15 Hidden Dangers of Affiliate Programs for Merchants
Earlier, I reflected on the state of affiliate marketing circa 2003 — to prove a point and help steer readers clear of pitfalls. Yes, online affiliate programs remain “dangerous” for online marketers. But the industry as a whole has made some progress. Enough? Never enough! So what are these dangers and how can marketers with affiliate programs avoid them?
Affiliate Marketing Legend Wayne Porter‘s idea to present the world with a book titled 15 Hidden Dangers of Affiliate Programs for Merchants was a good one. Sure we’d have starved to death if we’d actually published it! But reviewing his brilliant guidance serves multiple forms of value for us today. It also shows us how we’ve dealt with the tough issues over the last 7+ years — or not.
So far we have:
1) Control over brand experience.
2) Control of marketing messages.
3) Competition in pure SEO environments.
4) Competition in the paid search market.
All of which we discussed in our earlier article. And today I’ll present the following. And I see Wayne “is among us” as indicated by his comments on the original article, so I’ll ask him to clarify if I mangle his thoughts. There’s room for that because a few of these I see “crossing over” or relating closely to each other.
5) Discount or coupon “stacking”.
The danger Wayne was referring to here occurs when a razor-sharp customer learns that they can “stack” promotions and earn a far deeper discount. For instance, I like to combine my Godaddy $7.49 domain coupon with a FatWallet.com cash back deal. In this case, Godaddy actually knows about it. They’ve made the decision to allow it.
Other marketers may not know and may get dinged on their profit margin. And repeatedly. Personally, I’ve been stacking coupons as far back as… gosh… since merchants handed them out. Do I think it’s fair to the merchant? It doesn’t really matter. If you operate an affiliate program you need to know this is an issue — and deal with the problem. Decide to allow “stacking” or not.
There are a variety of factors involved. Want to dive into them? Let’s do so in comments.
6) Cross-channel promotion confluence.
This relates back to #2 above. Here Wayne was referring to how marketing campaigns interact. And how the affiliate channel is one a unique one that can cause headaches for unsuspecting marketers. This issue is so important that I believe it’s one that can get you hired, fired or result in a promotion.
In affiliate marketing coupons get handed out. And not just those meant for affiliates. Pesky customers share discounts. As an example, many retailers like to hand out a coupon right after you made a purchase — trying to induce another one. This is often for a limited time. Sportsman’s Guide loves to do this, for instance.
Trouble arises when community-focused affiliates like FatWallet or Slickdeals get a hold of those coupons via their members. This can turn a limited-time coupon offer aimed at one customer segment group into an on-going (never ending) deal. And that can completely gum up a marketer’s ability to induce profitable, repeat sales.
Most of all it results in unreliable data when trying to understand what promotion worked and among whom. And that’s a critical piece of information to understand.
Again, think of any coupon that you get in your life. In the mail, at the movie theater, on your mobile device, on a train or bus advertisement, in the newspaper (remember those?). These coupons all make their way online and affiliates facilitate it.
7) Training customers to discount
This one seems obvious. Ever use a coupon online? Who hasn’t that has a heartbeat? It doesn’t take a rocket scientist to figure out that you should ALWAYS shop with coupons. Never buy anything online without a coupon.
Just “Google up” your favorite marketer’s name + the word “coupon.”
People are people. We’re creatures of habit. Save a bunch of money once and it feels good. Darn good. It’s moderately addictive. So we’ll do it again. Especially if it’s so SIMPLE.
This issue has given rise to the term “affiliate tax.” Well, in closed circles at least. Heh-heh… I’d never use it at Affiliate Summit.
If customers are really being trained to **expect** a discount… well… your affiliate program can act as a “tax” on your Web sales. In the eyes of bean counters, of course. Most affiliate managers don’t see it that way. My point is that if your customers are trained, “by affiliates”, to expect the discount… well… your profit margin gets dinged again.
And to be clear saying that one’s affiliates are responsible for this is silly. Of course, merchants do say it. So let’s keep it real. If you provide your customers with opportunities to earn discounts over and over and over… well… then you shouldn’t blame affiliates for the outcome. Blame yourself for any “affiliate tax.”
8 ) Transfer of loyalty to cash-back or other incentive sites.
Marketers love when their customers are loyal. But what about sharing that loyalty? Most are opposed to it. This makes good business sense. And herein lies one of the biggest challenges for affiliate marketing — the industry. Sharing loyalty is a necessity.
Web merchants HATE to be price shopped in shopping comparison engines. They also hate to share loyalty. But if one doesn’t realize that people LOVE Upromise, MyPoints and all the organizations powered by NextJump and Mall Networks (now Cartera Commerce). Well… they’re just not being realistic. And you’ll get into some trouble with affiliates real quick. Rather, with your friendly neighborhood bean counters (the CFO).
Marketers want customers’ transactions. And customers want cash back. They want to fund their local or national non-profit cause. They want to put money into their kids’ college funds or earn frequent flier miles.
And they want these things MORE or as much as they want that hot Guess outfit or Oakley sun glasses. Period.
The **real** issue at play here is “what defines a good affiliate?” And “why do I even have affiliates?” These are questions that marketers often ask themselves — and ask themselves after they’ve established an affiliate program. Ok, so maybe they re-ask. My point is that most (not all) marketers go through some kind of buyers remorse. Especially big brands.
Why? Because sooner than later all marketers realize something that troubles them: Affiliates don’t just send “new” customers. They send existing customers. Repeat buyers who transact at a (sometimes multiple) discount. And this dynamic is not supported by the financial arrangement of the entire affiliate program.
In essence, most marketers structure the financials of their program based on a simple premise: Affiliates send customers. New ones. And affiliate marketing is a way to find new customers on a performance basis. In practice this is not true. And many marketers can experience as few as 30% of new customers being produced by affiliates.
This issue has many, many “fixes.” And the industry has come a long way in addressing this dynamic. But there are plenty of lies and half-truths out there that keep merchants in the dark on this issue. There’s money to be made by not addressing it. And we can certainly talk about them later.
If anyone would like a follow-up post on this single issue — and how to resolve it — let me know. There’s no ‘one size fits all’ but some best practices that prove useful.
9) Escalation in retail costs to compete in ultra-competitive markets.
Wayne cautioned that this is especially true for commodity (non-branded) markets like ink jet cartridges, candles, etc. I’m actually not super clear on this one. And I don’t want to omit any of Wayne’s important thoughts. Wayne? Any help?
10) Sales concentration risks.
Here, Wayne is referring to the classic risk a business runs by putting too many eggs (concentrating) into one basket. For instance, you may find that sales are emanating from too few affiliates — making yourself vulnerable. To what? Well, to affiliates turning their guns on you.
Use #3 above as the most common example. Search marketing affiliates who’ve garnered Google’s adoration have power. Period. Until they lose their placement on page one they’ve got leveraging power. And if you find most of your affiliates have such power (let’s say 1/3 or more of them) they you may have a “concentration risk.” What if they were to shift sides — represent a competitor?
The solution here is to diversify your affiliate portfolio.
See you soon with the last five. I look forward to your comments. Wayne, how am I doing?








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