Special Report: Affiliate Marketing

Sitting in packed sessions at trade shows devoted to the discussion of affiliate marketing, one gets the sense that the catalogers in the room are either experts or novices in this growing channel.

This special report is meant to serve both groups: It’ll explore what you should know before you start an affiliate program, as well as strategies to make your existing program better.

Affiliate marketing is the process by which third parties, often Web sites, advocate your products or services in exchange for a commission. A commission is paid every time the affiliate sends a sale to you, or in exchange for information deemed relevant by you, such as a consumer e-mail address or other data.

Affiliates can take many forms. In the online world, comparison shopping sites, rebate sites, and even blogs and other content sites will advertise a merchant’s products. Advertising on affiliate sites can take numerous forms, from banner ads to text links to catalog request forms.

In this special report you’ll read about two catalogers’ experiences with a range of affiliates and how affiliate marketing fits into a complete e-commerce platform. Additionally, you’ll learn of affiliate opportunities available in the offline world.

—Matt Griffin, associate editor

How to Build a Better Program

So you’ve heard how other catalogers are turning affiliate marketing into a strategic money-maker for their organizations. If you’re not yet involved in this sales channel, here are some tips that will help you get started on the right foot.

First, let’s define affiliate marketing. Simply put, affiliate marketing describes the relationship between you and agents authorized to recommend your products on your behalf. Often these agents are Web sites that offer buyers pertinent content, rebates on products or a space where they can compare products from different merchants. For every person an affiliate sends to you who completes a sale or gives you information you deem relevant, the affiliate is paid a commission.

One benefit to affiliate marketing is increased brand awareness online. New buyers who come to you from affiliate sites are now yours; in most cases, you can market to them freely.

And lastly, as a pay-for-performance model, you pay affiliates only when they’ve given you something you want.

Once you’ve decided to use online affiliates, here’s what you need to know to build a successful program.

This Is Not a Test

As a direct marketer, you want to test; it’s in your blood. But that could work against you as you begin an affiliate marketing program. While testing new affiliates, new creative and new offers within the channel are good practices, testing the channel itself can be difficult.

“[Affiliate marketing] is not something you can dip your foot into and see how it works. You’re asking affiliates to pick up your creative and get paid when they drive an end-user to your site who buys a product,” says Steve Denton, senior vice president of client services at New York-based affiliate network LinkShare.

Any merchant needs to make a firm commitment to the affiliate marketing channel in order to be successful, he continues. Denton also cautions that affiliates need time to find a cataloger’s offer on the affiliate network, then get accustomed to who the cataloger is and how its own Web site visitors will respond to that offer.

While the actual ramp-up time can vary, Denton suggests that after a year, a successful affiliate program should account for no less than 10 percent of your total online sales. For tips on how to improve your affiliate marketing program if it’s underperforming, read on.

Relationship is Key

Affiliates effectively are a commission-based sales force. And the key to a good program that drives consistent sales is a solid relationship between a merchant and its sales force, notes Elizabeth Cholawsky, vice president of marketing for Santa Barbara, Calif.-based affiliate network Commission Junction.

Cholawsky suggests a merchant spend about 20 hours a week communicating with its affiliates. “The best programs that have the most growth and are most active are the ones that have the most one-to-one contact,” she says.

Chris Henger of Chicago-based Performics agrees. The senior vice president of marketing for this affiliate network recommends segmenting affiliates by sales volume. “Establish who your top producers are; send communication to them at least once a week. Make sure their creative is fresh; put your best promotions in front of them,” he notes.

For mid-tier producers, Denton suggests a monthly e-mail newsletter to update affiliates on upcoming promotions or items of interest on your marketing calendar. He cautions, however, that e-mail communications must be relevant. Affiliates often work with multiple merchants, so to be effective your communication efforts should stand out from the crowd.

For those affiliates who aren’t producing as well, offer special promotions. A contest that gives the affiliate a prize, whether that’s a higher commission rate or a product from your catalog, is surprisingly effective at driving more sales, Cholawsky says.

Stay Flexible

The commission paid to an affiliate ultimately depends on your margins, or what you can afford to pay the affiliate and still make a profit on that sale. While it’s important to establish a default commission when you first set up a program, Henger says it’s crucial to remain flexible regarding that commission.

“Once you discover who your highest producers are, you may have to adjust your commission,” he points out. Further, he notes, while any product that can be sold via direct channels can be sold by affiliate marketing, it’s difficult to retain that flexibility on products with thin profit margins.

At the top of Cholawsky’s must-have list for merchants starting out in the affiliate channel is a solid e-commerce platform. For example, since affiliates mostly drive traffic to your site, you’ll want to be sure you have a well-designed site — one that facilitates an easy shopping experience and encourages visitors to buy, she says. For example, if your shopping cart stalls during the checkout process, or the images on your landing pages don’t load properly, that’s a non-starter in affiliate marketing, she notes.

Denton agrees, but takes it a step further. “The merchants that do better in this area are those who not only have robust e-commerce platforms, but robust e-commerce initiatives. They have effective search campaigns. They’re doing active e-mail prospecting. And they are e-mailing their housefiles regularly.”

Be Aware of Your Brand

An objection often heard by officials at affiliate marketing networks is that catalogers are worried about damage to their brands. Cholawsky says to remember that any affiliate who wants to work with you must submit to your terms and conditions. “The mistake merchants make is not knowing what level of control they want. They come into it and don’t set any guidelines. And all of a sudden someone is promoting them on a site where they don’t want to be,” she says.

The bottom line: If brand is important to you, set your tolerance level from the beginning. “After that, it’s just a matter of managing and policing the affiliates in the program,” she says.

Other essential aspects of successful affiliate marketing are quality offers, effective creative and cross-channel promotion, says Henger. He urges catalogers to use their expertise to create merchandising opportunities in the affiliate channel. Tie creative used by your affiliates to other online promotions, he notes. “Better yet, let’s tie it to the book. Let’s say a catalog has dropped recently. If a product is on the cover of the catalog, there should be a piece of affiliate creative along those lines,” Henger posits. “Keep synergies with the book. It’s going out there, and it’s your best advertising tool. Leverage it for best results across channels.”

—Matt Griffin

Two Ways to Get Started

If you want to start an affiliate marketing program, you have two options: Develop a network of affiliates on your own, or join an affiliate network.

An In-house Solution
Developing an in-house program requires the resources to establish and maintain relationships with multiple affiliate partners. This includes:

- seeking out affiliate partners;

- developing a commission structure and contract for each affiliate;

- designing and hosting creative;

- tracking affiliate results;

- paying each affiliate;

- engaging in affiliate support, (i.e., answering questions about your program, offering technical support for affiliates having trouble accessing your creative); and

- communicating with each affiliate to develop an effective relationship.

As with any aspect of your marketing plan, these activities require time and resources. If the resources aren’t available to you, an affiliate marketing network may offer an alternative.

Affiliate Marketing Networks
Such a network is comprised of a marketplace and technology service providers that enable you to push creative and offers to affiliate Web sites. Commission Junction, LinkShare and Performics are examples of affiliate marketing networks.

Typically, the networks manage the monthly payment of affiliates, allowing you to write one check to the network. Tax forms for affiliates that earn more than $600 annually also are often handled by the network.

The networks can host your creative; they’ll serve as central repositories where affiliates can update your ads on their own sites. Some networks also offer creative services, assisting in the creation of ads if you need it.

When you join a network, affiliates that are a part of it can see what products you offer, as well as the commission you pay, and apply to become an affiliate on your behalf. Some networks allow you to be invisible to affiliates if you choose, effectively putting you in charge of finding affiliates to add to your program. Once you review and accept an affiliate, and it agrees to your terms and conditions, the affiliate can begin placing your creative on its site.

Lastly, the networks provide tracking services that allow you to see how each affiliate is performing. This allows you to segment your affiliates, a practice recommended by several networks. The network also may recommend ways in which you can improve a given affiliate program based on the tracked results.

The costs involved in employing an affiliate network vary. While some networks don’t charge a startup fee, others will charge from $2,250 to $10,000. Monthly access fees from $2,000 to $15,000 also apply in some cases. Finally, in addition to the commission paid to each affiliate, a percentage commission often is given to the network. This fee ranges from 3 percent of sales conducted through the network to 30 percent of the commission paid to each affiliate, and often is negotiable as part of your contract with the network.

—Matt Griffin

Case Study: Shopping Affiliate Pays Off

Problem: Officials at General Mills’ Betty Crocker division wanted to build brand awareness for a new catalog venture.
Solution: It partnered with comparison shopping site Shop.com to drive traffic and orders to its Web site.
Results: Orders delivered by Shop.com steadily have grown and comprise nearly 5 percent of Betty Crocker’s online sales.

Housewares and kitchen products merchant Betty Crocker began posting the product line of a sister home products catalog, Making a Home, on comparison shopping site Shop.com in 1999, as a way to build brand awareness for the new title.

While perhaps best known for easy-to-make meals and desserts, General Mills’ Betty Crocker brand also markets housewares and kitchen products through its catalog and Web site. While initially conceived as a loyalty program for customers who collect points from General Mills products, Betty Crocker now mails 10 million catalogs each year.

Realizing that kind of brand awareness is tough to come by, officials at General Mills began looking for a way to generate interest in a fledgling catalog unassociated with the Betty Crocker brand, Making a Home.

Shop.com
Already outsourcing all online catalog design and management, General Mills sought the advice of its Web design provider on building brand awareness on the Internet. The provider suggested Shop.com, a comparison shopping affiliate site. Shop.com allows Web surfers to search for any product across a vast number of brands.

General Mills provided Shop.com with a spreadsheet detailing the Making a Home product catalog. Information on the spreadsheet included item names, numbers, descriptions, images, pricing and inventory information. In 1999, General Mills was manually updating this spreadsheet each quarter. Shop.com added that information to the searchable database on its site.

General Mills contracted with Shop.com for an annual hosting fee of $7,500 and paid a percentage commission in the mid-teens on each order.

Initially, Shop.com started providing about 50 orders a month for the Making a Home catalog, says Camilla Grozian-Lorentzen, associate direct marketing manager for General Mills. Additionally, General Mills was able to market to each new customer acquired through Shop.com.

Grozian-Lorentzen notes of the project’s success, “The exposure and awareness we were trying to generate would’ve been fine, because it was a marketing investment. But as it turned out, it’s actually a revenue generator.”

While pleased with Shop.com’s results, General Mills shuttered the Making a Home catalog in 2002. At the same time, however, officials at the company decided to place Betty Crocker’s 4,000 products on Shop.com’s site.

Automated XML Feed
Now, rather than sending updates quarterly, General Mills has set up an automated XML feed that pulls all the necessary product information from the Betty Crocker database and sends it to Shop.com daily. Grozian-Lorentzen notes that process took a few weeks to set up and test.

Several times a day, Shop.com sends a batch of orders to General Mills. While Shop.com captures transactional information on its site, General Mills processes the payment for each order. While Shop.com provided 1 percent of Betty Crocker’s online sales in the first year, the program has grown to nearly 5 percent of the catalog’s total online sales.

Grozian-Lorentzen says the margin on Betty Crocker products allows the catalog to make money on every Shop.com order. Betty Crocker recently negotiated to remove Shop.com’s annual hosting fee from its contract, providing an even higher return on investment.

—Matt Griffin

In the First Person: Partnership Marketing

As a cataloger, you want to build incremental sales. If you could find a business opportunity that would pay you $150 to $350 per thousand catalogs mailed instead of the traditional net list rental income of $65 to $90 per thousand, you’d jump on that opportunity, right?

For many catalogs and Web sites, such partnership marketing now is an integral part of their growth strategy. But after nearly 30 years in direct marketing, the most frequently asked question I get is, “What exactly is partnership marketing?”

Partnership marketing is the practice of endorsing another company’s offer of goods or services, allowing that offer to be marketed to your housefile and generating a commission on the sale. Unlike a traditional list-rental program, partnership marketing includes the endorsement of the partner who’s providing the names.

Creating and leveraging revenue-generating and co-branding marketing opportunities with complementary businesses enables your catalog and/or Web site to benefit from a diverse product line, access more potential customers and boost bottom-line results.

E-tail giant Amazon.com is the king of partnership marketing; more than a third of its Web sales are tied to its network of marketing partners.

Partnership marketing, also known as syndication marketing, hardly is new. It’s been around since the 1970s. Back then, oil companies were soliciting customers to use their credit cards. As director of operations for the leading syndicator at that time (Ambassador Leather Goods, which syndicated under the name Arizona National Marketing), I was on the ground floor of this marketing plan.

Today, as chief operating officer for Seta Corp., I’m still at it. And partnership marketing is booming as it comes of age with technology. Seta Corp., under the marketing title Palm Beach Jewelry, began partnership marketing in 1989 with the former Montgomery Ward. Seta has since partnered with other leading retailers and catalogers including J.C. Penney, Sears, Home Shopping Network, Lillian Vernon and many Redcats USA titles.

Following are some models of partnership marketing:

-Catalog mailing. This is the most basic offer and is comparable to traditional list rental. For example, Seta’s Palm Beach Jewelry catalogs are sent to a retailing partner’s customers. The catalog cover includes an endorsement from the retailing partner to its customers. All orders and fulfillment are handled directly by Seta. The partner is paid a commission on net sales.

- On-page program. We put four to eight pages of jewelry into a partner’s existing catalog. Customers call and order from the cataloger directly, who in turn passes the orders to Seta electronically for fulfillment. This program allows partners to test a jewelry product line without the investment of a full catalog.

- On the Web. Similar to the on-page program, but for Web partners. Online merchants can add a product line with little effort, other than the coordination of data and item setup.

- Package inserts/statement stuffers. Inserts are a great way to sell a single product or introduce a new line. The offer is inserted into the partner’s billing statements.

A Final Analysis

In my view, any company that’s not looking at partnership marketing is missing the marketing opportunity of the century. You must overcome what I call the “old school” business philosophy that states every company must own and distribute all of its own products. Be realistic in terms of what your company can do itself and where it makes business sense to partner with a company whose products or services are a good fit with your product line.

Women’s clothing and jewelry are, of course, a natural fit. But for a retail cataloger to add an entire jewelry product line is expensive. It doesn’t make good business sense to manage 40,000 additional SKUs, understand the jewelry marketplace, and forecast and manage more inventory.

While the upside of partnership marketing is clear, there are crucial elements that determine the viability and success of the strategy. Your marketing and technology people must work with your partner’s counterparts. It requires carefully planned system coordination as well as an interface to feed data on item setup and the transmission of orders for fulfillment.

But the potential is limitless. You’ll add value to your existing catalog and earn incremental sales with a new revenue source.

—Timothy J. Holody, chief operating officer for Boca Raton, Fla.-based Seta Corp./Palm Beach Jewelry. He can be reached at timh@setacorporation.com or (561) 994-2660, ext. 2149.

How the Numbers Work

The equation for determining potential profit by partnering with another merchant in your catalog is as follows:

Net sales per page x number of pages added adjusted by productivity index X partner’s net sales commission X number of annual catalog mailing events = potential annual profit

Example: Seta’s on-page program using a sample 1mm mailing with typical results at $1.50 in sales per book for a 72-page catalog

Catalog’s net sales per page (partner’s total catalog sales divided by number of pages = sales per page) = $20,833

Pages added adjusted by productivity index = 5

(Assumes four pages of jewelry added with a productivity of 120 percent

or 1.2 times the partner’s average sales per page)

Net sales commission from Seta = 18 percent

Number of annual catalog mailing events = 12

Potential annual profit from this program = $225,000 or: $20,833 x 5 x 0.18 x 12 = $225,000

This sample partner mails 12 million catalogs per year, with average revenue of $1.50 per book for its 72-page catalog.

The on-page program would add $225,000 to this company’s bottom line.

15-minute Interview: Tiered Incentives Drive Avon’s Affiliate Marketing Program

While catalogers were among the early adopters of affiliate marketing, few people may realize how long ago the channel got its start. Multichannel beauty products merchant Avon, for example, has been involved in the affiliate space for nearly eight years and currently manages a stable of more than 3,000 affiliates.

Pattiann McAdams, Avon’s executive director of e-commerce for North America, shared with Matt Griffin, associate editor of Catalog Success, her experiences managing an affiliate marketing program.

Catalog Success: Why did Avon start an affiliate program?
Pattiann McAdams: We have an established brand, and we saw it complementing our online presence as well as providing a way to reach new customers online.

CS: What criteria do you use when choosing affiliates?
McAdams: They need a certain amount of visits to their sites; they have to follow rules we set forth; and they must be established within the affiliate network for a set period of time.

CS: How do you determine how much to pay new affiliates?
McAdams: We offer a flat fee for every sale an affiliate drives to our site. Additionally, we give an incentive if they can drive more than a preset amount of sales in their first month. We like to kick-start each new affiliate who comes on board. It all comes back to how many sales the affiliate can drive for us. We don’t compensate the affiliates differently based on whether they send new customers or returning customers to us, but we do compensate more based on milestones we set forth. We put different incentive plans in place depending on where the affiliate falls within our tiers.

CS: How do you tier affiliates?
McAdams: Based on sales. We have four tiers based on the amount of sales they drive. We know we’ll have attrition in our top tiers, but we also want movement from our lower tiers into our top tiers. We run promotions to encourage that movement.

[We offer] different incentives for reaching sales goals. If you reach a certain goal, we’ll pay you more. We also put together a pretty comprehensive e-mail marketing campaign to help [affiliates] market to their customers or readers as well.

CS: Describe your contact strategy with your affiliates.
McAdams: We’re in contact with our top producers three times a week, and that involves a phone call. We e-mail everyone in our program at least twice a week. It’s usually a promotional newsletter. It shows them the new products we offer on a campaign basis. We run a new campaign every two weeks. Our creative is updated every two weeks to reflect those campaigns.

CS: There’s some debate as to how much marketing an affiliate should do to drive sales. Do you allow your affiliates to use your brand name in their own search engine marketing efforts?
McAdams: We do, but we cap the amount they can spend. They can bid only to a certain amount on a keyword, but we don’t restrict which words they can bid on. We have people on staff who measure and monitor. Our search engine marketing firm keeps an eye on those behaviors as well.

CS: What trends have you seen in the affiliate channel?
McAdams: Even after eight years, we’re still seeing growth. I believe there’s a lot of potential in affiliate marketing — if it’s managed well. There are a number of different affiliate models driving sales for Avon right now, such as comparison shopping sites, loyalty sites, blogs. We’re seeing each become more and more successful as we learn to manage them more effectively.

CS: Do you have advice for catalogers approaching this channel for the first time?
McAdams: Educate your affiliates on running the program like a business and being able to forecast results to help you. Manage what you’re forecasting, and determine what opportunity exists for each affiliate.

Have some diversification in your model to avoid risks due to affiliates leaving the program. When you have 10 percent of your affiliates driving 90 percent of your sales, you’re at risk if you lose one in that [top] 10 percent.