July 16, 2020
Why Diversification is Important in Affiliate Marketing and How To Take Action
In the affiliate industry, we experience times where one or two players dominate the game. A few years ago it was Ebates, now known as Rakuten Rewards. More recently, we saw Honey making up a large piece of the pie in advertisers’ programs. Today, we see a unique dominance on the publisher’s side with Amazon. There is a risk to both your company’s revenue and the longevity of your affiliate program when it comes to relying on one partner or advertiser. The players that find the most success almost always have diversified portfolios.
Affiliates and advertisers have a unique way of working together to reach new demographics of consumers and push brand messaging in a controlled and effective manner. Keeping partnerships strong and loyal is crucial because unlike other marketing channels, should you pause your affiliate channel, you risk not only losing years of established relationships but also market share in a competitive landscape.
The Affiliate Industry is Growing & Changing Quickly
When Honey started to gain traction in the industry after being acquired by PayPal in late 2019, they let advertisers know they would demand a baseline cost per acquisition (CPA) of 3% to become a partner. Brands struggled with this and questioned the incrementality of Honey as they typically saw a short click-to-conversion consumer path, indicating that consumers were merely converting once the toolbar dropped down on the checkout page.
This raised the question of whether that consumer was going to convert regardless. Brands had to make a tough decision to either not work with Honey, typically a top three partner, or risk paying three times what they would be for a sale they may have earned otherwise. In some cases, brands relied on attribution tracking and tested different CPA rates to understand the optimal conversion rate at a specific cost and whether it was worth it for them to continue the partnership.
This spring, Amazon notified affiliate partners that they would be cutting commissions. While commission rates vary by category, they previously averaged 6-10%. However, with the reduction, affiliates will now only earn between 1-3%. This resulted in panicked partners worried about how they would retain income with the new structure. Brands, on the other hand, saw an opportunity to optimize with publishers they otherwise couldn’t due to the competitive rates Amazon offered.
More recently, advertisers decided to boycott spending on Facebook to support civil rights against hate speech and controlled misinformation. Brands are needing to reallocate what made up a large portion of their budgets, in some instances close to 25% of total spending. When pulling that much budget out of a channel, brands need to know what other channels are effective to invest in to see a positive return and it’s important that those channels are well established and are running efficiently.
How Industry Professionals Should Take Action
Each player in the affiliate industry is impacted by major changes like those noted above. Find out more below on what your next steps should look like, and how to prevent this from happening in the future.
If You Are a Publisher:
Take advantage of this opportunity. Consumers are still actively shopping, and doing so online since most retailers are closed or have restrictions due to COVID-19. According to NPD at the time of writing, we have seen 4% growth in traffic and conversions in June of 2020 compared to June of 2019, with online sales still outperforming in-store. Here are a few actions you can take:
Diversify where you are driving consumer conversions by linking directly to the retailer, third party retailers, and maybe in some cases, Amazon. This will help prevent a catastrophic drop in revenue should one source that you rely heavily on cut commissions or partnerships entirely.
Update the links throughout your site. While time-consuming this will pay dividends in the future because you will have safeguarded your revenue streams.
Consider joining a subnetwork where you can access multiple brands under one roof. Skimlinks and rewardStyle are high-quality options and make it easy to scale directly with brands. Joining a network like Impact can also be beneficial as it allows publishers to deep-link and provides access to product tools, their merchant marketplace, and a publisher development team.
If You Are a Brand
Brands are uniquely positioned to leverage partners and tools to amplify their reach. You may want to consider the following when reacting to the rapid changes in affiliate marketing:
Think ahead at how you can better diversify by actively recruiting partners that link out to Amazon by offering a more competitive rate.
Think about other incentives you can offer all of your partners, such as a longer cookie window, a dedicated management team, weekly newsletters to keep partners informed, and refreshed creative.
You may consider offering an exclusive code for a short period of time. Developing a strategy around new customers that haven’t converted directly on your site can help gain incremental revenue while converting loyal consumers directly with you.
Work with partners that can target certain cohorts, or target your direct competitors. There are a range of service options available in the industry if you don’t have the means to manage your channel in house.
Amplify your program by establishing new relationships using tools like Media Rails and Publisher Discovery, as well as continually managing existing relationships to ensure partners are linking directly to your site.
Complete gap analyses and audits to identify valuable publishers linking to Amazon and works with them to update those links to be direct.
If You Are a Network:
Networks can leverage their relationships to establish consistency in the changing markets. Here’s how:
Be sure to highlight your value for both your advertiser and publisher relationships. For example, Pepperjam seized the opportunity to spotlight their recruitment tool’s ability to help brands identify the publisher’s linking to Amazon in the midst of Amazon cutting commissions. This allows brands to drill down and filter “Monetization Source” to equal Amazon Associates.
From there, brands are able to see partners that are linking products on Amazon and reach out to invite them directly to their program. Networks that have a publisher development team should focus on helping brands and publishers connect in order to establish more consistency.
The Bottom Line
Diversification of revenue is essential for brands and partners to ensure catastrophic changes in the industry cause only minor roadblocks and are easy to navigate. This is especially important as we are seeing unprecedented changes in the market as a result of the economic impact of Coronavirus. Publishers, brands, and networks can all leverage their strengths to come out ahead.