According to Forrester, US affiliate marketing spend is expected to reach $4.5 billion annually by 2016. Although it's a large and growing market that helps advertisers connect with buyers, the upward momentum is sometimes tainted by a few bad actors and practices.
However, as investment in the channel increases, serious marketers need to know how affiliate marketing is evolving and the new opportunities it is presenting.
Technology paired with changing consumer behavior is transforming affiliate marketing and creating opportunities for marketers to target consumers more precisely and produce sustainable margin-driven results.
Marketers need to know the following.
All Marketing Is Becoming Performance-Based
You can't manage what you don't measure. In regards to online marketing and the associated spend, if an action can be measured, brands increasingly want to pay partners on a performance metric.
If that were possible, why would a brand want to pay for anything besides performance? We're rapidly moving toward a time when all marketing will be performance-based, and we'll just start calling it "marketing" again.
Affiliate marketing is technically just a subset of the larger performance umbrella. Technology that allows for better data management and tracking is now allowing marketers to capitalize on previously missed opportunities to measure results and optimize their spend the same way they have with search, display, and video.
Better Attribution Models Are Emerging
Borrowing a page from "lemonade stand economics," let's examine attribution.
Say you set up a lemonade stand and partner with two friends. You tell them that for every customer they send your way, you'll give them a cut of the resulting sale. Off they go... and soon you have a steady flow of customers. But how do you know which friend to credit for which sales?
Now, multiply that by thousands of partners (that aren't your friends) and millions of transactions. What a headache, right?
Attribution has always been an affiliate marketing challenge. However, more accurate ways of measuring attribution are replacing such flawed models as last click. Value attribution is allowing marketers to not only accurately match partners to sales but also to uncover the most valuable sales (e.g., who buys two cups of lemonade and returns later in the week to buy more).
With that information, marketers can focus on the 10% of partners that drive 90% of their sales and develop programs that reward and invest in those top relationships.
Tech Is Bridging Online and In-Store Marketing
Emerging technology, such as Apple's iBeacon and Near Field Communication (NFC), are creating new and exciting marketing opportunities that are fast and targeted. Today, retailers increasingly work with loyalty and reward app partners on a cost-per-sale basis, so the application of location-based marketing in performance channels is immense and global.
In theory, location-based performance marketing is simple.
For example, a consumer enters Macy's shoe section, an iBeacon senses her mobile iOS device, and the RetailMeNot app on her phone automatically sends an offer for 10% off a pair of shoes. The shopper redeems the coupon at the point-of-sale, and Macy's (the marketer) pays RetailMeNot (the partner) a commission on the sale.
A single store marketer/partner relationship is just the tip of the iceberg. Take a large shopping mall for instance. Home to hundreds of potential marketers, a mall or shopping center could effectively become both a marketer and performance partner. Consumers would receive iBeacon-enabled offers through the mall's own app.
This technology is completely redefining the marketer/partner (affiliate) relationship and opening up doors for marketers at all levels.
As all marketing becomes measurable in real time and paid for on a performance basis, marketers will be faced with increasing amounts of data. By understanding the changing affiliate landscape and tapping into new technologies that allow for increased transparency and better data management, marketing leaders will be better equipped to optimize their affiliate spend and efficiently market to a critical customer base—people who are ready to buy.