A Guide to UK Survey Results and Global Payment Processing in the Industry January 2010
Table of Contents Introduction: 03 Survey Overview 05 Current Landscape 06 Developing a Global Payment Standard 08 Managing Micro-Affiliates 08 Five Ways to Develop a Successful Marketing Scheme for Global Affiliates 09 Conclusion 11 About EntroPay 12
Introduction: The core of affiliate marketing is the referral: an affiliate promotes a merchant s business and is then rewarded by that merchant for business generated. This online activity involves the affiliate referring its website visitors to a merchant website, leading to increased sales opportunities for the merchant. The reward for affiliates is based on a share of the revenue generated from the customer for the merchant. Unlike other forms of online advertising, such as display advertising or paid search that tend to charge per click, most affiliate schemes charge only if a sale actually results from the referral. For this reason, affiliate marketing is often promoted as one of the most direct performance-driven marketing techniques available today. According to the 2009 Buyer s Guide, an estimated 227m was paid out last year in commission and fees to affiliates and networks, up from 186m in 2007.Research conducted by Econsultancy earlier in 2009 estimates that UK sales from affiliate marketing were worth 3.82bn in 2008, a 22 percent increase from 2007. And, despite the recession, the study found that affiliate marketing sales are expected to grow to well over 4bn by the end of 2009. With further expansion clearly on the horizon, this form of performance-related marketing has significant benefits when budgets are tight. Affiliate marketing is used by brands looking to increase their web presence, deliver returns that can be directly linked to marketing activity and create a wider brand building campaign. Due to its performance-based nature, affiliate marketing presents a relatively low risk marketing option for merchants and requires low initial investment. In today s economic climate with reports of decreasing marketing budgets dominating the news, affiliate marketing can help companies step up their return on investment for marketing spend. Research from EntroPay conducted at the A4U Expo 2009 and ad:tech 2009 highlights decreasing marketing budgets as the key concerns for the industry in 2010. This is in line with the 2008 results of the same survey. The present challenging economic climate means affiliates need to work even harder to drive sales at the merchant s site if they are to generate the levels of commission they have been used to. Page 3
In addition to decreasing marketing budgets, 26 percent of respondents also felt that developing an industry standard for making and receiving payments will be a significant challenge over the next 12 months, a 10 percent increase from the 2008 results. This concern was particularly acute for intermediaries, such as affiliate networks and agencies, who deal with multiple merchants and provide various payment options to affiliates [Figure 1]. Figure 1: Biggest challenge to affiliate marketing over the next 12 months Decreasing marketing budgets 6% 25% 11% 10% 48% Making/receiving payments under 100 Making/receiving crossborder payments Increasing the speed of making/receiving payments Developing an industry standard for making/receiving payments Page 4
Survey Overview EntroPay conducted a survey of 90 delegates at the A4U Expo 2009 and ad:tech 2009 about the current state of the affiliate marketing industry and international payment processing. The following is a summary of the results: Highlights of Survey Results Decreasing marketing budgets will be a key concern for affiliate marketers in 2010, with 48 percent of respondents predicting that this will be their top challenge. This represents a 10 percent decrease from the 2008 results. 26 percent of respondents felt that developing an industry standard for making and receiving payments will be a significant challenge over the next 12 months, a 10 percent increase from the 2008 results. This concern was particularly acute for intermediaries, such as affiliate networks and agencies, who deal with multiple merchants and provide various payment options to affiliates. Although a majority of respondents claimed to be happy with their payment processes overall, 34 percent of affiliates were not satisfied with how quickly they receive their commissions. The administrative costs of payments were also identified as a pain point, with 32 percent of merchants not satisfied with the costs associated with their payment processes. The most popular method for making international payments in both the UK and the US was bank transfers 1, despite the fact that the administrative cost of these can be as high as 25. The potential opportunity presented by the rise of micro-affiliates was highlighted, as 49 percent of respondents believed that tapping into the long tail of affiliates could allow them to drive up to an additional 20 percent of web traffic to their sites. Around 7 percent of respondents believed that they could more than double their traffic. 1 EntroPay report on Global Payment Processes for US Affiliate Marketers [September 2009] Page 5
Current Landscape The last year was notably turbulent across many sectors of the economy. In turn, the results of the survey reveal the main impact of the economic downturn has been to drive the growth of vouchers and discount affiliate marketing similar to that of 2008 [Figure 2]. The economic downturn has not had as strong an impact on the affiliate marketing industry as was predicted in 2008. Only 21 percent of respondents felt that the recession had increased demand for affiliate marketing, compared to the 46 percent that predicted it would have a positive impact in 2008. 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Figure 2: Impact of economic downturn on affiliate marketing 2009 2008 Internet users have developed a seemingly insatiable appetite for information sharing. The rise of blogs and social networks has led to the emergence of micro-affiliates that cannot individually drive a large amount of traffic to a brand s site. For this reason, marketers have traditionally avoided this segment of affiliates as it is perceived as uneconomical. On the other hand, micro-affiliates collectively make up a long tail and have the potential to drive significant click-through. Recent discussions suggest that the tide is now changing. Web entrepreneur, Steve Poland, recently stated in the Washington Post that real-time discussions are becoming important sources of referral sales and leads for websites. 2 Earlier this month, on the official Amazon associates blog, Amazon launched a new feature called Share on Twitter, which encourages its affiliate network to use Twitter as a new channel to earn commissions: When Twitter users click on the link in your post and make a qualifying sale, you ll earn referral fees. That s it. Or is it? Whilst leveraging the long tail of affiliates through online channels such as Twitter holds great promise, the influx of micro-affiliates has also led to new challenges for brands. 2 http://www.washingtonpost.com/wp-dyn/content/article/2009/11/15/ar2009111501370.html Page 6
The recent research conducted by EntroPay reveals that over a third of affiliates are not satisfied with the speed at which they receive their affiliate commissions [Figure 3]. This can be attributed to two factors. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Figure 3: Level of satisfaction with speed of current payment methods for affiliate marketing Satisfied Dissatisfied Don't know Affiliates Merchants Networks Agencies Other helps drive sales back to the merchant s site. Firstly, to minimise the impact on internal resources, many brands and networks impose thresholds that affiliates must meet before they are paid, which can be as high as 100. Micro-affiliates find it difficult to meet payment thresholds imposed by merchants and can therefore miss out on regular payments. At the other end of the scale, the larger affiliates have considerable costs associated with generating the traffic that they convert into commissionable sales. When affiliates get paid infrequently, cash flow becomes an obstacle to sales and growth. Speed of payment is therefore a crucial part of increasing brand loyalty and ultimately Secondly, the increasingly global nature of affiliate marketing means that organisations must deal with high banking and administrative costs across different countries. Organisations can end up spending thousands of pounds making global payments, which are often slow to process. This is reflected by the survey s less than 33 percent of merchants who were not satisfied with the administrative costs they current incur. The administrative cost associated with payments can often be as high as 25 per transaction both in terms of processing costs and time taken to make the payment across regional borders. 70% 60% 50% 40% 30% 20% 10% 0% Figure 4: Predominant method for cross border payments UK US Cheques Bank transfers Pre-pay solution Other I don't Bank transfers are the most common method of crossborder payment in the UK, whereas cheques are more popular in the US [Figure 4]. Whilst national systems such as ACH in the US and BACS in the UK can provide an efficient payment system, there is no viable global alternative. Of all the affiliate networks and agencies surveyed by EntroPay, just under half recognised that the biggest challenge to the industry will be developing an industry standard for making and receiving payments. 3 EntroPay report on Global Payment Processes for US Affiliate Marketers [September 2009] Page 7
Developing a Global Payment Standard Organisations increasingly need to conduct business on a global basis, which presents a fresh set of operational challenges. Companies must be able to cope with making efficient cross-border payments of varying sizes and frequencies to operate effectively in multiple geographies. Whilst larger transactions can usually be handled quite efficiently, smaller, more frequent payments pose a significant problem in terms of the prohibitively high administration costs and time associated with them. Developing a global payment standard is necessary In order to overcome the inefficiencies and administrative costs that are traditionally associated with making payments, particularly when operating online where the boundaries between countries are increasingly merging. This would allow payments to be processed instantly with predictable costs around the world, thereby alleviating the burden for merchants often encounter relating to the amount, destination, method of transmission and redemption. A standard global payment process means merchants and affiliate networks can increase the speed of payments particularly across borders. Preferably, payments should be issued in a variety of currencies to allow affiliates to claim their funds in whatever currency suits them best, which would reduce foreign exchange fees. One solution is prepaid open-loop cards that operate with the international card networks such as Visa and MasterCard. Prepaid open-loop cards offer a cost effective, simple and secure way to pay affiliates that overcomes currency conversion and administrative issues that arise when issuing payments across the world. There are a number of challenges that organisations must face in order to develop such a global standard; however, successfully addressing these issues will results in an improved working relationship between affiliate and merchant. Managing Micro-Affiliates The rise of social networks has made the internet much more communal and interactive. As such, some brands are beginning to look for solutions to capitalise on this trend. The potential of micro-affiliates was highlighted in EntroPay s recent survey, where 49 percent of merchants and networks believed that tapping into the long tail of affiliates could allow them to increase web traffic as much an additional 20 percent. Around 7 percent of respondents believed that they could more than double the traffic to their sites. As previously mentioned, the challenge associated with tapping into the long tail of affiliate marketing is how to effectively manage micro-affiliates so they remain loyal, promote the brand favourably and continue to drive traffic back to the merchant s website. Communication, which is often linked to the payment process, is an important part of building the relationship between the brand and the affiliate. For example, Page 8
communicating more effectively with affiliates about their commissions can help to increase loyalty and maintain a positive brand association. Brands and networks can streamline their processes to manage micro-affiliates by integrating payment processes with their affiliate management software. This allows brands to manage their accounts, see who needs to be paid and send payments all in one process, thereby increasing the speed and ease in which payments are made. Performance marketing software has evolved so that brands can manage and analyse their affiliate marketing programmes, whilst simultaneously providing an interface for affiliates to monitor their commission payments. The use of advanced technology not only allows brands to more effectively manage their affiliate programmes, but also helps to improve affiliate loyalty and experience through clear and open communication. In addition, operational and transactional email marketing messages can be sent to affiliates informing them of a recent payment with links to check their account. These messages can be branded with the merchant s logo to ensure that the positive feeling of being paid is directly associated to the merchant, helping to instil brand loyalty. Five Ways to Develop a Successful Marketing Scheme for Global Affiliates EntroPay recommends five ways merchants and networks can effectively manage their global affiliate communities: 1. Implement a global payment standard. Doing so will help you overcome the inefficiencies and costs that are traditionally associated with making payments. This issue has become more pressing over the last year, as just under half of the affiliate networks and agencies surveyed by EntroPay reported that the biggest challenge to the industry will be developing an industry standard for making and receiving payments. 2. Issue faster, more frequent payments. EntroPay research shows that the speed at which the affiliates receive their commissions is a major concern for both UK and US affiliate marketers. Over a third of affiliates are dissatisfied with the speed in which payments are made. Merchants should look to remove payment thresholds and pay affiliates of all sizes using a payment solution that is efficient regardless of the size of a payment. This should help to drive loyalty and promote traffic generation. 3. Look after the little guys. Micro-affiliates may not generate vast amounts of clickthrough, but collectively they can drive significant traffic. New social media channels such as Twitter can be an effective tool for brands if they are managed in an efficient manner through advanced performance marketing software. By removing payment thresholds and keeping the lines of communication open, merchants can generate brand loyalty and improve the affiliate experience for even the smallest affiliates. Page 9
4. Keep communicating. One option is to use operational and transactional email marketing messages to let affiliates know they have been paid, complete with links to check their account. This can be branded with the merchant s logo, ensuring the merchant s brand is associated with the positive feeling of being paid. Another option is to create a central interface where affiliates can monitor and track their commission payments. This can be offered in multiple languages to enhance the local impression of a global affiliate marketing campaign. 5. Use frictionless payment methods. Regular payments serve as a reward for affiliates. Whilst prepaid solutions have become more popular for cross-border payments in the US (with 23 percent of respondents stating that this is the main method used 4 ), these are yet to take off in the UK. Prepaid open loop cards that operate within international card networks such as Visa and MasterCard provide a quick, efficient way to send money to affiliates that overcomes barriers that can slow the speed of payment. 4 EntroPay report on Global Payment Processes for US Affiliate Marketers [September 2009] Page 10
Conclusion The importance of driving online sales, increasing web traffic and generating brand awareness in today s market environment is paramount. It is also clear that affiliate marketing is proving to be a strong driver of traffic and sales to a brand s site. However, EntroPay s research revealed that issues surrounding commission payments are a major obstacle preventing the affiliate marketing industry from achieving its potential in 2010 and beyond. There is a clear need to introduce a global standard for payments that increases speed and efficiency, regardless of how small each transaction might be or where the affiliate may reside. The rise of social media has encouraged forward-thinking brands such as Amazon to begin capitalising on this trend and maximise the long tail of micro-affiliates. To do this effectively, and maintain momentum, marketers must address key issues such as payments and communication in order to keep micro-affiliates motivated and fully achieve the competitive advantage they are proactively seeking. Paying affiliates infrequently can lead to cash flow problems, which are obstacles to sales and growth. Speed of payment, especially when targeting micro-affiliates, is a crucial part of increasing brand loyalty and sales. And by communicating more effectively and more often with affiliates, merchants will enhance their overall experience with their brands that can only help to further maximise revenue opportunities. Page 11
About EntroPay EntroPay offers a simple, cost-effective alternative for merchants to pay customers and affiliates quickly, securely and efficiently. Merchants can avoid the high cost of issuing checks and make payments anywhere in the world with no currency conversion issues. EntroPay is one of the most cost-effective, convenient and rapid means for businesses and consumers to make safe and controlled online purchases and to remit funds around the world. EntroPay has operated since 2003 by Ixaris Systems, Ltd, which is certified to issue e-money for EntroPay by the UK Financial Services Authority and is registered as a Money Service Business with the HM Revenues and Customs in the UK. For more information, visit www.entropay.com. Page 12