The decisions made when first structuring an affiliate program will go a long way toward determining its ultimate success or failure.
By Chris Henger
The affiliate channel extends an advertiser's online distribution strategy. Like any other channel, it should reflect a company's marketing strategies and associated goals and needs.
While affiliate marketing is the original performance marketing channel and a relatively mature online marketing strategy, new advertisers are embracing the channel for the first time every day. But goals, program structure requirements and marketing needs vary greatly. The initial set-up and structure of an affiliate marketing program often is the determining factor in the ultimate success or failure for both advertisers and publishers. Even advertisers with long-running affiliate programs should carefully review their program's structure to ensure it reflects their larger marketing objectives.
When considering an affiliate program structure, advertisers should ask some crucial questions to identify the structure that's best for them: What is the appetite for my product(s) among affiliate publishers? How many will want to run my performance-based advertising? How much volume do I need from--or can I manage in--the channel? How much risk can my brand tolerate? What resources am I willing to invest? What other online marketing programs are running and how do I set up my affiliate program to best complement these efforts?
Open vs. Private
Most affiliate programs are "open," meaning the program is available in an affiliate network like DoubleClick Performics, Commission Junction or LinkShare, and affiliate publishers can apply to join the program. Most advertisers also maintain an affiliate program page and a "join program" link on their website. But simply designating an affiliate program as "open" does not tie advertisers' hands and require them to allow any and every web publisher admittance to their programs. There are countless shades of gray within the open structure, usually defined by the application process and specific admittance criteria put in place by advertisers that affiliates must meet.
Some advertisers, though, choose not to set any constraints. They want the affiliate channel to maximize reach for their brand and products despite the disadvantages that an affiliate marketing program free of constraints brings with it.
For other very large, highly sensitive brands with unique needs, an affiliate program can also be "private" or "closed." Closed programs are not available to all affiliates, and while private programs can be managed by a network, these programs are not visible to publishers within the network. A private program is essentially an invitation-only program, and it requires extensive resources to secure distribution.
Like open programs, closed programs come in many shapes and sizes. The smallest of the closed programs, for example, may enlist only 10 hand-picked affiliates, enabling advertisers to satisfy a small customer acquisition appetite while focusing on a select group of publishers. Since all communications with affiliates happen directly, the potential for fraud is greatly reduced. All media is acquired through negotiated buys, and the exclusive nature of this type of program sometimes results in more fruitful negotiations and impressive placement of creative and promotions on publisher sites. However, most advertisers should not choose this model; it inevitably creates a backlog of missed opportunities by prohibiting many valuable affiliates from participating in the first place.
Advertisers looking to launch or modify an affiliate program should think critically about these two primary options and carefully weigh the pros and cons. With a general structure in place, they can then customize it to suit their specific needs, including tweaking the program's terms and conditions--the ground rules and guidance advertisers need affiliates to understand to be successful.
The Affiliate Marketing Value Chain
Beyond the open vs. private decision, DoubleClick Performics relies on a proven methodology for affiliate program management. Advertisers should consider specific elements of the affiliate marketing value chain in developing a comprehensive program structure that's tailored to meet to their objectives.
Goal Setting: At the onset of a new affiliate program and at least annually for an existing program, an advertiser should set an overall sales goal and establish any other metrics that they deem essential to reaching other goals. These metrics can include specific product distribution, lifetime customer value goals, quality customer goals and new-to-file customer goals.
Payment: Fundamental decisions must be made concerning payment. Affiliate publishers can be compensated on a cost-per-sale or a cost-per-action (CPA) basis. For retailers, the most common structure is cost-per-sale--or a revenue share--in which affiliate publishers are compensated for driving e-commerce with a percentage of the overall sale. The size of the commission payout varies greatly by category and is largely reflective of the product margins. A CPA program compensates publishers for driving a measurable online action, such as a registration or subscription. The price for the action or the "bounty" also varies greatly and can range from a dollar or two for a simple registration that doesn't require significant consumer information, to hundreds of dollars for a high-value lead.
The most important element in establishing a program's payment structure is to ensure that the structure meets the advertiser's margin requirements. Affiliate marketing can be a very cost-effective form of online advertising, and an advertiser should never compromise their margins. However, the payout also must be comparable to those of competitors in the category.
The payout is comprised of the commission rate, the conversion rate and the average order size. These three factors ultimately determine the most important metric that publishers use to judge the value of a program from their perspective--the earnings per click (EPC). The fundamental element within a publisher's control is the number of visitors sent to an advertiser, which is measured by the number of clicks driven. Thus, EPC is the metric that measures how much money they make in commissions from each click. Publishers are always on the lookout for high performing EPC metrics across advertisers.
Distribution Plan: There are countless affiliate publishers and affiliate types available to advertisers, and an affiliate program can certainly generate sales just by using the "build it and they will come" philosophy. Here, advertisers essentially open up a program in a network and let affiliates join. But a program will never realize its full potential without a proactive development plan that identifies high-potential affiliates and develops a strategy to secure distribution across affiliate publisher sites.
Policy Development: This element of program structure is critical to establishing affiliate policies that match an advertiser's goals. Policies guide publishers as to how your brand should be marketed and establishes criteria that affiliates must comply with in order to remain in good standing. Policies can encompass everything from bidding on brand terms in paid search to fraud, competitive concerns and brand and creative restrictions. It is important to note that highly restrictive policies will limit program growth. But by establishing policies that reflect the advertiser's goals and effectively communicating those policies, affiliates truly can become an extension of the advertiser's marketing efforts so that the channel can best support the advertiser's ultimate goals. One important policy development tip centers on the tone in which the policies are drafted; advertisers should include what publishers can do and not solely the things they cannot do.
Compliance: Advertisers (and their network provider) have an obligation to enforce the established policies. Advertisers should never establish policies only to allow bad actors to get away with violating those policies while most affiliates follow them. Enforcement, though, requires resources, expertise and tools to monitor behavior, investigate issues, educate affiliates and, if necessary, remove publishers from a program and ensure that bad actors do not come back. The advertiser's affiliate network provider plays a crucial role in monitoring marketing activities and enforcing compliance.
Publisher Recruiting: Recruiting is probably the most important element that delivers growth for an affiliate program. There will be some affiliate hand-raisers along the way, but the affiliate channel is highly competitive. Publishers have hundreds, maybe thousands, of options when choosing which advertisers to promote, and without a proactive recruiting effort, an advertiser may not stand out. Recruiting involves not only identifying new distribution partners, but also establishing strategies to secure a relationship with the highest potential affiliate publishers.
Communications: Advertisers need a means of communicating with affiliate publishers, both in an effort to optimize the program with new promotions, exclusive offers and other critical information, and as a means of keeping the advertiser's program top-of-mind. In a recent survey of nearly 1,000 affiliate publishers, more than 88 percent reported that e-mail is their preferred method of communicating with advertisers. Other methods include blogs, forums and direct communication via telephone or networking at affiliate industry events.
Going through this process will help advertisers ensure that their affiliate marketing efforts further their overall departmental and company objectives. Only with an appropriate structure in place should advertisers extend creative and promotions to affiliates and begin reaping the benefits of a strategic, properly planned affiliate marketing program.
Chris Henger is vice president, affiliate marketing at DoubleClick Performics (www.performics.com) and a regular contributor to Electronic Retailer magazine. Contact him via e-mail at chenger@doubleclick.com.
