Affiliate marketing is thriving, with the sector expected to drive an estimated £4.62 billion in online retail sales during 2010 in the UK alone, according to Econsultancy’s annual buyer’s guide published last week.

It is important for publishers, merchants, networks and agencies alike to continue to innovate to add value to the customer journey and drive further growth in the sector. This post explores some of the latest trends in the industry covered in the report.

It has been a tough period for affiliate marketing, with programmes being scaled down or, in some cases, withdrawn completely due to familiar brands disappearing from the high street.

A sign of the times was when DGM UK, a well known network in business for more than a decade, went into administration last month.

But the difficult economic environment has also brought with it opportunities for those who have the right business models in place. Consumers are carrying out more research online than ever, and the recession has fuelled the national obsession for bargains.

Recessions are historically ripe with opportunities for innovation, and a major benefit of affiliate marketing is that it is an inherently entrepreneurial sector.

Those affiliates that adapt their business models appropriately will continue to flourish even within a recessionary climate.

New business models emerge during the recession

Voucher-code and cashback sites have thrived in the new “age of austerity”. The group-buying site Groupon also debuted during the recession, and this new addition to the affiliate family has been rapidly gaining ground, with other copycat sites adopting similar business models.

As wedding specialist Confetti and games company Realtime Worlds went to into administration last week, it seems we’re not quite out of the danger zone yet. However, the good news is that customer behaviour will be sustained even as the economy shows signs of recovery.

Consumers are seeking out websites which enable them to buy things cheaper, and this change in behaviour is part of a longer-term shift.

A radical shake-up of industry best practice to enhance reputation

The unscrupulous behaviour of a minority of affiliates is detrimental to the industry as a whole. This is something Matt Bailey of 7thingsmedia has written about on our blog recently, and although many affiliates have taken steps to increase professionalism, there is an ongoing battle to increase transparency in the industry.

For the affiliates themselves, this means closer collaboration with merchants to ensure they are following their requirements and best practice guidelines. And from the merchants’ perspective, this entails providing enough information to affiliates regarding what is permissible.

A multi-attribution system is needed to ensure fairer commissions

There has been much debate around how to attribute value in affiliate marketing and historically, these debates centre on the fairness of the last-click-wins model.

For example, there is some discussion around how much value such discounting sites provide for merchants in the long-term. Voucher-code sites definitely have a role to play in the overall customer journey, but as they are very often the last place the customer visits before check-out, they often get the last click.

A fairer system is clearly needed. Last year, eBay won the Econsultancy Innovation Award for its quality-based CPC-model, which attributes commissions to all channels that contributed to the final sale on a CPC basis.

The importance of a joined-up approach is becoming more significant and, as affiliate marketing should be employed as part of an overall strategy, it makes sense to uses a fairer rewards system that recognises the contribution of different affiliate channels.

However, as Mark Kuhillow of R.O.EYE points out, a multi-attribution system needs to be managed carefully in order to prevent the dilution of commissions:

“An MA [multi-attribution] model may also represent a threat. If it is not rolled out with care, MA threatens to water down commissions to the extent that a campaign is no longer profitable for any touch-point in the purchasing/acquisition chain.”

Mobile and geo-location services provide fresh opportunities to engage with consumers

Following on from the trend of voucher-code and discount sites, the next step would be the ability to make these services available in real-time, allowing marketers to be far more relevant and targeted. Bar-code scanners, for example, allow customers to check the cheapest price in the physical store location.

One affiliate site that has already capitalised on the growing popularity of smart-phone devices is VoucherCloud, which allows customers to redeem vouchers at near-by locations in-store. This is an exciting space to be in, since it effectively means voucher-codes are no longer merely restricted to online purchases.

Affiliate marketing can also provide a business model for monetising free mobile applications. Whereas display advertising has been used traditionally, the evidence points to the fact that, in practice, it is difficult to make advertising-funded business models work on mobile.

Affiliate marketing has established itself as a channel that delivers tangible ROI, and given that e-commerce has been relatively shielded from the impact of the recession, affiliates will continue to add value for customers and add incremental sales for retailers.

However, to sustain long-term growth, affiliates need to think about the bigger picture. Rather than gaining short-term quick wins, they need to employ business models that will create sustainable value for retailers and customers alike.

So, despite the impact of the recession, there is plenty for affiliates to be optimistic about, and at Econsultancy, we’re confident that the outlook for affiliate marketing is rosy.

Image credit: dan taylor