I actually agree with you on that one as well, even if it did not come across that way.

“never accept a pay for sales program where I did not completely understand what I will make off each and every sale I generate”

I honestly do not like the revenue share model as it today, without things like multiple touch-point analysis and commission split. This is because I am an affiliate that is working towards customer acquisition and not support (and some cases diversion) of converting existing customers for future sales (retention). The revenue share model would only be of interest for me, if I would receive some commission for any future sales generated by this new customer, online AND offline.

Revenue share requires already more trust in the advertiser. There is always this risk that a merchant “forgets” to report larger ticket sales for which commission would be due. Its always the question about how much is enough to corrupt somebody. $1, $10, $100, $1,000 and how likely it would be that he would get away with it. That equation requires an awful lot of trust of the affiliate into the advertiser, especially in the medium price range consumer market with less than $100 in average commission per ticket.

When Marissa Mayer from Google said during her keynote at the SES San Jose last year that “CPA is the holy grail”, which is also affiliate marketing to a large degree (even with display advertising now dominated by CPA versus CPM), did she not say affiliate marketing or revenue share, which is automatically associated with affiliate marketing by many.

That was no accident IMO. I prefer CPA deals today. They are more straight forward and bear a lower risk that an advertiser tampers with reporting commissionable actions. There is no temptation to fail to report a transaction here or there, because its always the same at stake. CPA has the advantage that it is much better scalable, but the disadvantage that many advertisers must understand their own business very well in order to determine what the right action is and how much the appropriate value for that action is at the same time.

Retailers for example can offer CPA too, some already do. If you know your average customer life-time value and how good of a job you are doing in converting new customers who decided not to buy at the first time into happy and profitable buying customers.

Multiple touch-point analytics will help them with the determination of the value of a certain action by a publisher as well. An action could for example be the conversion of a paid search affiliate referred visitor to a customer versus another action that could be the conversion to a customer by a referred visitor from a content site affiliate who does product or services reviews. Both actions could have different values attached to them. It would still be transparent to the individual affiliates, but more realistic for the advertiser. Not every customer acquired is worth the same. Advertisers start to realize that the “how the customer was acquired” has direct impact on the customer life-time value.

Man, I am getting off the main subject again

Good comments though from you and from Pat and worth writing several new posts about in the future hehe.

One guy finds and manages to herd some wild hens onto his uncle’s free range ranch.

His cousin waits and pulls the string on the stick that causes cage to fall and the chicken to be caught in the trap.

Uncle Buck lops it’s head off and ships it out.

A stranger shows up and claims he hypnotized the hen into conceding. The now-dead hen doesn’t deny his influence.

Uncle Buck’s got 3 quarters in his hand as a reward.

There’s no sense at all in Uncle Buck or the cousins having any conversation at all about what’s equitable (or motivating, or good for Uncle Buck’s business) until the stranger gets booted and run out of town.

Merchants became more and more aware of that issue within the last two years and it does not require complex multi touch point analysis to figure out that this hurts a merchants bottom line. Merchants who still don’t know about this stuff and/or didn’t do anything are also the ones who will not use multiple touch-point analysis. Those are usually merchants who have a lot more problems internally than poaching, typosquatting and cookie-cutting affiliates.

However, it could be used by the analytics team to detect rouge affiliate managers who benefit from this bad affiliate behavior in one way or another or to proof that the affiliate manager is not worth the money he is paid for not doing his job, but this is again a different suject. Lets put it this way, there are not only affiliates that behave bad. A lot of the “getting away” with it has to do with “not taking actions” by other parties who benefit from this behavior, including entities who are supposed to be on the advertisers side and his “friend”.

“same thing for seo, direct mail, brand building etc (not just their ppc)… ”

Now we are talking again . There it is much harder to determine what is actually going on and where you can “guess” awefully wrong. Advertisers are often not aware that a change in behavior in one channel can have positive or negative impact on another channel. Todays analytics also cause the over valuation of some channels and at the same time the under valuation of others. This is where multiple touch-point analysis can help. It will still not be perfect, but provide deeper inside into the different conversion processes that take place in a world that gets more and more complex.

I do understand your point and there’s validity to it, but the work I’ve done has showed me a different perspective on the magnitudes of channel cannibalization versus your no-brand-loyalty outlook.

For instance, I’ve seen merchants stop their in-house PPC because the “returns” on their affiliate channel were “so high” and the merchant says things like “PPC doesn’t work anymore”. I look into things for them and they’re not monitoring when an affiliate uses adware to take credit for the sale from their PPC, or the BHO overwrites their ppc, or the coupon affiliate who gets tagged as “making” the sale, or the domain name bidding affiliate who grabs those who seek out the merchant by name on return days… same thing for seo, direct mail, brand building etc (not just their ppc)… this article is about channel conflicts, and recognizing those conflicts and dealing with them in a way that’s most productive for the merchant is paramount to their success and their ROI, as well as that of their partners who contribute towards the merchants goals.

Your arguments about ownership of a customer are valid, there’s no such thing as owning them forever or even for very long – but “loyalty” programs that interfere or mask the various bona fide sales producing activites (note i didn’t say customer acquisistion activities) lead merchants to focus on the wrong areas to grow their business.

I’m an affiliate myself and it’s very plain to me that the affiliate channel is highly over rated – because it too often cannibalizes from a merchant’s other channels (and within the aff channel, there’s too often cannibalization as well). For the vast majority of affiliates, it’s not because of what they are doing or even intend to do, but rather because the merchant doesn’t understand what’s happening and they’ve made poor decisions and have otherwise allowed the channel conflicts to remain unexplored and unresolved.

“The reality is that every new sale has to be won. It’s a constant battle for merchants to win over their competitor’s brand loyalists nd their own customers”

I agree, each new sale has to be won. Overall, I’m just saying that if Party A won it for you, paying Party B for winning it, is misplaced. And, I’m also saying determining who won it, when there are multiple touches, isn’t easy, but it’s possible to construct reward systems than are far better than not looking at the issue at all. And lastly, and MOST importantly, well before you even think about splitting channels or figuring out the best way to allocate sales credit or it’s rewards to maximize your results, the hunt for, and elimination of, touches that are of no value must be done. It’s destructive to try to split anything (or alter the split) among parties if some of them are non-contributors. If you start thinking about your aff-coupon sub-channel or aff-ppc sub-channel for instance (both of which have some value), and you’ve got poachers and adware affiliates and bho affiliates, you won’t achieve anything productive at all.

Pat – I think you are drastically under estimating the number of sales merchants believe occur “naturaly” because of brand recognition or loyalty. If you had the analytics tools to understand which websites people visited and what pages or products they reviewed before walking into a store and making a purchase – and if you could appropriately set up a way to pay those websites a split of the standard affiliate commissions they would have otherwise earned online – believe me, the merchants would be paying far more in total commissions than they would save by reallocating a few points from “website A” to “direct mail vendor B”. Brand loyalty is one of the biggest myths of the dying old ad agency age. Sure there are some small percentage of “brand loyalists” out there that shop at single source retailers, but they don’t do any research online before they shop. They don’t search, read product reviews, look for coupons, or spend much time on competitor’s websites – and I’ll bet they represent less than 2% of the shoppers in any merchant’s house file. Shoppers who claim they are loyal to Merchant A will question each and every purchase they make. Websites like mine are filled with brand loyalists looking for a reason or no reason at all to shop somewhere else. The reality is that every new sale has to be won. It’s a constant battle for merchants to win over their competitor’s brand loyalists nd their own customers – and companies like mine are the most cost effective ways to wage that war. Remember, if you want to really save merchants money, try applying all of the great analytic tools on the least accountable lowest ROI forms of avertising first: like TV, Radio, Direct Mail, Print, etc. It doesn’t makes sense to start razor cutting into the most accountable and fair forms of adverting yet invented before you trimmed the excessive fat and spending in these other areas first.

And lastly, I would love to see the direct ROI report of the analytics tools and reccomendation process, all the man hours, analysis time, debate and implementation, fall-out resolution, etc. that (IMO) might make the whole commission split theory cost more than its worth before it ever gets to implementation stage. Since everything is being cut with the fine razor of accountability these days, let’s start with the analytics tools ROI and consultancy fees first.

It has been my experience, in many facets of marketing and merchanting, that aiming your rewards at the partners you value most, makes those channels more productive for both the people in that channel and for the merchant who benefits from that channel’s work.

And that’s something very few analytics packages even attempt to measure.

If you want to grow sales, put rewards where it’s being best earned.

Kurt, we agree on many things you said, which I also thought were thought provoking, but not this one above. The purpose of touch point analysis is to view your channels with a more critical eye and to try (sometimes with great difficulty) to determine the value you (as a merchant) should pay / allocate for certain activities. While I agree some sales will be “found” as you say (and incur a cost), the merchant will learn much more about touches that aren’t as valued (like a BHO setting a cookie automatically right after the merchant’s in-house ppc click and cost occured). Having consulted with several merchants, the data I’ve seen at work shows me the savings to be recognized in properly assigning value is at least one order of magnitude higher than the “found” sales factor for a typical merchant.

These factors however, are not easy to analyze, the pieces are influenced by more than can be seen by an analytics package (as an example, the affiliate ppc policy’s impact on the merchant’s actual ppc costs) – one must integrate macroscopic views into analyzing the more microscopic data. And often there are circumstances unique to a merchant that means an out-of-the-box analytics package is blind to certain things. One example being, when in the funnel, consecutive affiliates make a touch – many analytics packages, if not most, have to be customized to “see” this happening and to track it and to properly integrate its presence into the output reporting.

The costs to merchants of blindly assuming that all touches in the affiliate channel are equal AND that they are all contributing to closing or introducing the sale AND that they aren’t impacting other channels is very high. A few merchants are beginning to put their pieces together and recognize what touches they want to pay top dollar for, which they will pay less for and which are just undesired. As this progresses through the marketplace, those who lead will have higher margins, and eventually, many years from now, the majority of merchants who want to remain competitive will have to adapt some of these techniques and lessons learned if they want to compete with those no longer allowing margins to flow out the window through their own ignorance.

thanks for your comment. Yes, the subject was already discussed before, but not enough in the spaces where it matters. Most web analytics providers don’t provide multiple touch-point tracking yet and the few who do, see only a small number of their clients actually do something with it and use it for their internal analytics.

Channel conflicts between the online and offline channels and between the online channels itself were not really there in the past, but things are changing and some conflicts are gaining in significance and new conflicts emerge. Paid search is the most prominent one, but it is not the only one.

Regarding the tracking. Did you also read my article about ClickPath I linked to from this article? It’s pretty interesting. ClickPath positioned itself as analytics provider for paid search primarily, but started to expand into other marketing channels as well, when they realized that their solution is actually flexible enough to fulfill the needs of other channels as well.

The commission slit is one option, but advertisers could also average out their figures and adjust commission structures accordingly. That would be the same as a retailer who usually has a revenue share program, but wants to take advantage of lead generation opportunities. Those retailers who know things like the average customer lifetime value etc. can determine what they are able to pay as flat commission (bounty) for a new acquired customer to a lead generation service.

Advertisers should and I am certain will do the actual analytics of incorporating and considering multiple touch-points internally, even if they still pay commissions as they do today. It will have impact on the commission one way or another, because things are getting more and more measurable to allow advertisers to determine much more precisely what works and what not and what is worth how much to them. Behavioral targeting in display advertising is on the same route as the stuff I was talking about here. Behavioral targeting might not change who much advertisers pay on a CPM or CPA basis, but it has impact on the spent on their Ad inventory, what they buy from whom and why.

That thing with the bags is normal for all grocery store chains. There is also nobody to put your stuff back into the bags and carry it out to your car. You have to do that yourself. But Germans don’t want anybody else to pack their bag and they also want to be bothered by an employee in the store who came by accident or not too close to the customer to be forced by contract to ask the customer if they find everything okay and if they need any help. Two things Walmart tried to introduce (which cost them extra money), but was rejected by German consumers. As I said, its a different buying culture.

Aldi even sold PCs ones, with moderate success. They offered one configuration, no selection of part or optional upgrades, a take it or leave it offer, but for a ridicules low price, because of the volume without special labor cost for customized assembly etc. I wonder, if that would work here in the US. I can already see the picture in front of my eyes:

Customer: “I am king customer!”, Store: “Shut up!… take it or go somewhere else!”, Customer: “This is an outrage!” …. hehe

Great post – thought provoking and worth discussing.

The channel conflict you describe in your original post has been discussed before but it is still worthy of continued debate whenever practical examples of conflict occur.

I come from the fairly rare perspective of having actually earned online, offline, and phone order revenue from online only marketing campaigns consistently over the past 7+ years. I do know a bit about the real impact of channel conflict.

IMO, unless you are someone like a major retail cataloger who spends a very large share of your operating expenditures on regularly recurring monthly mailings, the percentage of conflict between direct mail and online orders is too small to re-structure your affiliate program. Ultimately, the overlap you describe will be permanently absorbed as a cost of doing business in the offline/mailing channel. This “absorption” must be expected, planned for, and counter-measured prior to the mailing – not afterwards.

Creating unique keycodes or source codes is probably the most successful way I have seen the conflict minimized though there are technical considerations and not all merchants can handle all the codes they need to track all marketing touch points at POS. This is nothing new. Source codes are how direct marketing has been tracked for over 100 years. The system just needs to be updated to include the breadth of marketers that have become available thanks to online affiliate marketing.

The splitting of commissions will not work for the vast majority of programs. There are simply too many hungry eyes on the online sale pie, none of who can claim with any level of certainty that they deserve more credit than the other if they were not the last one connecting to the sale prior to the sale.

I know the direct mailer wants his/her credit for online sales made with the mailings promotional code. But, you know what, I want my share of all the sales I make for hundreds of merchants in store every day because shoppers found sale and product info on my site and decided to go in store to make the sale. The marketing execs “in the know” at the big merchants know it goes both ways. If they were to ever really try to make sale allocation fair, they would find that the big affiliate websites are producing far more sales than they are getting credit for – again I can say this with absolute certainty because I have seen the data. If merchants were to truly split commissions they would ultimately be paying much, much more – not less – due to sales that aren’t credited at all to any marketing source – which may have been your point from the beginning.

As for the coupon site value sub-topic, (and I say this as an old school direct mail marketer and not as a coupon site owner), direct marketing requires 3 components: 1.) and audience, 2.) creative, 3.) offer. Affiliate marketing minimizes the importance of the creative and accentuates the importance of the offer and audience. Offers a.k.a. “coupons”, “discounts”, “sales”, “deals”, etc. will only disappear when direct marketing does. Offers are the “sales triggers” most programs need to grow market share and provide competitive leverage at key seasonal periods. Bottom line, outside of niche retail categories, coupon sites are here to stay to serve the broader consumer and retail industry needs.

As for PPC direct-to-merchant product search marketing, IMO this is a viable business model because there are merchants who do not have the knowledge, tools, or resources to do an adequate job of search marketing on their own – right now that number is many. PPC search affiliates are fronting money on behalf of the clients they serve to buy terms and placements the merchants should be buying on their own – and making a well deserved margin. We operate in this arena too, but IMO it adds less value to the consumer and the merchant and is therefore more susceptible to long term extinction. It is more about outsourcing than marketing or web publishing – though you have to know a great deal about online marketing, search functionality, and consumer research behavior to be able to provide this service well in the first place.