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My Response To Jeff Molander: Affiliate Cannibalisation

This is an econsultancy email they recently sent out with an interview with Jeff Molander.

E-Con) More and more retailers are expressing concerns that affiliates are cannibalising other sales channels. But is it actually happening?

Jeff) Retail marketers find themselves struggling to balance objectives of their search marketing campaigns with those of affiliate programs. Affiliates, they've suddenly discovered, are competing. In fact, they have been for years. Affiliates pioneered paid search while marketers sat on the sidelines, all the while grabbing low-hanging-fruit opportunities like bidding on branded trademarks.

Lee) This is the issue many of us have seen in recent years. Affiliates who tend to be the most imaginative, industrious and inventive in the industry risked their own cash not only in paid search but researching and investing in natural search methods and websites.

Merchants were often very slow to highlight the tactics used and when they saw the returns that were actually being made, they decided to shut off these routes to sales one by one.

We saw some a steady stream of merchants saying you can't bid on their brand, you can't advertise direct to merchant in paid search and you can't bid on their most successful keywords - which us affiliates provided them in many circumstances in their log files.

So I feel many merchants are squeezing affiliates more and more into the lower return channels and methods.

But then there's still the brand bidding groups; the open groups and the totally closed (we are told) bidding groups. It amazes me that with such a positive ROI with raw brand-bidding that merchants don't solely do this themselves but rely on affiliates and their agency over-ride, oh and the network over-ride too to "manage" the really difficult task of promoting via brand terms.

I've still yet to receive a clear reason why merchants should conduct brand bidding with affiliate tracking! The only reasons I can find is that merchants and agencies are conning (dare I saw defrauding?) merchants into allowing brand bidding groups for their own self-interest. The other reason is that the merchant is just plain lazy or stupid - come to me and I'll do it for a tenth of your current cost!

Jeff) Also, marketers are re-thinking the value affiliates contribute in relatively new terms. They're studying simple things like the type of customers referred by various types of affiliates. In other words, marketers see some affiliates contributing valuable customers with higher lifetime values and other affiliates sending less desirable customers. In many cases, affiliates are earning the same fee from advertisers and that, they believe, needs to be corrected. Of course, affiliate networks and affiliates aren't as eager to correct.

Totally, I see a big shift by the merchants to taking over the long-term relationship with affiliates that are able to deliver strong ROI in the long-term. Whilst I see it as the network's role to find "hidden gems" - affiliates that aren't performing but with the right assistance can turn into these major affiliates.

E-Con) Why does this matter when affiliate marketing is performance based?

Jeff) That's a common question that needs to be addressed. I like to think of it in these terms: Performance marketing is absolutely effective but is it efficient? We all know that it works but how well?

We're definitely entering a maturation phase where some marketers are much better at stretching their marketing dollars. During these difficult economic times that will only become more important. CMOs will only come under more pressure not less.

In simple terms, "performance-based" has become a bit of an industry darling. In reality, there's much more behind a performance-based marketing strategy than 'I only pay when I receive' the desired action from a customer.

There are behind-the-scenes, tactical issues that must be managed like fraud, returns and cancelled orders, managing multiple affiliate programs and/or multiple performance-based strategies, such as CPC search and affiliate.

When multiple performance-based programs are used, the concern for duplication or cannibalisation arises. Specifically, duplicate payments can be made (leading to cost inflation). Duplicate "scoring" of marketing strategies can occur which cloud true ROI measurement.

Marketers need to know what's working and what isn't. When orders are credited to multiple performance-based campaigns or channels this prohibits good analysis and stifles optimisation.

In summary, there are serious tactical-driven issues that need to be addressed: Behind-the-scenes economics that can seriously impact efficiency.

Lee) I think there's more segmentation. With the huge budgets being allocated to this channel there'll be this attention to detail and these merchants will take a good look at the value each adds to their overall bottom line.

However, with the merchants where affiliate marketing offers a smaller part of their revenue stream I'm sure that de-duping will play much less of a role in their overall affiliate marketing processes.

Now mix merchant apathy with closed, unethical or partial brand bidding policies then you've got affiliate hell!

In some circumstances up to 70% of content affiliate's can be overwritten by brand bidding affiliate's cookies. If merchants don't go through the de-duping process then they will have no idea of the extent of how much their affiliate marketing spend is effectively going down the drain and how many content affiliates they are turning off as they'll see them as unprofitable.

So I call every merchant who wants to improve their bottom line and make a long-terms success of the industry to contact their agency and/or network and ask what they're doing to help you make the most of your budget and do they really care about your bottom line?

E-Con) Do you feel affiliate networks are doing enough to tackle the problem?

Jeff) Honestly speaking, the entire conversation is not one that affiliate networks are looking to have with clients because it shines a big spotlight on something that's been blindly assumed: efficiency.

Affiliate marketing itself has clung to effectiveness for too long. There must be a sense of accountability on the efficiency front. Marketers are demanding it.

That stated, networks are addressing the problem behind the scenes and have been for years - on an individual case basis. With affiliate solution providers aligned closely with analytics solutions, it's becoming increasingly simple to gather data; however, business-minded analysts must be called in to audit it.

Therein lies the challenge: human resources and, again, the commitment to act on findings in a way that may suggest one channel's "ROI superiority" over another.

Lee) Love it Jeff! The majority of networks don't want to raise the issue because 1) they don't want more work to do & 2) they're making more money by sweeping the issue under the carpet!

I'm afraid, if merchants and affiliates demand it, there will be a flight to networks that act openly - just like what happened a few years ago with the spyware issues.

E-Con) How do you feel affiliate marketing budgets might be affected if and when retailers move away from the "last click wins" model?

Jeff) What a question! I'm glad you asked. Here's an answer that you may not expect: CPA affiliate may very well prove to be a more valuable asset among all the various advertising cogs in the wheel - comparison shopping, affiliates, search, banner/display, etc. Budgets may very well see an increase.

Bottom line: This is where the action is - and things are just now beginning to heat up. Watch for companies like ValueClick taking all their performance-based media opportunities and roll them together for larger advertisers - using CPA affiliate networks like Commission Junction as an "indicator of purchase intent" in a more complex, yet highly predictable, shopper behaviour pattern.

Who wins on the publisher side? Those who provide the most value and the value game always comes down to actions. Influencing purchase intent is great but causing the sale wins every time. That translates to CPA shining brightly and standing to win the lion's share of what is sure to be a more complex payment model. Indeed, "last click wins" is all but dead as everyone from Microsoft to Valueclick runs toward a more appealing (to marketers and publishers) solution.

Driving all of this is convergence. As affiliate marketing units gets swallowed up by companies offering multiple strategies it opens the door for scale across all of these strategies.

Another driving factor: marketers typically aren't spreadsheet whizzes, but today's efficiency-focused environment demands use of basic analysis and what amounts to reconciliation. It isn't sexy or complicated, but it's a lot of bloody work!

Yes, it's vital to success when developing an efficient approach but it doesn't scale well. There's too much friction and a reliance on business analysts (in short supply). Once each channel's true performance is understood, it is possible to begin making intelligent improvements but there's a lot of manual, heavy lifting involved.

Lee) To me the "last click model" doesn't reward affiliates like me that educate and inform users. I may spend a couple of hours writing some content about "how to choose the best TV for bathrooms" or whatever. So I tell them model xyz is the best and you should buy it from Comet because they'll take your old one away, will deliver on time, are friendly etc. etc. Then the user has a chat with their other half when they come home. The user then opens up their browser and types "comet electricals" and the affiliate that spent two seconds coming up with that idea gets the £5 commission - but it may happened 20 times that day. So I lose £100! It's really going to keep me being a content affiliate and will really make me want to tell the world how great you are!

There needs to be a solution. With all this clever wizardry around at the moment I'm sure some network with balls will come up with a solution!

Come on you network techies - provide the panacea the industry needs. And you network CEO's get off the gravy train and offer your merchants and affiliates more value!

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