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1 UK Affiliate Marketing Landscape Linus Gregoriadis, Head of Research, E- consultancy

UK Affiliate Marketing Landscape

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Presentation about UK affiliate marketing industry by Linus Gregoriadis, Head of Research, E-consultancy.

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Page 1: UK Affiliate Marketing Landscape

1

UK Affiliate Marketing Landscape

Linus Gregoriadis, Head of Research, E-consultancy

Page 2: UK Affiliate Marketing Landscape

2

Overview of presentation

About E-consultancyGrowth of Affiliate MarketingBenchmarking its effectivenessBarriers to GrowthKey market trendsConclusions

Page 3: UK Affiliate Marketing Landscape

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About E-consultancy Reports

Affiliate Marketing Networks Buyer’s Guide Business Case Request for Proposal Template file Best Practice Guides

Events Roundtables Supplier Showcases

Training In-house Public

Page 4: UK Affiliate Marketing Landscape

4

Survey-based research

Affiliate Census In association with Affiliate Program Advice More than 1,500 UK affiliates

Merchants Survey Report Sponsored by buy.at 240+ UK merchants across range of sectors

Agencies Survey Report (coming soon) Sponsored by buy.at 90+ UK agency respondents

Page 5: UK Affiliate Marketing Landscape

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A buoyant industry growing fast …

On average, UK merchants surveyed now drive 16% of their online sales via affiliate marketing.

Two thirds of merchants (67%) are now getting more sales from affiliate marketing than two years ago.

Four out of five merchants (78%) now spending more on this channel than two years ago. Only 7% say they are now spending less.

And four out of five expect to be spending more on affiliate marketing in two years’ time. On average, 18% of online marketing budget and 10% of

overall marketing budget goes on affiliate marketing.

Page 6: UK Affiliate Marketing Landscape

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Benchmarking affiliate marketing

It is the most cost effective channel for driving customer acquisition – 95% say ‘very cost effective’ or ‘quite cost effective’. This compares to 90% for paid search and 82%

for email marketing.

Page 7: UK Affiliate Marketing Landscape

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Benchmarking affiliate marketing

Cost-effectiveness of channels for driving customer acquisition

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Em ail m arketing Affiliate m arketing Paid search Online displayadvertis ing

Mobile m arketing

Very cost-effective

Quite cost-effective

Not cost-effective

Source: E-consultancy / buy.at Affiliate Marketing Merchants Report 2007

Page 8: UK Affiliate Marketing Landscape

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Benchmarking affiliate marketing

The second best channel for driving volume – after PPC. 73% say that it drives either ‘high volume’ or

‘medium volume’. This compares to 85% for Paid Search and

65% for Email Marketing.

Page 9: UK Affiliate Marketing Landscape

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Benchmarking affiliate marketing

Volume driven by digital marketing channels

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Paid search Affiliate m arketing Em ail m arketing Online displayadvertis ing

Mobile m arketing

High volume

Medium volume

Low volume

Source: E-consultancy / buy.at Affiliate Marketing Merchants Report 2007

Page 10: UK Affiliate Marketing Landscape

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Progress made …

Affiliate marketing will drive in the region of £3 billion worth of sales in 2007.

38% of merchants believe that ‘the affiliate marketing channel is becoming more mainstream and professional’. Just over half of respondents say that ‘it’s

changing but there is still some way to go’.

Move to ‘Affiliate 2.0’

Page 11: UK Affiliate Marketing Landscape

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Progress made …

Affiliate 1.0 >>>>> Affiliate 2.0

Spam SEO sites High quality sites utilising user-generated content and comparison engines

Unauthorised PPC activity Closed groups of approved affiliates providing complimentary PPC with performance targets and accountability. Emphasis and rewards on long tail

Free Stuff Sites Cash back and reward sites with long term user bases

Part time affiliates Professional affiliate individuals and companies with dedicated resources

Email Offer Newsletters

CPM Banners

Desktop Widgets & RSS

Google AdSense

Source: Duncan Jennings, eConversions

Page 12: UK Affiliate Marketing Landscape

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Changes in the affiliate world …

Rise of the super-affiliate. Companies such as eConversions, E-Business Assist

UK Web Media, Clicks 2 Customers and Traffic Junction.

Higher barriers to entry. Increased competition = more money and effort. Half of affiliates agree that ‘affiliate marketing is

getting harder over time’ – only 11% disagree. Non-niche, smaller affiliates caught in no-man’s land.

Still great opportunities for niche affiliates.

Page 13: UK Affiliate Marketing Landscape

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But plenty of room for improvement

Four out of five UK merchants (81%) wish they could get more out of this channel compared to 16% who declare themselves satisfied with their returns. Only 19% of respondents say that the range of

affiliate marketing segments - such as affinity sites, email affiliates, price comparison sites, content sites and search affiliates - are fully understood and optimised.

Page 14: UK Affiliate Marketing Landscape

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Barriers to success

The main issues faced by merchants are as follows: Lack of internal resource 71%

33% Poorly converting website 60% 19% Restricted budget 58% 18% Difficulty in attracting affiliates 58% 20% Problems with tracking 48% 20%

Note: % of UK merchants ranking issue as ‘major’ or ‘minor’ barrier, with figure for major barrier in red

Page 15: UK Affiliate Marketing Landscape

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Barrier: Lack of internal resource

Half of UK merchants expect to have more people managing this channel in two years’ time. Compared to only 4% who expect to have less employees

involved.

37% have a dedicated in-house affiliate team or a dedicated manager.

90% use at least one network. 37% use a media agency.

Of whom 13% rely on a media agency to manage fully all their activity in this channel.

Page 16: UK Affiliate Marketing Landscape

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Barrier: Poorly converting website

If the website doesn’t convert then it is going to be difficult to attract affiliates - no matter how large the CPA.

Merchants need to follow best practice to ensure they are converting customers as effectively as possible.

Page 17: UK Affiliate Marketing Landscape

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Barrier: Restricted budget

Many companies have a limited budget for affiliate marketing … 43% of UK merchants treat affiliate spend as part of

marketing budget, compared to 39% who treat it as a cost of sale.

Just under a fifth or respondents (18%) treat it as ‘both’.

A third of merchants (34%) said investment was held back because they don’t understand the level of incremental volume they will get.

Page 18: UK Affiliate Marketing Landscape

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Barrier: Difficulty in attracting affiliates

Good quality affiliates relevant to a specific sector are hard to find. There can be some wooing required, perhaps

involving some sharing of risk, i.e. through hybrid CPA and CPM / CPC model.

If you’ve got an attractive program the good affiliates will be proactive enough to find you, though networks can play a role here.

Page 19: UK Affiliate Marketing Landscape

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Barrier: Problems with tracking

Very hard for merchants to get perfect overview of where sales are coming from – can be hard to de-dupe sales. Different layers of technology. Multi-channel business models.

Page 20: UK Affiliate Marketing Landscape

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Voice of the merchants …

“A few super affiliates with a drop in volume and

standard to the next group.”

“There are too many search affiliates. I wish an affiliate

network could actively move away from this model.”

“Fraud is a major issue. Takes a lot of our

resource that could be better used optimising

our activity.”

“Counter-bidding on paid search can be a real obstacle with some

affiliates.”

Page 21: UK Affiliate Marketing Landscape

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Voice of the affiliate …

“I find that deep links often do not work and just take the customer to the home page. A good selection of deep links with good photos of

products are essential. Customers are put off by having to search for products.”

The biggest reason for affiliates not promoting merchants after making the effort to sign up for programs is because of insufficient quality & quantity of links.

Page 22: UK Affiliate Marketing Landscape

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Role of Networks

Importance of criteria when choosing a network

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Netw ork 'sre lationship w ith

affiliates

Technology(tracking and

analytics)

Level of accountm anagem ent

Sector expertise Consultancy /s trategic advice

Chem istry - Ineed to like the

team

Extremely important

Very important

Quite important

Not important

Page 23: UK Affiliate Marketing Landscape

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Use of networks by merchants

The vast majority of UK merchants are signed up with either one affiliate marketing network (40%) or two networks (33%). Advantages of having two networks.

A network should help facilitate communication with affiliates, rather than act as a barrier. Research shows that good communication with affiliates

is limited. But good communication drives success (e.g. press

releases)

Page 24: UK Affiliate Marketing Landscape

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Branding is increasingly important

Affiliate marketing bottom line and USP has always been purely about performance-based marketing. There is also a branding benefit by being on good

affiliate websites. This has ramifications for the costing models.

Page 25: UK Affiliate Marketing Landscape

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Voice of the agencies …

“The distinct lack of actual experience and

understanding [is a barrier]. It would be good

to see some kind of accreditation for affiliate

managers that was recognised in the

industry.”

“As soon as empathy, understanding and real communication from all

sides come into play then we will see the

real growth happen in this industry”.

“There is a bit of a challenge with

educating merchants on the added value of

affiliate marketing. Some are convinced

they would get the sale anyway as a portion of affiliate sales are from returning customers .”

Page 26: UK Affiliate Marketing Landscape

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Key takeaways

Different stakeholders (i.e. merchants, agencies, networks & affiliates) must pull together to ensure a strategic approach.

Good communication is very crucial. Merchants must look to optimise range of

different types of affiliates, i.e. affinity sites, email affiliates and price comparison affiliates as well as search affiliates.

Page 27: UK Affiliate Marketing Landscape

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THANK YOU

If you would like a copy of this presentation or information about E-consultancy, then please email [email protected]

The full report Merchants Survey Report at available from: www.e-consultancy.com