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Affiliates: 6 Ways to Catch a Thief

On the Today Show this morning Matt Lauer helpfully offered advice to consumers that the best way to shop online is to type the name of the store followed by "coupons" into their favorite search engine. It doesn't take much to set me off on a rant about affiliates, but that certainly did the trick! Apologists for the industry will argue that coupons help tip consumers who might take their business elsewhere to close the transaction on your site. Others will say that affiliates simply siphon traffic that was heading for your cash register through their system, giving discounts to users who would have purchased without them and then charging commissions for "driving" the sale. The truth, as usual, lies somewhere in between. Below are six tests to help get a better sense of whether affiliates are doing more harm than good to your business. Most retailers prohibit affiliates from advertising on their brand name and trademarks. That's smart. Not only does such advertising drive no incremental traffic, it raises the cost retailers incur for running their own brand ads. In some instances, retailers allow this as a means of pushing competitors off of their brand terms, which may make sense in some markets, but not in most. However, forbidding advertising on trademarks doesn't actually prevent it. Here are two tricks to catch the cheaters:
  1. Time of Day: some affiliates have learned that running ads on your brand at night is a good way to avoid detection and make a lot of easy money. Take a look at affiliate orders as a fraction of total orders by hour. You may find that affiliates are driving a larger chunk of the total at night and on the weekends when the cat is away.
  2. Geographic Targeting: Similarly, some vipers have figured out that by running ads on trademarks everywhere but where the corporate headquarters is they can break the rules with little chance of being caught. We recommend asking your industry friends, and/or Aunt Lois in Missoula to search on your trademarks periodically and send you screen shots along with the "properties" text of the links. You can also use Google's Ad Preview tool to see what things look like elsewhere.
I've spoken with some retailers who issue warnings to offenders. I don't understand that. How many warnings would you give to an employee who was caught embezzling? On the broader question of whether affiliate sales are incremental or cannibalizing natural search, consider the source of traffic. How do your top affiliates generate traffic? If the answer is that search on your trademark yields natural search results for "Acme coupons" right after your link, then you may have your answer. Four useful tests to determine the source of an affiliate's traffic:
  1. Conversion Rates: Take a look at the conversion rates of traffic from each affiliate. If they all share the same source code target them by referring domain. Compare the conversion rates of the affiliate traffic to conversion rates of PPC traffic on your brand terms and on your non-brand terms. We all know that traffic on brand PPC terms converts at 5 to 10 times the rate of non-brand traffic -- these are "lay-down" orders. If a given affiliate's traffic converts at rates approaching your brand terms the reason why should be obvious.
  2. Click to Order Time: Do a similar comparative analysis on the mean and median intervals between the affiliate click and the eventual order. If the affiliate intervals are markedly shorter than non-brand PPC, this indicates folks have already made a purchase decision before they sought out the affiliate.
  3. New-to-file Percentages: Defenders of affiliates will often point out that while the "new customer" fraction is lower than other channels, it's not zero, therefore affiliates are driving incremental business. Hold the phone! New-to-file does not mean "incremental." When your loyal customers tell their buddies to shop at your store, those folks shop by your brand name. They're new, but neither your PPC program, your organic search program, nor your affiliate program should get credit for driving that order. Compare the New-to-file percentage of your affiliates to your brand PPC ads, if they're about the same, that says a lot.
  4. Coupon Percentages: What fraction of affiliate sourced orders come in with discounts/coupons? For these coupon buyers, what's the lifetime value? Given all that we've seen above the greatest apologist for affiliates would have to conclude that there is some cannibalism here. What fraction of the coupon orders would have to be incremental to offset the cost of the discounts given to the cannibalized orders? Does that fraction seem plausible given the rest of the analysis?
Ultimately, determining what is incremental and what isn't is tough. One interesting data dive might be to track three numbers over time: Online sales attributed to Brand PPC, online sales attributed to "natural search", and online sales attributed to affiliates, each as a percentage of total site sales. Since the start of the affiliate program, has the "growth" in affiliate sales come at the expense of the other two? Does one of these three go up when the others go down and vice versa? These patterns can also be indicative of problems. There are certain classes of affiliates that unquestionably drive incremental traffic, and I'll discuss those next week. Unfortunately, for most retailers, those account for the minority of sales. Happy Hunting!
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