Affiliate marketing has been embraced by sectors that have already achieved strong results through other forms of online media. The logic is clear: if digital advertising is bearing fruit, so too should affiliate schemes. But the growth in online adspend is bringing new players into the market, according to Mark Kuhillow, managing director of R.O.Eye.
When affiliate marketing began in 1996 with Amazon's associates' programme, it was restricted to books, CDs and DVDs. Now, it is used by almost all sectors. As well as the more traditional players, including travel and finance, sectors such as utilities are getting in on the act.
It is, then, a good time for anyone involved in online marketing, whether established affiliate marketers or those taking their first tentative steps in this area, to consider where the opportunities lie and to identify how to make the most of them.
Travel is widely viewed as the leading sector for affiliate marketing. 'To some extent the popularity of affiliates in a particular sector is a factor of broader e-commerce trends,' explains Mav Darvish, chief executive of AffiliateFuture. He points to the growth of the value of online transactions. Six years ago, most online purchases were accounted for by book or CD sales; three years ago it was probably an eBay purchase. Now, it's travel bookings, and many of the low-cost airlines' seats are available only online. 'Travel agents are closing their high-street shops and selling on the web,' adds Darvish. 'The sector as a whole has embraced the internet.'
There is more to it, however. More consumers are conducting pre-purchase research online, reading reviews of their airline, destination and accommodation on sites such as Tripadvisor.com and Holidaywatchdog.com. 'These sites make ideal affiliates for travel companies, which are already accustomed to paying a third party to generate a booking,' says Darvish.
Music and entertainment
Consumers now think nothing of buying CDs, books and concert tickets nline, resulting in strong sales for many sites. Getmein.com, a secondary ticket marketplace, generates about 20% of its sales from affiliates.
'People don't go to shops for gig tickets; they buy them online. We've optimised our site as much as possible; after that, affiliates are the best way to go in this market,' says the site's business development director, Paul Coggins. 'We've achieved a turnover of more than £10m just three years after launch.' To a great extent, he believes this is attributable to the success of the site's affiliate programme.
'We offer affiliates 7% on a £300 basket, which is a good rate,' says Coggins. 'We also prefer to deal directly with them, building long-term relationships with the 20 most important, rather than pay a network a 30% commission to do the same thing. We also give affiliates XML links to get deep into our site, so they can advertise specific events.'
From a slow start, the financial-services sector is beginning to catch up. Rob Tokolics, head of affiliates at ZED Media, recalls that in the early days of affiliate marketing very few banks or financial institutions used the channel. 'It was a little too new and untried for many of these organisations, which, by nature, tend to be cautious, and many were worried about regulatory compliance,' he says. 'However, once the affiliate networks became more credible, and gained a foothold with the first financial advertisers, the landscape changed dramatically. More joined in, launching programmes to promote the whole spectrum of products, from credit cards to insurance.'
Financial products are fairly standardised, and so lend themselves perfectly to financial aggregators and comparison websites. This, in conjunction with the high commission rates finance companies can offer affiliates, has led to affiliate marketing becoming widespread in the sector.
Conrad Bennett, technical services director at web analytics firm WebTrends, says affiliate marketing is particularly favoured by insurance firms. 'In the past, if you wanted car or house insurance you would go to your high-street branch or ring around. Now, you go to a price-comparison site. This is providing great opportunities for insurers to affiliate with those sites.'
Perhaps the most surprising aspect of affiliate marketing is that so few retailers have embraced it. Experts suspect this reflects their broader reservations about the web, but most predict this will change in the next year. More traditional advertisers are likely to start moving budgets online as affiliates offer opportunities to run sampling campaigns and reach additional consumers.
Mike Glegg, sales director at affiliate network TradeDoubler, believes that in the next few years most activity in this area will be among clothing retailers. 'Online spend in this sector is predicted by Forrester Research to treble in the next four years to EUR31bn (£21bn),' he says. 'As these retailers update their CRM systems and begin to engage with the possibilities offered by social media, more of them will start to use affiliates.'
Affiliate marketing network Linkshare, which launched in the UK last year, is expecting to pick up significant business from medium-sized retailers. 'We're strong in the retail sector in the US, but so far in the UK, only the big players have got on board,' says its director, Kevin Cozinchik. 'There's a great opportunity for us to show the rest of the retail sector how it can work for them.'
If retailers do begin to embrace affiliate marketing in this way, Kenneth Lillie, head of corporate development at digital marketing agency TBG London, warns that they will need to be alive to the dangers of fraud. 'They will have to enhance their mostly antiquated back-end systems so they can keep on top of the click fraud that can damage these campaigns,' he says. 'Those that rush in without doing so could get badly stung.'
While retailers and other sectors may begin to make greater use of affiliate marketing, there is no indication that the enthusiasm of brands in markets that are already established users of the channel will diminish. The medium's efficacy has already been proven for any product or service that is bought or researched online. With most deals now involving payment only after a customer has been won, the case for affiliate marketing is becoming not only widespread, but also compelling.
CASE STUDY - OPODO
Founded five years ago, Opodo is now one of Europe's biggest online travel agencies. It has always invested heavily in affiliates and relied on them to generate many of its bookings. 'Affiliates are very well suited to the sector,' says Paul Treanor, head of UK marketing at Opodo. 'People do a lot of research online before booking flights, hotels or holiday packages, so there's a great opportunity for us to position ourselves at the buying end of the sites where they do this research.'
He believes the growing use of video on the internet will encourage consumers to view destinations online before they buy, providing more opportunities for affiliate marketing. Affiliates also have a wealth of expertise to offer, he adds. 'Many have been around for eight years and so have an even greater understanding of the travel market than we do.'
The ties between Opodo and its affiliates is evolving. 'This year we have started to build closer relationships with them. The only network we now work with is TradeDoubler, and we're spending a lot of time developing tactical offers,' explains Treanor.
In June, the company ran a contest offering a holiday to the affiliate that generated the most bookings that month. Furthermore, it is improving its ads. 'Where in the past we may have used a static image of Paris, we can now feed in live prices and offers,' adds Treanor.
His advice to other travel companies planning to use affiliates is to spend time managing the process. 'You can't leave it to run itself,' he says. 'You need to look at your creative, monitor your competitors' prices, and communicate with affiliates.'
Biggest Sectors for Affiliates %
1 Travel/flights 30
2 Entertainment and music 27
3 Electrical goods 24
4 Computers/laptops/peripherals 24
5 Gifts/gadgets 22
6 Books 22
7 Fashion/clothing/lingerie/accessories 21
8 Financial services 19
9 Mobile phones 19