A New Balance

How Web marketers and affiliates are restructuring strategies to ensure profitable relationships

December 2007 By Jeff G. Molander

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Such objectives are forcing marketers to reconsider working with partners who may inflate media costs (i.e., compete for ad space in search engines). Similarly, they are compelled to pay more attention to new-to-file customer ratios associated with affiliates, says Gientke.

“In the end, marketers are tending to fall into two camps,” says Dr. Amanda Watlington, owner of the Charlestown, Mass.-based search consultancy Searching for Profit. “Those who all but abandon Web affiliates as a reliable means to acquire incremental sales or new customers, and those who make attempts to work with them with an eye toward the bottom line. Working with affiliates requires both knowledge and discipline.”

Auditing your own affiliate and search programs to identify inefficiencies is a popular place to start, says Watlington, who also recommends giving more consideration to customer path to purchase.

Focus on Path to Purchase
The desire to know what marketing strategy drives sales best, dollar for dollar, allows future dollars to funnel into effective strategies yielding more sales. This need produces serious challenges, since Web and offline channels influence one another at a tactical level. Understanding what truly works best calls for an approach factoring in multichannel shopping habits of customers whose varying paths to purchase are influenced by multiple media (each with its own price tag).

“Sometimes what goes on behind the scenes within an affiliate channel artificially inflates or deflates performance metrics of other Web or offline channels,” says Angel Djambazov, director of marketing at Seattle-based affiliate tools provider PopShops.com. Djambazov is like many marketers who measure channels and campaigns based on a return-on-ad-spend (ROAS) model—dollars spent against dollars generated. Once he decided to stop looking at various Web marketing channels as stand-alone efforts, he discovered something powerful. “Various channels have impact on each other,” says Djambazov. “In particular, costs and sales generated from affiliate programs often mix with costs and sales created by search and various other campaigns. Data must be collected separately and then combined to yield understanding of each channel’s true performance.”

To compare the effectiveness of marketing channels, it’s necessary to score each separately based on its ability to move the sales needle. Yet given inherent interplay between Web marketing channels, scoring can be cumbersome and—when performed in a vacuum—isn’t a reliable yardstick in a multichannel world. A new, holistic approach is needed.

Audits: Digging in the Dirt
How can marketers cope with this phenomenon? According to Djambazov and search marketing pro Alan Rimm-Kaufman of the Charlottesville, Va.-based Rimm-Kaufman Group, it’s critical to create reporting systems that separate various campaign performance data.

Data on the cost and sales revenue sides—which tie to orders—must be tracked and reported separately (by e-mail, affiliate, search, etc.) based on business rules. Next, experts recommend you perform audits that effectively weed out double-counting or situations where channels receive credit for a sale when they should not. The result are “clean,” or true, sets of orders with the associated Web channels that delivered them.

For example, “Separating various channels’ performance data allows for cross-referencing based on order number,” says Rimm-Kaufman. “This process provides a list of orders associated with multiple marketing channels or campaigns and allows for reconciliation based on your business rules.”

This matchback-like practice is critical when probing for channel interaction. It’s the only practical means to understand the cross-channel “order credit sharing” phenomenon inherent to multichannel marketing. With this understanding in hand, ROAS metrics will reflect true ROI—the top-line performance of each individual marketing strategy.

It’s also important not to fear digging around in the data a bit. In Djambazov’s case, his adventure began by noticing rather illogical numbers inside one of his search marketing programs. He quickly moved to ensure each marketing strategy had its own performance tracking and could produce a common set of performance data (primarily conversion rate) tied to orders. He then began to explore why visitors coming from some of his search campaigns were not converting as would be normally expected given past performance data.

In the end, Djambazov’s findings demonstrated that, in many cases, customers were touching various marketing channels, yet only one was receiving credit for the sale. This often artificially increased the performance of his affiliate program over internal search campaigns, given that affiliates actually were associating their affiliate ID with a customer’s order.

“In essence, orders that looked like they were generated by affiliates were actually generated by search campaigns where affiliates ‘rode along’ with the search ad,” says Djambazov, who describes scenarios where affiliates use everything from pop-ups and downloads to buying prohibited search ads to attain credit for site traffic and sales.

Avoid Analysis Paralysis
Online strategies easily are measured, but understanding how to measure and act on resulting knowledge can be challenging for marketers who often feel overwhelmed by data.

When measuring Web marketing’s effectiveness holistically, marketers must not fear the data collection or analysis processes and invest accordingly. With affiliate solution providers aligned closely with analytics solutions, it’s becoming increasingly simple to gather data, yet business-minded analysts must be called in to audit it.

Marketers typically aren’t spreadsheet whizzes, but today’s efficiency-focused environment demands use of basic analysis and what amounts to simple reconciliation. It isn’t sexy or complicated, but it’s vital to success when developing an efficient approach. Once each channel’s true performance is understood, it is possible to begin making intelligent improvements.

Tactical adjustment involves new CPA affiliate “rules of the road” and prioritizing marketing strategies based on an understanding of channel interplay. When the resulting total cost of affiliate-driven Web orders is revealed, it also may allow for more productive CPC and CPA vendor/affiliate negotiations.

Jeff G. Molander is principal of management consulting firm Molander & Associates Inc., and can be reached at jeff@jeffmolander.com. To listen to a full audio interview with Angel Djambazov on efficient affiliate marketing, visit www.jeffmolander.com/targetmarketing.

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