At Performance Horizon, we talk a lot about the changing face of the affiliate channel and its evolution into ‘digital partner marketing’. But what exactly does this mean – and more importantly – how can you prepare for the future as performance-based models continue to evolve? We had the opportunity to share our point of view with ExchangeWire. Let’s start with the basics.
What is digital partner marketing and how has this evolved from standard affiliate advertising?
Originally, this channel was limited to affiliate marketers who drove web traffic and sales to brands and earned a commission in return. But now, this performance-based channel is evolving to extend beyond traditional affiliate partnerships while continuing to leverage the underlying business model.
We designate this wider market as ‘digital partner marketing’, which encompasses the original affiliates as well as non-traditional relationships with comparison engines, aggregators, apps, and blog & media partners. The addition of these marketing activities represents an even larger amount of spend than just the purely affiliate-based marketing spend.
It is important to understand the tremendous size of this market space as well as its rapid growth. This growth is primarily due to a renewed recognition of the phenomenal return on investment partner marketing drives, in comparison with all other digital marketing channels.
Forrester’s affiliate marketing forecast shows that the US affiliate marketing spend will increase by a compound annual growth rate of 10% between 2015 and 2020, growing to over USD$6.8bn (£5.1bn).
Source: Forrester
A 2016 IAB and PwC report shows that affiliate marketing spend in the UK was approximately £1.3bn in 2015, or about one-fourth of the US marketing spend. But PwC’s estimate of the economic impact of that marketing spend is even more significant. PwC estimates that the affiliate marketing spend drives an approximate £17.7bn in sales, or about 1% of the UK GDP.
The sizeable amount of sales driven through affiliates suggests a broader recognition of the strong ROI generated through partner marketing. The same PwC study assesses a 15-to-1 return on investment, i.e. every £1 in marketing spend generates £15 in sales, which makes it an extremely efficient channel.
Who manages this activity? Are brands controlling it directly?
Historically, brands outsourced control of their affiliate programs to regionally-based third-party affiliate networks. These networks would recruit affiliates and manage the programs on the brands’ behalves.
Increasingly, however, brands have been shifting away from this model in favour of working with technology partners whose platforms allow them (or their agency, or consultant teams) to take direct control of their partner marketing and affiliate programs by bringing them in-house. This is becoming particularly popular for leading brands who seek to scale their programs on a single platform that allows them to view all performance globally and holistically.
From our perspective, there are several factors driving this transition. For example, many brands chose to take advantage of the highly granular data points now available to them through advances in technology. When brands can directly analyse their own partner and campaign performance – including insights into their customer journey – they can then better align their partners’ activities to their strategic business objectives.
Using technology enables brands to leverage new types of partnerships that could previously not be tracked and rewarded on a performance-based model, such as the comparison engines and app partners noted earlier. Proactively taking control of their partner programs further allows brands to improve their relationships with the key partners who drive new customer sales as well as customer retention for them.
This is an excerpt from a Q&A with ExchangeWire that originally ran August 16, 2016. You can read more about how affiliates are evolving into digital partners in the entire Q&A here.
