The tendency to pay low or no commission on sales from existing customers, although controversial, is no breaking news.
Like many issues, it gets pushed aside and reemerges occasionally to strike the nerve of the people concerned: in this case the advertisers on one side and the publishers on the other.
The rationale behind this trend is rewarding affiliates for driving new customers. In one example, a clothing brand may offer commission to an incentive site for encouraging a user to make their very first purchase with them, only to drop this rate significantly on the repeat purchase if they feel that same person would have gone on to buy something without the extra push.
A few basic Google searches reveals a hefty batch of advertisers that operate in a similar way, and still have huge numbers of publishers on their books.
However, it's fair to say this has not been welcomed by some of the very affiliates who make their living from commissions on converting customers. Without commission, they don’t make money, and while plenty of techniques exist for getting new customers onto their sites, often it’s a case of chance as to which type of buyer comes through the door.
The debate has ruffled some feathers around the channel, and in the lead up to its coverage at PMI: Europe in July, is nowhere near being resolved.
Affiliate vs advertiser
‘Blatant manipulation’, ‘stealing’, ‘career-killer’ are just a few of the words used to describe our subject on PI’s affiliate forum.
From the affiliates’ point of view, missing out on their fair share of the transaction is unreasonable. After all, the advertiser got their sale and the customer got their product, so why is the affiliate left with nothing?
Some consider the low or 0% commission on existing customers a ‘punishment’, exercised on them for the lack of added value. By driving customers, though, new or not, they prove to have an influence on buyer decisions. If they didn’t, advertisers would be wasting their time by working with them in the first place.
As the competition is fierce and the amount of shoppers finite, reducing commission on existing customers might come across as counter-intuitive, even if it brings marketers a saving in the short term. The argument repeatedly brought up in debates is that advertisers need to understand the value in retaining existing customers. Otherwise they risk losing not only buyers, but affiliates too.
The latter is adamant of this, and not afraid of speaking up.
“If a merchant wants to pay me 0% for repeat business then I'm actively going to promote his opposition, who will pay me. So, in effect, his 0% will not maintain his business - it'll lose him customers,” said one affiliate on the PerformanceIN forum.
The question advertisers have been asking themselves is that if they value the sale, should they reward it?
For merchants, picking up new business indicates growth and they are often keen to incentivise new customer acquisition but also keep the cost of sale profitable. If they can justify low or 0% commission on existing customers, and this is accepted by the publishers on the programme, where is the pressure to pay out?
Arguably, some consider commission on existing customers an ‘unnecessary tax’ they feel shouldn't be paid over and over again. The power and appeal of affiliate networks lies partly in expanding the customer base, but once the customer is converted, it’s cheaper for advertisers if they purchase directly from them and not via a network.
From the experience of Optimus Performance Marketing, the UK-based agency running a number of affiliate programmes on the behalf of its clients, differential commissions are applied in some cases, with lower amounts paid on low-margin products or when a voucher code has been used. The line here is that it comes from the affiliate commission having a large effect on the profitability of a transaction.
“This is always based on a genuine business case and clients appreciate the lifetime value of a customer through the channel and reward appropriately,” says Bruce Clayton, director at the company.
The new versus existing customer is the key metric here, yet the vague definitions cause plenty of controversy. If someone made a single purchase a few years ago and comes back to the site, do they count as a new or existing?
Looking beyond this divide, the value of the customers and their behaviour post-conversion is another point to be considered. Are affiliates rewarded accordingly for driving more ‘valuable’ customers?
Then we have attribution, and the range of issues advertisers appear to be having with it. The customer journey is rarely straightforward - someone might search for a certain product, click on a Google ad, view a particular site, run an organic search later and click through a retargeting ad and then again through a cashback site. As a result, an affiliate might be credited with a sale even if the customer was actually driven by a different channel.
At the same time, affiliates can’t normally check whether the buyer they target is registered with the merchant or not. Some go as far as saying marketers should prove to the network each time the customer is ‘existing’ and if they can’t, they should pay a new customer commission.
The biggest challenge
As well as the advertisers and publishers, lower or 0% commission is a huge challenge for those in the middle: the networks.
Many affiliates express the need for a platform to voice their concerns and building a merchant review system is one of the ideas to bring more clarity to the process.
Others claim it all boils down to developing loyalty with good salespeople for far-reaching benefits. Chris Johnson, head of affiliate operations at Vouchercloud and moderator of the impending debate at PMI: Europe, suggests more education is needed to improve the affiliate/brand relationship, and it might be up to the networks to facilitate this.
“It’s important to have transparency on the reasons why this is happening and also to clarify the new or existing customer divide,” he comments.
Cases for and against lie on both sides of the argument, while the advertisers and publishers seem intent on sticking to their convictions. The point of contention is reaching its peak, but is likely to rage on for some time yet.
Interested in learning more or sharing your opinion? We will be exploring this topic further at Performance Marketing Insights: Europe in July.