Friends or Foes?

Weeding out the bad while cultivating the good improves affiliate sales harvests.

Thad Rueter

Three years ago, Carolina Rustica followed the lead of its competitors and began building an affiliate marketing network that now includes some 4,000 web sites. Maintained largely by Commission Junction Inc., the retailer's affiliates are mostly coupon sites, not bloggers or other content sites that often show up in affiliate programs, says Richard Sexton, president of the specialty furniture and lighting retailer.

For Sexton, these affiliates essentially serve as a freelance sales force, and he typically pays them a commission of between 12% and 14% when a shopper who arrives at CarolinaRustica.com from an affiliate site buys. Sexton says affiliate referrals account for 25% of the e-retailer's web orders, and that when it comes to online marketing the amount the retailer spends on affiliates is second only to its spending for paid search.

Despite that, Sexton has misgivings about affiliate marketing. "I'm not completely sold on affiliates since there seem to be a lot of loose cannons out there not following our terms and conditions, such as bidding on our trademark 'Carolina Rustica'," he says. When an affiliate bids to place paid search ads against a search for the Carolina Rustica name, the retailer has to bid more—sometimes twice as much—to get its own name to appear in paid search results, he says.

Like Sexton, many retailers are hesitant to totally trust affiliate marketing, but are unwilling to risk going without it. There is good reason for that: 74% of online buyers research two to three non-retailer web sites before buying a product, and 32% of online buyers typically begin their shopping trips on affiliate sites, according to a June study from Forrester Consulting, part of Forrester Research Inc., commissioned by affiliate network operator Rakuten LinkShare Corp. Such consumer behavior will help drive retailer spending on affiliate marketing to $4.47 billion in 2016, more than double the $2.08 billion spent in 2011, the study says. That's a compound annual growth rate of about 16.5%, just slightly ahead of recent e-commerce growth.

Despite the misgivings, affiliate marketing remains a staple for a simple reason, retailers, affiliate marketers and other experts say: Unless fraud is involved, retailers only pay a fee when they close a sale. Newly developed affiliate services are also helping affiliate marketing be more exact, such as letting retailers' affiliates automatically link products they mention on content sites to the sites they work with. Finally, technology is making it easier for retailers to gain and track sales from affiliates—and to weed out dishonest operators.

Coupon affiliates

The world of affiliate marketing largely encompasses coupon, discount and comparison shopping, and content sites. An example of a content site would be "mommy blogs," a natural place to find shoppers who need baby products.

It would be hard for a retailer to ignore the potential of these sites, given the simplicity of their appeal and their traffic. The top 20 such sites attracted nearly 740 million U.S. visits in September, according to online marketing research firm Experian Hitwise. That compares with just more than 2 billion total U.S. visits in September for the top 500 retail sites.

For Bake Me a Wish, an online retailer of cookies, cakes and brownies whose affiliate marketing is handled by Rakuten LinkShare, coupon sites have proven far more efficient than content and comparison shopping sites, says Joseph Dornoff, the merchant's vice president of marketing and operations. "Comparison shopping engines may put products side by side and may also be a lead-in for the customer, but it rarely finalizes a sale with the degree of efficacy that a coupon site provides," he says. "We also tend to see a lot of loyalty to coupon sites."

Indeed, more research from Forrester Consulting says 66% of online coupon users will apply coupons to at least a quarter of their online purchases, and heavy coupon users—those who say they've used coupons six or more times in the last year—will spend more than $800 more online than light coupon users.

Some e-retailers, however, say that coupon sites are a waste of money. About a year and a half ago, Spreadshirt.com, which sells customized apparel, kicked out all coupon sites from its affiliate program, says marketing director Hugo Smoter. It had found that 89% of the commissions charged by affiliate networks were for sales that stemmed from coupon sites—and that shoppers frequently would search for those sites and their discount codes only after figuring out what they wanted to buy from Spreadshirt.com. That means the e-retailer was paying commissions on sales to shoppers who had already decided to buy, and that the coupon sites were hardly doing any work to earn their commissions. "We were cannibalizing and inflating the price of our own sales," Smoter says.

Since then, Spreadshirt.com has added to its e-commerce site a coupon page that not only offers the discounts that many shoppers have come to expect, but which the retailer designed to show up on both paid and natural search results pages when consumers search for Spreadshirt coupons.

"It has saved us a lot of money and commissions," says Smoter, who estimates that affiliates today account for no more than 5% of the Spreadshirt's sales. "We kept the cash-back sites," he says, referring to sites that are similar to coupon sites, but which offer a percentage of the purchase price back to the buyer. "They provided better value. We found there was a lot more loyalty with those sites."

One such site that Spreadshirt works with is eBates.com. Consumers get 2.5% cash back for coming through the affiliate's portal and then making a Spreadshirt purchase. They can also get cash back when they use the portal to shop hundreds of other e-retail sites eBates.com works with, thus creating eBates' loyal user base. Consumers using Ebates.com this year will buy $1.5 billion worth of merchandise through its retailer clients, 50% more than last year, CEO Kevin Johnson says.

Long-tail sales

Besides the low value he felt he received from coupon sites, Smoter, like some of his peers, expresses frustration at two other aspects of affiliate marketing: Accurately tracking where a sale comes from, and the difficulties of working with bloggers as affiliates.

The problem with bloggers is how to match products on the retailer's site with what the blogger is specifically writing about. That's where affiliate marketing firm Skimlinks sees opportunity. Its technology enables web site operators to automatically turn product references in blogs, community posting sites or other published content into affiliate links that drive traffic to retailer sites.

Imagine that a blogger recommends one of the quirky gadgets sold by Skimlinks client ThinkGeek—for instance, a Star Wars fanatic or a beer geek might promote the Millennium Falcon bottle opener. Skimlinks recognizes that reference and inserts an affiliate link to ThinkGeek into the blogger's text, provided the blogger is part of ThinkGeek's affiliate network. A consumer using that link to buy the bottle opener will result in an affiliate fee to Skimlinks and—out of that fee—a commission to the blogger. "Skimlinks allows small guys with good blogs and good content to more easily find us," a ThinkGeek spokesman says.

Skimlinks bills from 2% to 3% of the purchase amount on high-value items in the electronics category, from 10% to 15% for fashion items, and 20% or more for low-cost items. For the largest e-retailers, Skimlinks charges on a cost-per-click basis. Skimlinks works with more than 30 affiliate networks and "tens of thousands of retailers," says director of marketing Aaron Weissman.

Affiliate management

New technology from Google Inc. shows what's being done to help affiliate managers more clearly track where sales are coming from. Launched in early October, the free Google Tag Manager is an Internet-hosted software platform that collects all the tags on a web site and stores them in an off-site repository, or "container" in Google's lingo. Google replaces the tags, with a single line of code, which Google calls a "container snippet," on each page of a web site. Retailers add tags to their sites from advertising and affiliate networks so that they can pay commissions when consumers coming from those marketing channels make a purchase.

Google's e-commerce technology competitors note the value of the platform. "It will be a good fit for small businesses that have limited digital marketing requirements and are dependent on Google products, such as Google Analytics," says Ali Behnam, CEO of tag management company Tealium Inc. In addition to tag management, Tealium provides workflow management tools for multiple users and integrations with web analytics programs, such as Adobe Systems Inc.'s Site Catalyst, that Google's service does not.

Technology also helps retailers engaged in affiliate marketing protect their brands and contain marketing costs. Carolina Rustica, for instance, uses technology from BrandVerity to spot dishonest affiliates that bid on its brand name.

BrandVerity also helps companies combat what's often called "URL hijacking." Bike and parts e-retailer JensonUSA.com provides an example of the con. Some affiliates will copy Jenson's own paid search ad copy verbatim to make it look to consumers as if they are clicking on an ad Jenson placed that will take them directly to JensonUSA.com. In reality, those ads redirect consumers through a series of 10 or more web pages in an instant. To the consumer not staring at his URL bar, the ad does appear to take him right to JensonUSA.com.

However, one of those 10 pages is actually an affiliate page that will generate a commission from Jenson USA if that consumer makes a purchase. "They're hijacking my ads and are effectively printing money for themselves," says Jenson affiliate program manager Jared Saunders. BrandVerity's technology captures the site addresses that cycle through the hijacked ads, and uncovers the six-digit user ID number associated with the affiliate page in that mix. BrandVerity then sends clients an alert with the information so affiliate managers can take action against the offenders.

Saunders sends offenders an e-mail warning them to suspend the practice. If they don't comply, he resets their commission rate to 0%, which he says usually prompts them to drop out of the program fast.

All these technologies help retailers improve the returns from their affiliate marketing programs by generating more legitimate sales and paying less to unscrupulous affiliates. As long as the ROI arithmetic yields a positive result, many e-retailers will keep affiliates in their marketing mix.




The changing affiliate landscape

Retailers active in affiliate marketing today may find they are cutting commission checks to fewer vendors. Some of affiliate marketing's biggest players are consolidating and expanding the services they offer retailers.

In September, for instance, Rakuten LinkShare Corp., which also provides search marketing services—and which has 110 clients among the Internet Retailer Top 500—said it would buy mediaForge, a company that offers technology and services for building personalized online display ad campaigns. The deal will enable Rakuten LinkShare to provide online retailers and other advertisers better technology and services to measure the effectiveness of affiliate and other marketing campaigns. MediaForge places software tags on client retailers' web sites to monitor how shoppers are interacting with site content.

Global expansion is an aim of Rakuten LinkShare, a unit of Japan-based e-commerce company Rakuten. The Linkshare unit announced in late October plans to launch an affiliate network in Australia.

On the coupon side, WhaleShark Media Inc.—which counts Google Inc.'s venture capital arm as an investor—has raised approximately $300 million since its 2009 launch. The company operates such coupon and deal sites as Deals.com, CouponSeven.com and CouponShare.com. It has made several international acquisitions, including the May purchase of France-based coupon and cash-back provider Miwin, and the late 2010 purchase of Australia-based coupon site RetailMeNot.com.

Another company growing internationally and through consolidation is Performance Marketing Brands, the parent company of Ebates.com, which enables online shoppers to browse discount offers from more than 1,000 online retailers. In August, the company launched Ebates.ca with 500 retailers and brands offering deals to Canadian online shoppers. That followed the 2011 acquisition of online coupon provider FatWallet, a deal which led to the creation of Performance Marketing Brands.

"There is strength in size and space and efficiencies," says Ebates.com CEO Kevin Johnson. "There's been that first wave of consolidation, and I think there will be more, but not at the same pace."


Affiliate marketing, Bake Me a Wish, blogs, BrandVerity, Carolina Rustica, consumer loyalty, coupon sites, e-commerce, Experian Hitwise, Forrester, fraud, Google, Hugo Smoter, Joseph Dornoff, marketing technology, November 2012 Magazine, online discounts, Rakuten, Richard Sexton, Skimlinks, Spreadshirt.com, tags