There are 2 approaches to managing affiliate programs these days:  affiliates as high-maintenance assets or as low-maintenance “let them wither on vine” liabilities.  Case in point Amazon’s decision this week to stop allowing affiliates to compete for the same customers using search engine ads.  Amazon knows better and has always changed-up the rules over time to manage risk.  Let’s look at which approach is best for your brand.

It never fails… affiliates, affiliate networks, trade magazines and those who run affiliate programs constantly ask us to believe facts that don’t hold water in real life.  Vendors and agencies insist online affiliate marketing is low risk and high ROI when those who are invested in it know otherwise.  This disingenuous “affiliate marketing is good for everyone” claim (uh, sales pitch) damages affiliate marketing’s already embattled reputation.

Internet Retailer tells us

“Affiliate marketing is a perennial revenue producer for e-retailers, made doubly attractive because of the low investment and risk involved.”

They go on to list how popular it is — as if this is some sort of proof or defensible rationalization.  Follow the herd!

Marketers: Raise Your Expectations
Affiliate programs produce revenue.  Ok.  But is that justification for investing in it?  That’s fairly naive yet how does your marketing team make decisions?  Often, many take the bait.

Stated plainly, do you know of a single Web marketing strategy that isn’t a revenue producer?  They all are but does this justify investment or influence how we execute?  This kind of mentality suggests rediculously simplistic goals in an economy that demands anything but simple answers.

More than a decade since the birth of affiliate programs marketers need to be looking beyond what generates revenue.   Metrics like customer lifetime value and *real* cost to acquire customers (when factoring in media spend across all Web channels) matter more than ever before.  However, more often than not, affiliate programs negatively impact these metrics — by design.  Hence, frequent change is needed.

Fact: Many retailers operate affiliate programs that are marginal at best — by design.  They’ll deny it but they ARE on auto-pilot.  Although they define value in terms extending beyond revenue they’ve set affiliate programs up for failure and walked away.  Amazon is a great example of a high profile exception.

Managing Retail Affiliate Programs: Asset or Liability
I don’t know many retailers *treating* affiliate marketing as a core online marketing strategy.  Do you?  Amazon’s decision is a marvelous example of how some retailers are trimming back.  Others are eliminating affiliates completely or letting them rot on the vine.  Why?

Some retailers (especially the larger ones) look at affiliate programs as an asset that must be constantly managed — again, just as Amazon has over the years.  Still others view them as liabilities — letting them rot on the vine out of fear of the unknown.  These fears typically revolve around perceived risk (not known risk).

As I see it, retailers like Amazon are becoming increasingly certain that they can shut down or reduce the scope of affiliate programs — recover or reduce undue “taxes” on orders coming through middle-man affiliates.

2008 Changed Everything
Think about it this way… In the past, nobody got fired for NOT shutting off their affiliate program or making major changes to affiliate terms & conditions.  Moving forward they may get promoted for making such sweeping changes in consideration of FTC rulings and State laws (New York and California “anti-affiliate” tax law).

Why are retailers going sour?  They’re deciding that, often, affiliates are not worth it — in specific terms or out of knee-jerk reaction.

Affiliate managers are constantly defending the affiliate channel — and feel powerless.  They are powerless for the most part.  Measurement rules and retailers are measuring for incremental value.  Even the likes of Commission Junction’s ValueClick are messin’ around with this thing called “conversion attribution.”  (come hear me speak about it with Jim Sterne, David Baker of Ave A/Razorfish and Raymund Sibulkin of Edmunds.com).

In the end, affiliate marketing has, for years, been an arbitrage game — where search-based affiliates arbitraged demand in an area that advertisers didn’t understand or practice in (search).  Today, what’s left?  Even Amazon is asking itself.

Comparison shopping is a “necessary evil” for retailers. Now… with that as our backdrop Brian Smith gives you the straight dope on how to improve results from comparison shopping engines though “data feed optimization.”  Think of Web site SEO for your product data feeds. Brian is founder of Simplefeed and a leading comparison search analyst (www.comparisonengines.com).  He provides his candid advice on how retailers can drive more sales at reduced cost and simplify otherwise complex processes.

Brian also discusses what’s on the horizon and gives online retailers hope that this rather stagnant industry IS making advances and will create new value for online sellers.

Have you ever questioned the alignment of your Web advertising interests with that of Google’s?  Have you ever found yourself yearning for a “better feel for” the tangible value being provided?  Ever feel like you’re paying Google protection money — buying PPC ads in return for protecting your natural search results?  You’re not alone.  I often run into people who do — from small business owners on up to larger brands.  Here are their stories and how you can take first steps toward uncovering the value of your Web ads — or lack thereof.

What You Buy Is NOT What Google Sells

Google is not your friend, a helpful source of traffic (maybe “the most”), however they are in it for them.

So says my very experienced colleague, JP Werlin who boldly suggests that Google’s interests are not in line with yours — period.  It’s your job to fix that.  When serving up ads, Google makes automated choices based on a number of factors — what it considers to be a “relevant ad” based on the searchers query.  It’s widely known that Google’s secret AdWords algorithm weighs click through rate heavily.

In the end, the more people clickin’ your ad the “better” the ad so far as Google is concerned — they get paid PER CLICK!

Google doesn’t get paid based on anything that aligns with your end business goal — a qualified lead or a sale coming within certain cost parameters like Customer Lifetime Value  (LTV), Cost Per Order (CPO) or Return on Ad Spend (ROAS).

JP’s rule is simple: “When evaluating the success of ad copy on Google, be sure to tie it back to a monetizable event (a sale, a lead, etc.).  Failure to do so will turn you sour on paid search marketing very quickly.”

Attribute Your Leads/Sales
Even if the “monetizable event” is not realized in the short term you need to attribute the click to a larger chain of events.  Eventually the clicker will purchase/transact and you must attribute the click/action to your end goal.  If you don’t you’re wasting time and your budget.  Google doesn’t “auto-align” with your ultimate goal.

This means understanding where your visitors are, at the moment, within their “Chronology of Purchase Intent”, measuring and organizing around it.  One means of achieving this is by using personas and “persuasion architecture” (hat tip to Jeffrey Eisenberg of FutureNow).

Search Engine “Protection Money”
There is a growing, fear-based need among buyers of Google AdWords ads that is another sign of the mis-alignment between most advertisers and Google.   Many advertisers feel compelled to continue buying Google ads — for fear of losing existing placement in “natural” or “organic” search engine results (SERPS).

… (the advertiser’s) belief was that Google somehow rewarded its paying customers with better SERPs as part of a quid pro quo relationship. And by keeping a small AdWords budget, he was giving Google a little something to keep the company happy. Protection money, if you will.

You’ll hear this refrain consistently and among a majority of folk who buy AdWords ads… although it rarely leaks out onto the Web.  Of course, many will deny this we have no real way of knowing if this is true — or to what degree.

Derek Schwitters of search marketing agency, LodeStar Marketing Group says there IS a connection between having relevant content on your Web site and your AdWords campaigns.

“However, this has nothing to do with if or how much you’re paying Google… rather, it’s a factor of the content at your site matching up with the promise made in your ad copy,” Schwitters says.

Important Questions
Today, you are asked to trust Google on setting the ad price for you — AND, in some cases, measuring the effectiveness of that ad via Google Analytics!  Would you do this with a TV, radio or print ad buy?  Of course not.   This introduces the potential for price fixing.  Yet where do most businesses invest a majority their precious Web marketing dollars?  That’s right — pay-per-click (PPC) search ads.

Google’s Brand Value v Real Value
I see a strong disconnect between where and how advertisers are investing and what they say is important to them.  Many are not comfortable in their own understanding of online marketing.  Yet they’re compelled to invest in it — to the extent they’ll invest blindly.  Hence, the likelihood of serious advertising waste increases.

Most Web marketers I interact with have a very loose grasp on the value Google’s ads provide at the end of day.  Yet Google maintains THE highest “brand trust” rating as compared to more established business brands.  How can this be?  Marketers don’t understand “how Google works” yet they fully trust its secret sauce.  Oof!

Growth Masks a Multitude of Sins
Today’s most important purchase criterion is high value (61.3%) followed by low price (52.4%).  Yet in Google’s case, value is purely perceived, not realized among most of its customers.  It relies on this fact.  Price is locked up in a black box, kept secret.  No longer is it an “honest open auction” as Yahoo! once provided (where advertisers bid for placement against each other — without “secret quality algorithms”).  Google’s auction is closed, guarded.  Why?

Clearly, marketers are willing to invest without knowing and this is backed up by research coming from The CMO Council.

Anecdotally, who’s trusted LESS than Google?  FedEx (63.1%), UPS (62.4%), HP (61.6%), Microsoft (59.2%), Sony (51.4%), Dell (47.6%), Staples (47.1%), Office Depot (45.4%) and Sam’s Club (41.2%).   According to Bredin Business Information (BBI) Google sits atop these brands.  Shocked?  I am.

Least important to small business owners is “buying from a leading brand” (1.9%).  Yet that is precisely what they do with Google.

“I think there’s going to be a revolution this year,” says Tim Ash, landing page optmization expert, CEO of SiteTuners and Author of “Landing Page Optimization: The Definitive Guide to Testing and Tuning for Conversions.”

Web retailers continue to leverage affiliate Web sites as they try to create additional distribution.  Tim says affiliate networks will now be expected to provide more value to the equation.  Hmm.

Tim says he’ll soon announce an alliance with a network that gives advertisers and affiliates the ability to create on-demand landing pages that can be rapidly optimized for maximum revenue yield.  Innovation!  But will Web retailers — who find themselves competing with their affiliates — embrace this idea?  Should they encourage affiliates to, in effect, beat them to the optimization punch?

I recently assembled and moderated 2 panels of experts to answer this question — including my trusty side-kick-always-there-to-tell-me-I’m-not-necessarily-right-colleague, Lee Gientke.  Each panel had a wide range of experienced pros and I was able to capture a bit from OrangeSoda.com’s Gientke (who has always moonlighted as an affiliate throughtout his long career).

Lee also presented along side of  Stephen Fuller-Rowell and FitForCommerce’s Danielle Savin in lovely San Francisco at Online Market World, a Web marketing conference run by super Internet researcher/conference producer, Lisa Morgan.

Lately, I’ve spouted off about how the cost-per-action/performance based marketing industry is busy shooting itself in the foot and how to improve affiliate marketing.  It set off a bit of healthy debate about the future of affiliate marketing.  Performance marketing IS simple and that IS what makes it so adored and widely adopted… BUT.

Thanks to Carsten Cumbrowski… who’s one of the brightest critical thinkers (in an industry that too often chooses to look past serious deficiencies).  Carsten is one of the few who’s always out there asking questions and pushing for improvement.

Hey, Carsten… you should consider joining me on a panel discussion some time soon!

Back in March, I discussed how experiential marketing is changing the game for Web marketers of all colors. Now that we’ve spent time understanding how and why marketers can make the decision to experiment with social media/marketing campaigns I’m going further.

In the June edition of Target Marketing I uncover the low hanging fruit — what marketers can do TODAY to begin experimenting in social marketing. Interviewed were leading experts including Sam Decker of Bazaarvoice, Brian Clark of GMD Studios and “RSS for marketers” guru, Rok Hrastnik of Studio Moderna (Eastern Europe’s largest Direct TV retailer).

When I challenged him by suggesting that interruptive (traditional) advertising may be on its deathbed Mr. Hrastnik replied…

“I’m working in the most interruptive ad industry of them all. My idea of ‘cool’ marketing would be injecting the latest infomercial directly into the consumer’s vein.”

“Seriously … I can tell you that direct response TV advertising is not only alive but kicking, thriving more and more every month.”

I stand corrected!