From a shaky start that was almost derailed by the dotcom crash, affiliate marketing is now showing astonishing growth, accounting for £1.3 billion in sales last year alone. This equates to an estimated 17 per cent of all online sales. It was once derided as little more than the poor cousin of traditional marketing techniques, but businesses are now waking up to the power of affiliate marketing to consolidate their existing sales channels, enhance their brand image and push into new territories.
The idea is simple. Your business arranges partnerships with other companies who in effect become extensions of your own sales force. For every sale or lead that is generated, the affiliate member receives commission. Amazon is credited with developing affiliate marketing into a viable marketing channel. Today, thousands of businesses gain direct sales or valuable leads in a wide range of sectors. Not surprisingly, the B2C market has seen the most dramatic growth in affiliate marketing, but where consumer-facing businesses lead, B2B companies soon follow.
Robert Glasgow, MD of Webgains, explains the mechanics of affiliate marketing, “The great thing about affiliate marketing is that none of the advertising is wasted because a business [merchant] only pays a commission on actual sales. Commission is determined by the merchant according to the gross margin of each of his products, so he gets to decide how much he can afford to pay. So long as the net margin per product X and the volume of sales generated is greater than the charges, then the channel would make sense commercially. The other thing to note is that the business gets exposure of its brand name on all of the affiliate sites for free, because it only pays a commission on sales.”
B2B plays catch-up
In the B2B arena, using affiliate marketing effectively can be a difficult proposition to perfect. Unlike the B2C market, in the B2B sector purchases are usually made infrequently and often have to pass through a purchasing process that can take months to complete. The affiliate marketing model operates at its best with impulse buys, where the B2C market is dominant. “I believe that the reluctance for affiliate marketing to embrace B2B mirrors that of online marketing overall,” says Mark Kuhillow, MD of specialist agency RO Eye. “Online B2B marketing as a whole has yet to deliver the reach that the sector has hoped for. While offering an excellent and efficient access point into industry sectors, it is still heavily reliant on email and industry websites. If B2C advertisers are driving 30 per cent of sales through affiliate marketing, the B2B ratio may well be the same; however, the actual base is smaller.”
Money for nothing
At first glance, setting up an affiliate network seems like a license to print money. After all, you don’t have to pay a penny until you receive a sale or a lead. This initially seems like a great opportunity, especially for smaller enterprises. However, as Nicky Iapino, MD at Affilinet UK points out, SMEs should not overestimate how lucrative affiliate marketing could be for them. “SMEs must not expect affiliate marketing to be the answer to driving sales alone. It will enhance and support your sales activity, but won’t deliver it solely.”
She continues, “At the same time, SMEs are often mistaken in thinking they need masses of affiliates to achieve results with their program. I strongly advise that this is not the case and caution those who want to take the route of quantity.”
According to Iapino, quality is far superior to quantity and it’s more about working with the right affiliates than with a large pool of uninformed and unmanaged publishers. She continues to explain that it’s harder to manage your own exposure, but that the majority of affiliate marketing leads are actually driven by only a small, select, hard-working group of publishers and that these are the ones you should be trying to work with.
She concludes, “Lastly, remember to treat your affiliate marketing program as a proper marketing tool and revisit it regularly to check its efficiency, relevance and delivery.”
The need to ensure that any affiliate marketing programme you initiate is integrated into your business’s other promotional activities can’t be stressed enough, according to Todd Crawford, VP of sales and business development at OneNetwork affiliate programme, “An affiliate programme is like fishing – you can take two approaches. If you bait your hook and drop your line in the water, you may catch a fish by pure dumb luck. But if you are going to feed your family on the fish you catch, you’ll take a much different approach to fishing. If you want to have a successful affiliate programme, you have to be ready to feed your family.”
He continues to comment that when it comes to building an affiliate programme, companies should have a plan they can execute, evaluate and optimise. Companies should also clearly identify valuable relationships and manage them on personal levels. Top affiliates should be identified and communicated with on a daily basis.
Companies can capitalise on their top affiliate relationships by being highly responsive, offering advanced notice of new product launches or upgrades, providing them with compelling offers and giving them access to exclusive promotions. Crawford of OneNetwork, concludes, “Companies should not launch an affiliate programme and hope that it will drive results on its own.”
Pricing matters
The set-up costs for an affiliate program can range from a few hundred to several thousand pounds, plus a monthly ‘override’ fee, which has generally stabilised across the industry at 30 per cent of the affiliate commission. The level and reach of your affiliate program will directly influence your costs.
What is often overlooked is that affiliates are partners. You must ensure that each of your affiliates is properly managed. As Simon Trigg, MD at DGM explains, engaging with your affiliates is the key to a successful campaign. “If the smallest business has a transaction (sale, lead, email address or download, for example) that can be monetised and a potential audience addressable by specialist affiliates and a budget, then they can benefit. Affiliate marketing is all about incentivising affiliates to do work for you – if they can make money effectively they will. But small businesses should be aware that affiliate marketing cannot be turned on and off at will. Good relationships with affiliates are kept up by dealing with what they provide for you and not stopping and starting campaigns all the time.”
Many B2B enterprises will not have an e-commerce-enabled website, which is a prerequisite for a successful affiliate campaign. For these businesses the more intangible asset of brand reinforcement and cross market selling should be the focus of the affiliate channel, says Crawford of OneNetwork, “Success of B2B affiliate marketing probably will not happen by sector or industry as a whole. Rather, products with low price points and simple product features will be more readily adopted in affiliate markets. Products with higher price points and more intricate product features will be more apt to go through a traditional sales channel involving more people, a longer consultative sale, many approvals and a traditional purchasing mechanism, like the purchase order. However, B2B affiliate marketing can be effective when used for quality lead generation and the subsequent sale is completed through traditional channels.”
Marketing future
For your business to use affiliate marketing successfully, choosing the right agent to handle your account is very important, as is your own understanding and commitment to the programme. Affiliate marketing is not about sales directly, but about building relationships with the members of your affiliate group. A good ROI is important, but the return may not necessarily be in monetary terms. In the B2B sector, affiliate marketing can be a superb means of building your brand.
Maz Darvish, MD of Affiliate Future, concludes, “The primary thing is to see your affiliates as partners and investors in your business. They have a genuine stake in your success and so a co-operative and collective approach always works best. Seeing them this way will mean that you don’t neglect them when you make a decision or change. For example, any new offer or website change will impact on their performance and so they should always be at best consulted, and at the very least informed. Good affiliates know how to optimise website performance and many of our affiliates have given valuable guidance to our merchants, which have improved their performance online.”
B2B affiliate marketing has developed much more slowly than B2C. This isn’t surprising as affiliate marketing has been embraced and developed largely by businesses in the FMCG product sectors. However, the B2B market is now taking note of success and rapid development of the B2C affiliate market and is looking closely at how this model can be applied to their sector. Clearly – for some businesses – paying their competitors to generate leads or sales may not be appropriate, but for many businesses affiliate marketing is opening up new markets that are having a positive influence on turnover.
Crawford of OneNetwork, concludes, “B2B affiliate marketing does have great potential for companies creating and thoroughly managing relevant partnerships. Though B2B affiliate marketing may not become as popular as search, a good affiliate or partner channel can create a significant competitive advantage that drives compelling results – results that matter to the bottom line.”
