In a customer-centric marketing organization, every marketing action or program should be informed by deep knowledge of the customer. The Know stage creates this understanding by aggregating customer data from available data sources (e.g., purchase data, demographic data, marketing behavior data), and analyzing it using a variety of tools and techniques.
Affiliate marketing is a powerful customer acquisition for online retailers. Marketers that harness their affiliate networks effectively stand to gain access to pockets of valuable new customers. But it’s important to treat the affiliates channel as a strategic customer acquisition vehicle — and make sure that you’re focusing on the affiliates that help you acquire the best kind of customers.
As you remember, the Know stage helps you gain valuable insights into your customer base. Here are two useful customer insights in the context of affiliate marketing, as well as tips on taking action on these insights to improve the effectiveness of your affiliate marketing program.
Customer Insight #1: New Vs. Repeat Customers
In many cases, retailers will pay a single commission rate on affiliate sales, whether or not the customer in question is a first-time shopper.
But here’s the thing: as a marketer, you prefer not to have your existing customers buying your products from affiliates. That’s the equivalent of paying a tax (typically between 5% and 15%) on every repeat purchase. The primary reason that affiliate networks are so powerful is that they can help you expand your reach, venturing into new markets and finding customers that may not otherwise have been aware of your brand or product offerings. Wouldn’t it be better if you could win back current customers through less expensive channels, like email marketing or your own social media outlets?
So, beware of affiliates primarily bringing you revenue from returning customers. At worst, these may represent reseller scams or other types of fraud or manipulation. At best, these partners are unlikely to be creating much incremental value — they may simply be skimming existing demand from customers that already know what they want, and are just doing some last-minute deal-hunting.
Customer Insight #2: Long-Term Engagement (Not Just First-Time Purchase) for Customers Acquired Across Different Publishers
The affiliate channel is interesting because, unlike other online marketing vehicles (such as paid search and display), it is almost always run on a strictly pay-for-performance model. If you’re paying a 7% commission on all affiliate sales, you know exactly what ROI you’re going to drive — right?
Well, it turns out that this is only the case if you’re looking at ROI on individual transactions. Think instead of your customers, and the whole future value of your relationship with them, as the return on your investment. In other words - optimize for Customer Lifetime Value (CLV), not for one transaction only.
The fact is that some customers go on to make lots of repeat purchases and develop a long-term relationship with your brand. Others don’t. And wouldn’t you rather partner with affiliates that are helping you acquire customers that will grow your business?
So, start following the customers acquired from different publishers. You can use analytics tools like cohort analysis or predictive analytics to understand CLV and long-term trends in customer retention.
Chances are, you’ll see big differences across affiliates in terms of the type of customers they help you acquire. You should be focusing your attention on the publishers that help you find those high-value customers — the kind that will keep coming back long after their first purchase.
Take Action: Structure Commissions Based on Customer Insights
Now that you have visibility into the mix of customers that each of your publishers are bringing to your site — and understand how valuable these customers tend to be to your business in the long run — you can take action on these insights.
Marketers have a tremendous degree of flexibility in negotiating commission agreements with individual affiliates. For publishers that are sourcing low-value customers, for example, consider lowering the commission rate. For publishers that report a high percentage of “existing customer” vs. “new customer” sales, consider different commission rates for new and existing customers. For affiliates who bring in mostly new, high value customers, consider developing better commission structures or running an exclusive promotion.