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Affiliate marketing helps small firms increase sales

Rochester Business Journal
January 24, 2014

With the rising cost of pay-per-click advertising, some small businesses have turned to affiliate marketing as a way to increase sales and brand awareness. Yet this form of performance-based marketing does not run on autopilot, given that black-hat hackers can lash out to collect commissions they have not legitimately earned.

Developed in the late 1980s by a floral merchant, affiliate marketing typically begins with a contractual agreement between a retailer, service provider or brand, known as an advertiser, and an affiliate, often called a publisher. Motivated by a desire to extend its e-commerce reach, the retailer offers to pay a commission to an affiliate, commonly a blogger or coupon site, when a banner ad, product review or other avenue leads to a qualifying transaction.

The most common transaction that qualifies a publisher to receive a commission in an affiliate marketing arrangement is a sale, but some retailers also pay for other online activities, such as subscribing to a newsletter, creating an account or completing a credit application.

Some businesses involved in affiliate marketing choose to join a network that handles many of the tasks that the arrangement generates, including paying publishers and monitoring sales. Networks such as Commission Junction in Santa Barbara, Calif., offer different tiers of service, ranging from providing an entirely outsourced service for retailers’ programs to helping those who run their own affiliate programs recruit new publishers.

Though affiliate marketing has not yet taken root in the Rochester area, experts say it has merit.

“I believe affiliate marketing is an opportunity for small businesses, but there are things they have to do to make it work,” says Mark Weber, director and assistant professor of international business at Nazareth College’s School of Management. “The idea that you can get people to represent your products on the digital landscape for you, and you only have to pay when you get the results you’re looking for, is very attractive,” as long as firms proceed with some caution, he says.

Deciding whether to outsource the program’s management or take on that task can make or break a firm’s future with performance-based marketing.

“A small business (owner) has to say …, ‘Do I have the time to do this?’ because it can take several hours a day, maybe up to three or four,” Weber says. “‘Do I have the tech savvy to design my own (Web) banners or set up my links? Do I understand search-engine optimization and keywords and that sort of thing? Do I know how to find the right affiliates and judge how they’re doing, and do I have the right software to set up a simple dashboard so that I can watch what’s going on?’”

Seeking out a third party for support often makes sense for entrepreneurs who should be focused on operational issues and research and development, Weber adds.

The actual terms found in contractual agreements between affiliates and advertisers vary as widely as the goods and services the arrangement promotes.

Sports-equipment brand Reebok, for instance, offers affiliates a 10 percent commission on qualifying transactions and $5 for every affiliate referral, according to the company’s profile on ShareASale, a Chicago-based affiliate marketing network. Hawaiian Airlines, which relies on Commission Junction for assistance managing its affiliate program, pays publishers a 1.5 percent commission, while furnishings retailer Layla Grace offers commissions starting at 7 percent and $10 for each affiliate referral through its program, which ShareASale hosts.

Despite its ability to boost sales and brand awareness, affiliate marketing has the potential to expose retailers to fraud, primarily through cookies, or the small bits of data that recall computer users’ browsing activity.

“No doubt that’s the biggest challenge you face,” Weber says.

In a form of hacking known as cookie stuffing, unscrupulous affiliates drop cookies on website visitors’ computers without their knowledge in order to generate fraudulent income. The process, also known as cookie sprinkling or forced clicks, results in legitimate affiliate cookies being overwritten, and when Web visitors return to the target affiliate site and complete a qualifying transaction, the cookie stuffer gets the credit instead of the original affiliate that had sparked the first genuine visit.

In the past seven years of doing affiliate marketing, Rochester-based Envative has encountered only a few illegitimate affiliates, says Craig Lamb, partner and chief information officer at the custom software solution provider. The firm quickly jettisoned those affiliates and suffered no ill effects, he adds.

Though affiliate marketing has worked well at the firm, “we still do some very traditional sales and marketing for brand awareness and things like that, and we do some research,” Lamb says. “But (that) really hasn’t been the most successful method for us.”

Envative manages its own affiliate marketing program and invites bloggers, business consultants, independent sales representatives and others to participate.

“We typically do it internally because it’s not difficult to manage, quite frankly, with Google Analytics to find out where people came from. … But I know there are (affiliate) programs that are far more complex than ours that rely on subsystems that monitor click-through rates and things like that,” Lamb says.

Despite having a positive experience with affiliate marketing, Envative does not take a “buckshot approach” and blast the company’s name across the Internet, Lamb says.

“For our engagements in affiliate (marketing), someone has to call me or call the office, and we talk about what we’re trying to do. … We don’t just throw it out to the universe and wait for some service to pick us up,” he says.

Sheila Livadas is a Rochester-area freelance writer.

1/24/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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