A key weapon in a marketer’s armoury to reach and acquire customers online, affiliate marketing is by no means a new concept, and yet it has still to catch on in a big way in the Asia-Pacific region.
Joseph Lam, founder of Hong Kong-based affiliate network ChineseAN.com, says few companies are actually aware of the technique: "There has not been a major affiliate company in the region to educate marketers about this possibility. So in many cases, we first have to explain to them what it’s all about."
Cost per action
Pioneered by Amazon.com founder Jeff Bezos, affiliate marketing is set apart by the concept of cost per action (CPA). An affiliate is paid for every action - that may range from collecting database fodder through to making a sale - resulting from a click on advertising inserted on their website.
The responsibility to drive traffic to the end destination, which is often an online retailer, lies with the affiliate and, because it is performance-based, advertisers only pay up when the 'action' is completed. Central to the model is measurement, and that has given rise to companies that manage and independently track the results.
A simple model with numerous creative variations on a theme, the spending and revenues in mature markets is staggering. A June report from Jupiter Research found that this year alone US marketers will spend US$2.1 billion on affiliate marketing fees, rising to $3.3 billion in 2012. The minimal up-front investment means affiliate marketing is widely viewed as low-risk. Used wisely, the quality of the affiliates can be fine-tuned to build a circle of sites that generates more traffic and the most sales.
The model has been thoroughly applied to online retailers - although it is also common in the automotive and finance sectors - and that is a speed hump in Asia, where the e-commerce sector is immature. Asian retail businesses have traditionally been high-volume, low-margin enterprises, which puts pressure on costs. Transferred into the competitive and potentially lucrative online space, both affiliates and advertisers enjoy wildly unrealistic expectations.
"Most publishers are still not ready to move from a CPM model to a pay-for-performance model because they are not ready to accept a variable payback for their inventory," says Andrew Tu, digital director at OMD. "Local publishers are still not ready to accept a model where their revenue is not guaranteed because they are not confident in how their inventory will perform."
Marketers offer low commissions because they are not “looking at the total value of the sale”, which then fails to encourage publishers to move from a traditional CPM deal, adds Tu.
Joint approach
Fostering your affiliates might sound like common sense, but e-tailers were told the very same some eight years ago. Little appears to have changed.
Lam advises a joint approach where marketers treat publishers as partners and ensure fair compensation. He cites a mainland programme for a fashion e-tailer with two commission tiers: a CPA payment for a new customer referral as well as the cost-per-sale (CPS) pay-out.
While marketers may understand that affiliate marketing is quantifiable, there are other, less obvious, benefits that they are less aware of, says Lam. "They [marketers] greatly underestimate benefits such as brand exposure and subsequent sales from new customers they gain."
Education in conservative Asian markets is also held back by a handful of misconceptions. For one, affiliate marketing is how the PPCs - pills, porn and casinos - generate revenues.
"In new markets, affiliate marketing can seem a little bit like the Wild West but when it is done right there are no risks," says Fionn Hyndman who heads the Asia-Pacific branch of pioneering British marketers dgm.
While the PPCs inhabit a shadowy corner of the net that reputable affiliate networks will not go anywhere near, Hyndman says there are lessons to be learned here.
"Porn and gambling came up with the pop-up ad, they came up with the pop under, the screen takeover and many other types of online advertising which are now more commonplace," he says.
"These advertisers are ahead of the game in terms of understanding their consumers. They are ahead of the curve and marketers should be smart enough to learn from these markets without thinking that they are associated with them."
The quality of affiliates is vital. Transparency, prompt payment and goodwill are essential to make an affiliate programme work.Hyndman agrees that "certain networks" in Asia suffer from a credibility gap. "Reputation of the network concerned is what matters here," he says.
Another factor to consider is Google. Affiliate marketing is intimately related to search engine marketing: a higher search ranking attracts more traffic and increases the site’s value to marketers. Affiliates must be sensitive to Google's quality score, which prevents lower-quality affiliates from buying paid search. So, just as management trains a sales team, training affiliates is important.
Google itself is getting into affiliate marketing in a big way, completing the rebranding of DoubleClick's Performics unit. Barnes & Noble and Target are among the big retailers signed on. Google has said publishers will be admitted after a quality review and at its discretion.
Three-way approach
In Asia, developing affiliate marketing as a serious channel will take some time. Tu says a three-way approach is needed: the agencies must learn to integrate appropriate affiliate marketing in the mix, marketers have to set realistic commissions, and publishers must be ready to embrace pay for performance.
Structural changes to Asian markets will help. For example, as credit cards become more common in China, e-tailers will have a bigger audience. Interestingly, many of those credit cards will be issued following leads generated by an affiliate programme. "If one area of affiliate marketing doesn't develop, online retail for example, then we tend to see another take off," says Hyndman.
Hyndman is confident affiliate marketing will be just as important to the mix in Asia as it is to Europe or the US. "You have to think about affiliate marketing, it needs to be more strategic and not as campaign-focused," he says. "For many people who don’t understand and don’t have a provider they can trust to do it for them, it fits in to the 'too hard basket', which is a shame."
Joseph Lam, founder of Hong Kong-based affiliate network ChineseAN.com, says few companies are actually aware of the technique: "There has not been a major affiliate company in the region to educate marketers about this possibility. So in many cases, we first have to explain to them what it’s all about."
Cost per action
Pioneered by Amazon.com founder Jeff Bezos, affiliate marketing is set apart by the concept of cost per action (CPA). An affiliate is paid for every action - that may range from collecting database fodder through to making a sale - resulting from a click on advertising inserted on their website.
The responsibility to drive traffic to the end destination, which is often an online retailer, lies with the affiliate and, because it is performance-based, advertisers only pay up when the 'action' is completed. Central to the model is measurement, and that has given rise to companies that manage and independently track the results.
A simple model with numerous creative variations on a theme, the spending and revenues in mature markets is staggering. A June report from Jupiter Research found that this year alone US marketers will spend US$2.1 billion on affiliate marketing fees, rising to $3.3 billion in 2012. The minimal up-front investment means affiliate marketing is widely viewed as low-risk. Used wisely, the quality of the affiliates can be fine-tuned to build a circle of sites that generates more traffic and the most sales.
The model has been thoroughly applied to online retailers - although it is also common in the automotive and finance sectors - and that is a speed hump in Asia, where the e-commerce sector is immature. Asian retail businesses have traditionally been high-volume, low-margin enterprises, which puts pressure on costs. Transferred into the competitive and potentially lucrative online space, both affiliates and advertisers enjoy wildly unrealistic expectations.
"Most publishers are still not ready to move from a CPM model to a pay-for-performance model because they are not ready to accept a variable payback for their inventory," says Andrew Tu, digital director at OMD. "Local publishers are still not ready to accept a model where their revenue is not guaranteed because they are not confident in how their inventory will perform."
Marketers offer low commissions because they are not “looking at the total value of the sale”, which then fails to encourage publishers to move from a traditional CPM deal, adds Tu.
Joint approach
Fostering your affiliates might sound like common sense, but e-tailers were told the very same some eight years ago. Little appears to have changed.
Lam advises a joint approach where marketers treat publishers as partners and ensure fair compensation. He cites a mainland programme for a fashion e-tailer with two commission tiers: a CPA payment for a new customer referral as well as the cost-per-sale (CPS) pay-out.
While marketers may understand that affiliate marketing is quantifiable, there are other, less obvious, benefits that they are less aware of, says Lam. "They [marketers] greatly underestimate benefits such as brand exposure and subsequent sales from new customers they gain."
Education in conservative Asian markets is also held back by a handful of misconceptions. For one, affiliate marketing is how the PPCs - pills, porn and casinos - generate revenues.
"In new markets, affiliate marketing can seem a little bit like the Wild West but when it is done right there are no risks," says Fionn Hyndman who heads the Asia-Pacific branch of pioneering British marketers dgm.
While the PPCs inhabit a shadowy corner of the net that reputable affiliate networks will not go anywhere near, Hyndman says there are lessons to be learned here.
"Porn and gambling came up with the pop-up ad, they came up with the pop under, the screen takeover and many other types of online advertising which are now more commonplace," he says.
"These advertisers are ahead of the game in terms of understanding their consumers. They are ahead of the curve and marketers should be smart enough to learn from these markets without thinking that they are associated with them."
The quality of affiliates is vital. Transparency, prompt payment and goodwill are essential to make an affiliate programme work.Hyndman agrees that "certain networks" in Asia suffer from a credibility gap. "Reputation of the network concerned is what matters here," he says.
Another factor to consider is Google. Affiliate marketing is intimately related to search engine marketing: a higher search ranking attracts more traffic and increases the site’s value to marketers. Affiliates must be sensitive to Google's quality score, which prevents lower-quality affiliates from buying paid search. So, just as management trains a sales team, training affiliates is important.
Google itself is getting into affiliate marketing in a big way, completing the rebranding of DoubleClick's Performics unit. Barnes & Noble and Target are among the big retailers signed on. Google has said publishers will be admitted after a quality review and at its discretion.
Three-way approach
In Asia, developing affiliate marketing as a serious channel will take some time. Tu says a three-way approach is needed: the agencies must learn to integrate appropriate affiliate marketing in the mix, marketers have to set realistic commissions, and publishers must be ready to embrace pay for performance.
Structural changes to Asian markets will help. For example, as credit cards become more common in China, e-tailers will have a bigger audience. Interestingly, many of those credit cards will be issued following leads generated by an affiliate programme. "If one area of affiliate marketing doesn't develop, online retail for example, then we tend to see another take off," says Hyndman.
Hyndman is confident affiliate marketing will be just as important to the mix in Asia as it is to Europe or the US. "You have to think about affiliate marketing, it needs to be more strategic and not as campaign-focused," he says. "For many people who don’t understand and don’t have a provider they can trust to do it for them, it fits in to the 'too hard basket', which is a shame."
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