Affiliate Marketing Still Cost-Effective, but Budgets Shrinking

September 12, 2008

This article is included in these additional categories:

Digital | Europe & Middle East | Paid Search | Retail & E-Commerce

More retailers than ever see affiliate marketing as an effective sales channel – 46% of them rate it as very cost-effective for driving customer acquisition, up from 44% last year – but reduced budgets are affecting traffic and sales,?finds new research (via Retailer Daily).

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The average proportion of online marketing budget designated to affiliate marketing has dropped from 18% to 14% since 2007, according to the Affiliate Marketing Survey Report 2008, conducted by E-consultancy and R.O.EYE.

Moreover, the proportion of online sales ascribed to affiliate activity has decreased from 16% to 12% over the same period.

The report is based on the findings of a July survey of more than 250 merchants and 150 agencies located mostly in the UK (78%) but also the US (5%) Europe (10%) and elsewhere (7%).

Despite the inherently low-risk nature of performance-based affiliate marketing programs, less money is being invested: Restricted budget has jumped from fifth place (’07) to second place in the hierarchy of barriers to successful affiliate marketing.

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The report also identifies the most significant affiliate marketing trends as the rise of super-affiliates, brand-bidding and growth of cash-back sites. Some 45% of respondents highlighted brand-bidding as the most significant trend.

“Whilst the research represents something of a wake-up call for the industry, the good news for affiliate marketing is that merchants continue to regard it as a cost-effective channel for driving customer acquisition. However, there has been a slight decrease in investment in affiliate activity which can be attributed to several factors,” Linus Gregoriadis, E-consultancy’s head of research, said.

“Whilst reduced budgets due to the economic downturn may be partly responsible, merchants are also getting better at getting traffic directly to their sites and they are also refining their approach so that they are not paying out for sales unnecessarily.”

Other key findings

  • A third of merchants (34%) say that five or fewer affiliates are driving 80% of their affiliate sales of signups. A further 23% say that between six and ten affiliates account for 80% of sales.

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  • A quarter of merchants say they are not de-duping sales across different digital marketing channels. More than a quarter of merchants (28%) say their organizations are poor at managing networks and monitoring affiliate activity.
  • For attributing the credit for sales, 41% of merchants are using the last-click method. A quarter of respondents say that they are using a combination of methods, while 10% are now sophisticated enough to split the CPA across different channels.
  • The three biggest barriers to successful affiliate marketing, from the perspective of merchants, are lack of internal resources, restricted budgets and difficulty in attracting affiliates.

Mark Kuhillow, Managing Director of R.O.EYE, concluded: “While more merchants than in 2007 view affiliate marketing as a very effective channel, almost 70% are spending less than two hours per week communicating with their affiliates and policing them. It is more important than ever before to forge strong relationships between merchants and their affiliates to protect volume and the channel’s efficiency. This report highlights the changes the industry and exposes the end of ‘easy pickings’ for affiliates.”

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