What levers can affiliate managers pull in order to increase sales? In the second part of this series, Owen Hewitson, Client Strategist, Affiliate Window & buy.at, looks at the role of tactical commissions, and whether they actually generate more sales within performance marketing.
Advertisers might sometimes feel that expecting an increase in sales from their affiliates to follow an increase in the commission they pay is like flicking a light switch and expecting the oven to come on. In part two of this article we look at ways in which this scenario might occur and how it can be avoided.
It is often thought that sites which use the commission they are paid to finance an incentive to the customer –cashback, loyalty and reward sites, for example – make it easier to see the causal link between increased commission and increased sales. However, this is not always the case and illustrates why increases in commission should be tactical and competitive.
Certain advertisers in the finance, utilities and telecoms verticals for example know this fact very well. They have experienced the scenario of diminishing returns whereby a commission increase can actually produce higher costs per sale, and smaller percentage increases in sales, over the longer term. Constantly high commissions that are translated into cashback, or overly frequent increases, are sure to be noticed by consumers.
Given that a cashback affiliate will urge its members to take advantage of a certain deal, if shoppers become savvy to regular increases by the same advertiser these deals will lack efficacy as customers learn to hold back from buying without the incentive. This effect is then compounded as competitors raise their own commissions to attract customers, thus producing a ‘race to the top’ from which it is hard to return. The effect is that customer loyalty is eroded and the incremental value of orders generated is more questionable. Advertisers that plan commission increases at peak season – Christmas for electronics retailers or Mothers Day for florists and confectioners, for example – are also vulnerable to this danger.
Differentiate types of sales
To avoid this, advertisers can arrange tactical commission increases to be awarded on the basis of what an affiliate intends to do to generate a certain type of sale. Many brands in the UK running mature and well-established programmes do not judge success on volume (a simple sales uplift) but by what extent those sales meet their broader marketing objectives. This might be to drive sales of a certain type of product, or to achieve a higher proportion of new customers over existing ones.
Re-examine categorisation
Many advertisers choose to vary their commission offerings according to the categorisation of affiliates their network chooses to use. However this is often a relatively crude way both of apportioning credit for the sale and incentivising affiliates to do more. Rather than becoming too concerned as to whether a site is a cashback, voucher code or content-based it is surely smarter to look at the activity an individual affiliate is doing to win the sale. There are good content sites and bad content sites, just as there are good and bad voucher code sites. A voucher code site that is simply a directory of codes is of as little worth as a poorly-written content site, but this fact can be obscured by an over-reliance on traditional methods of categorisation.
In negotiating the myriad of offers for additional exposure, advertisers might want to ask what activity an affiliate is doing habitually to win the sale: that is, not what they will do because they are being paid extra but what they are doing in order to get paid extra. In these cases, a customer-facing offer (exclusive code, etc) might be a better way to increase sales than a commission increase. Except in the case of cashback, loyalty and reward sites, a commission increase for the affiliate does not translate into a reason to buy for the customer. Of course, codes that discount the product itself erode margin. In this case, advertisers may wish to offer a code that does not (perhaps for a free product, or with a minimum order value) or lower the commission to a site that offers a code. The affiliate may find that the latter decrease in commission is offset by the increase in orders it is able to attract thanks to the code.
The basic danger that advertisers have to avoid is assuming that a commission increase is a magic bullet for increased sales. There is an old joke about a man who returns to his flat to find his neighbour outside searching for his keys. The man asks the neighbour where he thought he might have lost them. The neighbour replies that he knows that he lost them in the bushes over the road, but because the bushes are in darkness he has decided to search for them under the light outside his flat. Can affiliate managers be liable to the same fallacy? Is there an over-expectation or an over-reliance on the idea that commission increases should produce an increase in sales?
Read Part One of this article here
By Owen Hewitson
Client Strategist
Affiliate Window & buy.at
www.affiliatewindow.com/
