Surviving the dark side of affiliate marketing.
The Santa Claus Christmas Store, in Santa Claus, Ind., was typical of a lot of brick-and-mortar businesses when it sought to expand its online footprint earlier this year. In addition to sprucing up its website and increasing its pay-per-click advertising budget, it joined an affiliate marketing network. This connected the 7,000-square-foot holiday emporium with the vast community of bloggers, coupon sites and other "affiliates'' around the Web that promote products in return for a percentage of each sale they encourage.
Smaller and newer e-commerce businesses often find this practice especially appealing (although Amazon.com uses it, too). Unlike pay-per-click advertising, which charges merchants every time someone clicks on a link to their site, affiliate marketing costs nothing unless there is a sale -- at which point a commission, typically 4 to 20 percent, is paid. It has become an essential part of the online marketing toolbox, generating fees that Forrester Research projects will reach $3.4 billion next year.
But affiliate marketing has a dark side: It can be a sure path to getting defrauded. Even Santa Claus is vulnerable. Within hours of joining an affiliate network, the Santa Claus store had two dozen websites signed on as affiliates and claiming commissions. "We were, like, 'Wow, that was easy,' '' said Andy Teare, the store's general manager.
Eventually, however, Teare and his staff looked more closely at their analytics and noticed a curious pattern. Over and over, a shopper would arrive at the checkout page and then disappear for several minutes before returning to make the purchase. These affiliates were claiming a commission on sales the store would have made anyway.
"What we realized,'' Teare said, "is that these customers were already on our site and prepared to buy, but at checkout they were Googling to see if any coupons were available. Because these new affiliates were advertising that they had special coupons for our store, customers were immediately clicking over there. The only problem is we didn't have any coupon promotions running at the time.''
Fortunately, Teare said, he paid only about $150 in commissions before figuring out what was going on. He hired an outside program manager to vet affiliates. Other companies, however, have not been so lucky.
This year two affiliate marketers based in California, Shawn Hogan and Brian Dunning, pleaded guilty to defrauding eBay of at least $20 million in a scheme involving a notorious affiliate marketing tactic known as "cookie stuffing.'' According to court documents, Hogan operated a network in which affiliates exchanged links and banner ads to help drive traffic to each other's sites. The sites also agreed to host ads controlled by Hogan's company, but in reality, these ads were cookie-stuffing devices. Users who viewed the ads had a small tracking code, or cookie, dropped on their computer. If those users went on to make a purchase from eBay, the cookie signaled that Hogan's company was responsible -- and eBay paid a commission.
None of this is to suggest that all affiliates are dishonest or that merchants should avoid affiliate marketing. But it does call for vigilance.
First, retailers need to do their homework. Kush Abdulloev runs the affiliate marketing program for VMInnovations, a retailer of home products and outdoor equipment based in Lincoln, Neb., that logged $2 million in affiliate-generated sales last year -- roughly 20 percent of the company's online revenue. When it introduced the program 21/2-years ago, Abdulloev said, no one at VMInnovations knew the first thing about affiliate marketing. He started by reading a book, "Affiliate Program Management: An Hour a Day.''
Shortly thereafter, Abdulloev joined the affiliate marketing forum on a site called ABestWeb. In addition to serving as a kind of industry police blotter on the latest frauds, the forum is a good way for merchants to stay abreast of important developments, like the shifting local sales tax landscape. (Thirteen states have laws that require merchants working with affiliates in those states to charge sales tax, but the issue is constantly being litigated.)
He also started attending the three-times-a-year Affiliate Summit marketing conference and other trade shows. "You'd be surprised at how much of a relationship business this is,'' he said. "There are thousands upon thousands of affiliates out there, but you come to realize that a lot of the good ones all seem to know each other and there's as much suspicion of merchants cheating affiliates out of commissions as the other way around.''
Next, retailers have to decide which affiliate network to use. The networks provide the back-end technology needed to operate an affiliate program: software that tracks which sales should be attributed to which affiliates; an easy way for affiliates to upload advertising banners and logos; accounting systems that debit a merchant's account and issue payments to affiliates for their commissions. The networks typically charge merchants a flat fee of $500 a month or 20 to 30 percent of affiliate payments (whichever is higher).
Networks are the best source for determining the going commission rate among competitors. Before joining a network, most merchants or program managers sign up with a couple of the larger ones as an affiliate. This gives them access to the network's database, and they can do a search for the starting commissions being paid out by other businesses in their industry to get a feel for how much they can charge.
Among the networks, Commission Junction and Rakuten LinkShare are the largest, with deep rosters of affiliates. ShareASale is smaller, but is considered stricter when it comes to policing members, according to several program managers interviewed. It has also been vigorous about encouraging affiliates to abide by new Federal Trade Commission regulations that require bloggers to disclose when they are receiving compensation in return for products they endorse.
Once the basics have been mastered and a network selected, retailers have to decide whether they are going to run the program in-house or hire an outside manager (or both).
Milan Jara owns Decorative Ceiling Tiles, an online retailer with a little more than $1 million in annual sales. For three years, he ran his affiliate marketing program himself, learning by trial and error how to pick affiliates and spot coupon abuse.
To his surprise, he discovered several affiliate marketers were willing to build entire websites to promote their retailing partners. BetterCeilings, a site that one of these affiliates developed on Jara's behalf, features dozens of articles and videos.
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|Publication:||Telegram & Gazette (Worcester, MA)|
|Date:||Dec 15, 2013|
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