Hughes, executive director of the Email Sender and Provider Coalition, said.

In such an environment, the role of the affiliate program manager takes on new importance, and communication with affiliates takes on new urgency.

“When you decide to have an affiliate program, you really make the decision that you’re going to be the vice president of sales,” says Steven Denton, president of LinkShare Corp., an affiliate management company. “You’re going to manage a 100% commission-based sales force.”

Reach out and touch

Under a well-run program, retailers are in constant contact with affiliates, Denton says. They keep affiliates updated on promotions, products and the business. And they closely monitor affiliates’ activities.

Part of that communication involves providing incentives and product information to affiliates. “You’ve got to communicate to your affiliates what it is you want to have happen,” he says. “How are you going to work with them? What are the rules?”

Retailers should take advantage of every contact with affiliates to communicate goals and expectations, Denton says. Communications begin when an affiliate applies for and gets links for the program, but can be continued through mini sites dedicated solely to information about the affiliate program, newsletters and e-mail updates, and outreach initiatives such as surveys and phone calls, he says.

Indeed, the older 2004 AffStat report found that 56% of affiliates would like to hear from their affiliate managers on a monthly basis, while 25% wanted weekly contact and 14%, quarterly contact. When asked which form of communication they preferred, 68% of affiliates cited e-mail, 13% cited e-mail/instant messaging/phone, 11% cited phone and 8%, instant messaging.

“You have many touchpoints to talk to this 100% commission-based sales force,” Denton says. “They’re your strategic asset. You need to communicate with them if you’re going to make them work for you.”

Two options

Retailers have two affiliate-management options-a network-hosted program or an internally hosted affiliate program, Wertz says. For small retailers, the network model may be the best option because it gives them access to the largest group of affiliate publishers and access to experienced affiliate marketing professionals, he says.

But larger online retailers may prefer internally hosted programs because it gives them greater control over communications with affiliates, cost savings because they don’t have to pay network service fees and greater scalability during the launch phase, Wertz says.

Once the retailer selects a business model, it then has to create a program that will appeal to affiliates, including deciding whether the affiliate will be paid a flat or tiered commission, paid per lead or paid via a hybrid payout type, for example, pay per sale with a bonus for first-time buyers, Wertz says.

Sell yourself to affiliates

The retailer also needs to focus on the benefits of the program and explain in detail what affiliates need to know, including the commission terms, cookie duration, link types, promotions, data feed/web services offered and keyword bidding, he says.

“You are out there competing for the attention of thousands of affiliates with thousands of merchants,” Wertz says. “You have to sell yourself to the affiliates.”

Good sources for recruiting affiliates include boards, super affiliate lists, search engines, popular blogs and competitors, he adds.

Once affiliates sign up for the program, the retailer can build strong relationships by rewarding top performers with the most competitive rates, cash bonuses, prizes, access to trademark terms and custom creatives, Wertz says.

But retailers should keep in mind the hidden pitfalls of setting up affiliate marketing programs, Denton says. They include dedicating too few resources to the program; focusing on the sheer number rather than the quality of affiliates; and viewing affiliate marketing as low-cost advertising. “If you’re looking at it as cheap advertising, that’s what you’re going to get,” he says.

That’s advice retailers should take to heart as affiliate marketing becomes ever more complex.

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