Affiliate marketing is seeing increasing levels of competition, investment and evolving technologies. At the same time, changes in the way consumers engage with brands online present new challenges and opportunities for merchants and marketers alike.

The affiliate channel has undergone immense change since its inception in the mid-1990s. It has become more professional, with networks and super affiliates making significant investments in technology platforms.

It has also diversified, with the emergence of micro affiliates catering for the sites that form the web’s ‘long-tail’ of niche search product categories. Affiliates are also branching into new areas such as group buying and comparison shopping engines, and are taking their first tentative steps into the domains of social media and mobile.

This diversity is being driven by the dramatic change in the way consumers are searching for and engaging with brands and products online. For consumers, the internet has become a primary research tool, with many using search engines, information websites, CSE’s and online retail websites to research a product before making a purchase.

The latest figures from the IMRG Capgemini e-Retail Sales Index revealed shoppers in the UK spent a total of £5.2bn online in April 2011, 19% more than in April 2010 and equivalent to £84 per person. E-commerce sales in Western Europe are predicted to keep growing at an 11% compound annual growth rate through 2014.

There has also been a longer-term shift towards online discounting, with consumers increasingly engaging with vouchers and discount offers. This has meant marketers need to ensure their products appear on sites that offer discounts and value for money.

Recommendation sites are also becoming increasingly important. A recent survey by Havas Media Social and Lightspeed Research concluded that 53% of consumers were more likely to look up a brand if a friend had recommended it. 

Affiliate opportunities

For affiliates, the change in consumers’ online behaviour means they have more ways in which to drive and monetise traffic. Organic or ‘natural search’ traffic via SEO remains one of their preferred methods, while Pay per click (PPC) is also popular.

Yet the boom in user-generated content and the power of recommendations has made micro-affiliates more attractive to merchants as they begin to appreciate their ‘collective’ influence in driving click-through activity. 

Merchants now recognise long-tail search terms as a huge opportunity to drive traffic back to their sites, generate buzz and spread messages virally.

For example, an affiliate focused on long-tail search terms – e.g. ‘digital camera’ + ‘brand’ + ‘colour’ + ‘key features’ – will most likely see lower traffic volumes but a higher rate of conversion. Whereas those bidding on generic search terms – e.g. ‘digital cameras’ – will drive higher traffic volumes but have a lower rate of conversion.

Other widely-adopted affiliate models include loyalty and reward schemes, email marketing (affiliates that build their own data lists to target a merchant’s potential customers with newsletters or dedicated email campaigns), co-registration, voucher-code and group-buying affiliates. Notable examples are Nectar (loyalty and reward schemes), Groupon, Livingsocial and Dealster. 

Each affiliate stream results in a different quality and quantity of leads, which impacts on the incoming revenue they can generate. What remains constant however is the affiliate’s aim to drive performance by bringing merchants closer to their visitors, and ensure the incremental revenue generated as a result is greater than the amount invested initially to build and promote the site.

Based on this premise, selecting the merchant to partner with becomes a question of scale, efficiency and lowest cost for the affiliate.

For merchants, the proliferation of streams within the affiliate channel makes it much harder for them to work successfully across them all. This is why development of rich product level data feeds and innovative tools for their creation, distribution and management are so important.

High-quality product data feeds allow merchants to create a single platform of distribution under which brand consistency and product visibility is maximised, while affiliates can more easily tailor rich product information (i.e. promotional text) into higher-converting consumer-facing content.  

The sooner affiliates and merchants get to grips with how product feed technology can enable them to optimise their performance channel marketing efforts, the more profitable they will become.