Affiliate Marketing’s Role in Media Plans

Presented by:

Affiliate Summit West 2012

Control

Control (cont.)

Control (cont.)Take control

Continual improvement and constant innovation provide the opportunity for fine tuning and maximum control.

“You can't control what you can't measure”

–Tom DeMarco

ConsiderationsThings to consider when looking at Affiliate marketing’s role in your company’s plans

Profit Margins (identifying most profitable sales channels)

Paradigms (corporate philosophy on elements of media plan)

Perceptions (by company, by media agency, by CEO, etc)

Politics (individual personality conflicts and biases)

Programs (understanding complexities of new media options and holding programs accountable to ROI metrics)

Profit MarginsThe ultimate way to build a business would be to hire a

sales force that was totally commission-based

Self-funding Profit Center

Performance-based programs (see Affiliate) are comparable to commission-only sales reps

Self-funding Profit center

Profit Margins (cont.)As an Business Owner, where would you prefer to have most of your sales revenue come from?

Distributor Retailer Reseller Direct

Profit Margins (cont.)Traditional Sales Channels

All sales are not created equal

Distributor – No Ownership of Customer Data

40% – 70+% Depending on Industry (Help get product to market)

Retailer – No Ownership of Customer Data

35% – 60+% Subject to Negotiation (Brand recognition = sales)

Reseller – No Ownership of Customer Data

30% – 40+% Some hold inventory & others drop ship (Discount)

Profit Margins (cont.)With 100% Brand Penetration

If links in the value chain could be removed Business Owners would sell direct all day long

In reality, distribution channels are necessary and provide unique value at variable costs

Profit Margins (cont.)Direct vs. Other Sales

Includes marketing expense

Profit Margins (cont.)Giving away margins

Many companies willingly offer online dealers (that are little more than savvy affiliates) 35%-50% commissions while they are hesitant to offer affiliates even 1/3 as much

It’s important to understand who’s providing what value

Affiliates need to be more efficient in order to survive

Profit Margins (cont.)Increase % of most profitable sales

ParadigmsTraditional media still accounts for

the lion’s share of marketing budgets

Quote about Advertising that

everyone’s heard a million times…

“Half the money I spend on

advertising is wasted;

the trouble is, I don't know which

half.”

-John Wanamaker

Paradigms (cont.)Performance-based (see Affiliate) programs are lumped

in with overall media programs (bound to budgets)

Traditional media focuses on branding metrics like:

Audience ratings, Media share, Reach and Frequency, Gross ratings points, Readership, etc;

Online media focuses on direct response metrics like:

Clicks, CTR, CPC, Revenue, CPA, ROAS, etc.

Paradigms (cont.)Performance-based marketing is considered and

expense by many companies

More nimble companies have realized that performance-based programs can be profit centers

These programs may be attributed to cost of goods sold and become completely self-funding

PerceptionsWhat are some negative perceptions of affiliates?

Affiliates are somehow cannibalizing other channels

Affiliates’ efforts are less legitimate than other efforts

Commission is a dirty word

Irrational fear of affiliates in general

Perceptions (cont.)How is affiliate marketing perceive by key players?

The company as a whole

Sales team

Media agency

CEO and other Executives

Perceptions (cont.)

Perceptions (cont.)How is affiliate marketing perceived by those in the trenches?

PoliticsHow much do personal politics and incentives play a role?

Individual incentives may be at odds

Feel that affiliate is a threat to one’s existing programs

Certain people may criticize without all the facts

ProgramsOnline Media

Sales completed through Company’s Site

Type-ins – Company Owns Customer Data

0% - Shared attribution with Branding efforts

SEO – Company Owns Customer Data

5% – 15% - SEO program costs

Affiliate – Company Owns Customer Data

10% – 20% - depending on ROAS and admin fees

Programs (cont.)Online Media

Sales completed through Company’s Site

SEM – Company Owns Customer Data

15% – 25% - Agency / Vendor Fees + ROAS

Retargeting – Company Owns Customer Data

30% – 40% depending on ROAS and admin fees

Display Advertising – Company Owns Customer Data

30% - 40% - depending on ROAS and admin fees

Programs (cont.)Online Media

Online marketing is infinitely trackable

Online marketing efforts are held accountable to pre-determined metrics: ROI, ROAS, MER, CPA

Most online marketing programs can be held to performance-based metrics

If the program is performance-based, funding should NOT be considered a Marketing Expense. It should be considered a Profit Center.

Programs (cont.)Affiliate vs. Other Online Marketing

Programs (cont.)Affiliate vs. Other Online Marketing (cont.)

Programs (cont.)Online Marketing Budget Allocation

Conclusions

Question:

What commission range am I so comfortable with that I would be happy if sales came in all day long at that rate?

Once you have an answer, it comes down to scalability

SummarySales that happen directly on the company’s site are among the most profitable

Sales that happen on a Retail partner or other distributor’s site cost more and don’t capture customer data

Affiliate marketing is one of the most cost-effective ways to drive online sales

Maximizing the number of sales through the affiliate channel should become a top priority for any Marketing Department

Final thoughts

Why are you limiting the opportunity to make the company more profits?

Potential Additional Thoughts(time permitting)

CPA networks as media buys…pros and cons

How to utilize CPM / CPC affiliate placements

Retargeting as affiliate deal or media buy?

Why don’t affiliates sell more CPM media?

Advantages of pure CPA models

Why are affiliate efforts seen as an affront to traditional media buyers?

Media buyers must be willing to admit their efforts can’t reach everyone

They must also be willing to admit that affiliates have serious expertise

People putting in time and effort that you simply can’t is valuable

Status of affiliates and trademark bidding (segmentation of PPC efforts)

Facebook acquisition opportunities through affiliates