Manage the Ecommerce Business New Challenges, Opportunities in Affiliate Marketing

http://ecommerce.internet.com/how/biz/article/0,,10365_3368861,00.html

Published by Internet.com's e-commerce guide

By Christopher Saunders

June 15, 2004

E-tailers have relied on affiliate marketing as a key selling strategy for nearly as long as e-commerce itself has existed. But the relationship between marketers and their publisher partners has become more complex during the past months. Now, with CAN-SPAM, keyword competition, and growing concerns about fraud, does affiliate marketing still make sense as an investment for merchants?

So far, the answer remains "Yes" -- with important reservations, however. That's according to an expert panel that spoke earlier today at the Internet Planet Conference and Expo.

One way that marketers have responded to changes in the industry is by pairing down the size of their affiliate networks -- giving them more direct control over their publishing partners and how their brand is managed.

That helps to cut down on a potentially unmanageable number of partners, brand-damaging activity by rampant affiliates, and cases of fraud. And in some cases, it can actually improve the return on investment from affiliate marketing.

"We did a lot of cleansing of our affiliates, from 12,000 to a core 3,000 affiliates," said Avon.com's e-commerce director, Pattiann McAdams. "Over the last two years, we invested tremendously in people and in resources in teaching our affiliates on how to effective in selling ... and year over year, we've seen 100 percent increases in our affiliate channel by being aggressive and handholding."

With stricter controls on sites that can join Avon.com's affiliate network -- which is powered by LinkShare -- McAdams said she was able to boost network performance.

"There are less people coming on, [but] they're serious people," she added. "Not just the mom-and-pops who were signing up just for the discounts -- these are quality affiliates, who are entrepreneurs looking to grow their businesses online."

But other panelists cautioned merchants not to clamp down too hard on their networks by restricting it only to the top-performing partners.

"You need to have a 'farm league' strategy," said David Rogers, affiliate marketing specialist for Brooks Brothers' e-commerce group. "There are [second-tier] affiliates who do OK, but they give you some sort of intelligence about affiliate industry as a whole. They're just good knowledge providers you want to have around."

Like Avon.com, Brooks Brothers sought to boost productivity by dramatically reducing the number of affiliates with which it did business.

"We changed providers, and went from almost 22,000 to less than 300," he said. "The performance that's driven by those 300 is, month-over-month, about 86 percent higher -- with 99 percent fewer affiliates."

"Literally, it came down to, 'Do we focus on the thousands and thousands who are doing nothing for us, or those committed to the business and to working together?'" he added.

Having fewer affiliates means that a merchant can keep a close eye on how sites handle their brand, while spending more time helping them to boost sales -- which can have a positive effect for both publisher and advertiser.

"We periodically go into our affiliates, our high performers and low performers, and do audits," McAdams said. "We also take an aggressive approach to committing resources to enable them to be successful -- giving them banners [and Web code]. We have a pretty good way of protecting the Avon brand with our affiliates."

One benefit of having a more-manageable roster of affiliates stems from being better able to deal with potential conflicts that arise from bidding on search keywords. In the panelists' cases, that meant imposing limits on affiliates' search marketing.

"We have a select group of approved search affiliates who are allowed to bid on our trademarks ... in return, they are supposed to help police the space," said Rogers, who caps the amount that affiliates can bid. "They have, combined, a bigger search budget than I could ever get my hands on. It's in my best interest to work with them, and working with them, they've proved the value of search marketing for our parent company ... Simply from a programming standpoint, they know more about how the search engines work because this is what they do all day."

Added McAdams, "We capped affiliates so the most they can bid on our keyword, 'Avon' ... and they are prohibited from outbidding the Avon brand," said "We don't find it cost-effective to allow [them] to outbid us."

There are other ways in which publishers and marketers could work together using search for mutual benefit. Peter Figueredo, chief executive of NETexponent, outlined a case in which affiliates drove profitable referrals for Fleet Bank's credit cards by bidding on keywords that the bank itself found prohibitively expensive -- and driving traffic to sites that aggregated a slew of affiliate deals from rival banks.

In that situation, Fleet missed out on all the traffic it might have gained from owning the top spot on the keyword "credit card." But because the ownership cost of "credit card" outweighed any potential profit, it proved wiser to allow an affiliate to purchase the term and receive a smaller -- but profitable -- amount of referral traffic.

"Affiliates can do a lot of things that can't normally be done by merchant," Figueredo said. "We've seen search become really important for our clients. E-mail was a big factor in delivering volume for affiliate programs. Search has taken up where e-mail has left off, and affiliates doing search arbitrage are delivering the volume that e-mail used to deliver."

Paying closer attention to affiliates' activities also means that merchants can ensure that their marketing programs don't run afoul of CAN-SPAM.

"We have several e-mail marketers who work for us as affiliates ... those [use] opt-in lists, and we police those lists as it relates to taking [subscribers] off the list," McAdams said.

But will affiliates stand for closer oversight and new restrictions, when they can turn to services like Google AdWords to make money from their sites?

"I don't think search is going to replace it," McAdams said. "We have a lot of coupon sites and other sites that people are really sticky on [which] need to be connected with key brands to build success."

Likewise, Rogers added, "we have a symbiotic relationship that's developed -- we need each other."

"They do talk about replacing us with AdWords, but when you have a page with just AdWords, where's the sense of people coming to the site? Where's the part of the deal that keeps people coming back?"

That's where merchants -- and the content and deals they can provide -- come into play.

Affiliates "realize they have become destination sites in and of themselves," he said.

Christopher Saunders is managing editor of eCommerce-Guide.com.