Andrew Walmsley on Digital: Make your affiliations pay

With an estimated £4bn in sales last year, affiliate marketing is now a serious channel to market for thousands of UK companies. However, many are suffering fraud, cannibalising their other channels or paying the wrong people, and don't even know it.

The commonest misconception about affiliate marketing is that it's risk-free. The theory goes that by paying affiliates on a cost-per-acquisition basis, marketers assume a transfer of business risk from themselves to the affiliate. However it does what it does, the affiliate makes all the investment and, if it fails to sell anything, the seller (the merchant, in affiliate marketing terms) pays nothing. None of that costly media or troublesome paid search - affiliates just take care of it.

In reality, though, the channel is fraught with risk, and getting it wrong costs money.

First, fraud. Some merchants pay affiliates without first securing validation on the credit card. Particularly in the case of cashback sites, the rebate has already been funded when the transaction is processed - more common in the case of retailers with legacy systems that have not moved with the times. Getting live validation is the only really secure way of dealing with this issue.

Second, there is a common assumption that everyone in the value chain has aligned objectives. However, the affiliate network is not concerned with margins, lifetime value or the environment in which your products are displayed. Its motivation is that which the merchant gives it: sales.

There's nothing wrong with this; in many ways, this focus is what makes affiliate marketing such a powerful tool. Yet without appropriate rules of engagement, policing and accountability, it can become a free-for-all that delivers unprofitable sales, dissatisfied customers and erosion of brand value.

Finally, there's the biggest area of all. For such a sophisticated market, the techniques used to create accountability are crude, often misleading and are themselves holding the sector back by rewarding affiliates who hang around the goalposts waiting for the team to do all the work, and ignoring the talented midfielders who are crucial to their success.

Things are getting bad if I resort to a football analogy, so I'll move on swiftly. Most affiliate marketing is gauged on the basis of the 'last click' before a sale, so merchants often ignore the contribution of other factors earlier in the funnel. These can be channels like display or search; but it isn't as simple as assuming that the affiliate is usually the beneficiary of last-click bias in the metrics.

A trend is developing for voucher-code and cashback sites to move earlier in the purchase journey. Often criticised for cannibalising sales, it appears some of these sites are actually doing what they claim - starting people on purchase journeys, and directing them toward particular brand choices.

Consumers view and use them as portals; social shopping engines that influence purchase journeys at the start, often leaving them the victim of misattribution when another affiliate or a search slips in to the journey later.

Affiliate marketing allows merchants to control and manage their risk. Successful ones actively manage the space, recognising that, while the cost-per-outcome model lets them transfer some of their risk, they are still responsible for performance.

The biggest risk comes from the abrogation of that responsibility. Like those who think that once they put on a seat belt they have done all they can to avoid risk, marketers who do not actively engage with their affiliates may be getting in the car with very careless drivers.

Andrew Walmsley is co-founder of i-level.

30 SECONDS ON ... Affiliate Marketing

- Amazon.com chief executive Jeff Bezos claims to have invented affiliate marketing in 1996 after meeting a woman at a cocktail party who wanted to sell books about divorce on her website. Bezos let the woman link her site to Amazon.com and offered her a commission on every consumer that clicked through and bought a book.

- However, CDNOW had launched an affiliate or associate marketing programme two years earlier. The retailer knew that music-oriented websites reviewed and listed albums that their users might be interested in buying. It realised that these sites could offer a link that would allow consumers to click through to CDNOW to make a purchase.

- Either way, the 'risk-free' affiliate marketing model was quickly adopted by scores of big-name brands in the adult, gambling and retail sectors. It is now a central plank of many digital marketing strategies, with the industry worth £72.6m in the UK alone during 2009, according to figures from the IAB.

This article was first published on Marketing