Affiliate marketing has traditionally been viewed as rather arcane. Nonetheless, marketing directors are beginning to pay more attention to it as they begin to understand how effective it can be at building business from both new and established customers.
The industry now generates hundreds of millions in sales revenue. It is estimated by e-consultancy that the value of affiliate marketing in the UK grew by 60% last year to hit £2.16bn in online sales.
Even for the uninitiated, affiliate marketing is not as complicated as it first appears. Advertisers wishing to drive online sales to their e-commerce platforms simply supply text links or banner ads to a network of web publishers known as affiliates. These affiliates display the links on their websites to encourage consumers to click through to the brand owner's homepage. Affiliates are then paid a pre-arranged commission based on the number of sales or leads they generate for their advertiser client.
The aim for marketers is to establish an affiliate network comprising dozens of websites that act as a virtual extension of their sales force. After all, brands need traffic coming to their websites to ensure their online businesses are successful.
Not only are marketing directors now devoting more resources to affiliate campaigns, so are media agencies. The bigger players, even those who once prided themselves on their big TV-buying capabilities, are hiring staff devoted to affiliate marketing, in a bid to remain relevant to the way their clients are spending their budgets. Among those that have established affiliate teams are Carat digital, Zed, i-level, Starcom, MediaCom and Media Contacts.
Affiliate-related companies have been at the centre of some significant deals. These include TradeDoubler's acquisition of The Search Works in July for £56m, a deal that the company has said will broaden its reach beyond traditional affiliate marketing to offer a full range of digital direct marketing services. It will also help TradeDoubler secure a foothold in the Asian market, where The Search Works already has a strong presence. Interestingly, TradeDoubler has been a takeover target too; AOL eyed it up in a deal worth a reported $900m, but TradeDoubler's shareholders turned it down.
Buy.at's acquisition of Lightstate, a technology company founded by internet entrepreneur Shakil Khan, is also significant. Renamed buy.at leads, it collects consumer information from partnerships with financial-services sites, portals and comparison sites, where consumers complete online application forms providing financial information and contact details. The forms are then delivered to advertisers, who can use the information therein to target consumers' specific needs.
Another company in the affiliate sphere that is dealing with the issue of delivering quality leads is Quidco, the first of the affiliate cashback companies offering to pay 100% of its fees to customers. Users pay a £5 annual subscription fee, and then every time they sign up to a service via Quidco, the commission fee paid by the company is returned to them.
Quidco is making real strides in developing systems that make the process of the affiliate sale far more transparent, allowing merchants to see exactly where their sales are coming from. It is a strategy that is winning them friends among agencies, not to mention its clients, which include insurer Zurich, Marks & Spencer and PC World.
One of Quidco's most recent initiatives has been the introduction of SureShop, a mechanism that aims to build credibility and loyalty among its members by ensuring that they receive the cashback they are due for the purchases they make. This is in response to difficulties that some customers have had with other cashback affiliates in the past, where users have not received payments they believe are due to them.
If a Quidco member submits an enquiry relating to a claimed missed payment by a SureShop merchant, it will be investigated and the findings submitted within a month. The service is also of benefit to its advertisers. 'SureShop assures the merchant that we won't pass on bogus queries. They know it's not just Bill in his bedroom sending false enquiries,' says Quidco director Tim Gibson.
The SureShop service ties into the wider issue of tracking, which is high on the list of merchants' priorities. BT is one such company looking to develop more sophisticated solutions. 'We are implementing metrics to understand whether a customer delivered from an affiliate site is more or less loyal,' says BT head of affiliates Chris King. 'Consumers are always on the look out for a bargain and, in most cases, if you shop online you can get a better deal.'
Sara Brook, director of media and specialist in affiliates at digital agency LBi, believes the development of such tracking and metrics is an area in which the industry needs to gain credibility. 'Insights from tracking will dictate the direction the industry goes in, but developing tracking systems is still at the discussion stage,' she says.
While transparency is making improvements and understanding of the industry is growing, Richard Kelly, digital marketing manager at Glasgow agency Dog Digital, believes more could be done to increase the pace of technological advancements.
These changes include the ability to track instances where online delivers customers to call centres, and advertising units that, instead of being fixed with a single message, can be updated at appropriate times.
'Developments such as the integration of call tracking have ensured affiliates get a fairer deal, and tools such as dynamic content units are using XML to display relevant content or offers, increasing click-through rates and, in turn, sales revenue,' says Kelly.
However, these developments are emanating from the networks. 'Affiliates haven't really pioneered new technologies, and I would question whether it's in their power to do so,' adds Kelly. 'It's disappointing that not one has yet managed to identify a way to use social elements to advance the model. It may be that this medium simply doesn't lend itself well to affiliate marketing.'
The industry also faces the spectre of Google, which is seeking to muscle in on the action, with a trial of its Pay Per Action Beta service. 'This model operates on similar principles to the affiliate and many are concerned it will sound the death knell for affiliate marketing as we know it,' says Kelly.
This may not be the case just yet, however, as an Adwords-style affiliate manager system would lack the human touch required for successful affiliate marketing, according to Kelly. Nonetheless, he still has a warning. 'Given their role as the middleman, affiliate networks may begin to feel the pinch in the longer term.'
BT - The maturing UK affiliate market has seen the emergence of 'super affiliates' - major players in the online marketing arena that are becoming brands in their own right, such as Shopping.com, Kelkoo and Cheapflights.co.uk.
BT head of affiliates Chris King points out that this development has seen a big shift in the way brands are dealing with affiliates, and with good reason.
'The original "super affiliates" have developed unique skills that merchants and agencies can only wish for,' he says. 'It is down to the brands that they are promoting to treat them with the utmost respect and as business partners - as opposed to simply driving sales volume.'
Although a strong believer in managing affiliate programmes in-house, the telecoms company also works with affiliate marketing firm UK Web Media. As far as King is concerned, affiliates and affiliate networks are effectively a virtual sales force, and as such, must be afforded the same level of brand information and understanding as a member of the BT sales team.
'By working closely with these affiliates and giving them the tools they need, they are making major contributions across the marketing mix,' adds King. 'The "super affiliates" have made the choice to grow as businesses, and this has been possible only by a mature and professional approach to the brands with which they are partnering.'
Value of UK market for affiliate marketing. It grew by an estimated 60% in 2006
This article was first published on Marketing