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									Improving Payment Delivery within
Affiliate Marketing

A Guide to UK Survey Results and Global Payment Processing in
the Affiliate Marketing Industry



January 2010
Table of Contents


Introduction: Affiliate Marketing                03
Survey Overview                                  05
Current Affiliate Marketing Landscape         06
Developing a Global Payment Standard             08
 Managing Micro-Affiliates                     08
 Five Ways to Develop a Successful Marketing

   Scheme for Global Affiliates                  09
Conclusion                                       11
About EntroPay                                   12
Introduction: Affiliate Marketing
The core of affiliate marketing is the referral: an affiliate promotes a merchant’s business
and is then rewarded by that merchant for business generated. This online activity involves
the affiliate referring its website visitors to a merchant website, leading to increased sales
opportunities for the merchant. The reward for affiliates is based on a share of the revenue
generated from the customer for the merchant. Unlike other forms of online advertising,
such as display advertising or paid search that tend to charge per click, most affiliate
schemes charge only if a sale actually results from the referral. For this reason, affiliate
marketing is often promoted as one of the most direct performance-driven marketing
techniques available today.


According to the 2009 Affiliate Marketing Buyer’s Guide, an estimated £227m was paid out
last year in commission and fees to affiliates and networks, up from £186m in
2007.Research conducted by Econsultancy earlier in 2009 estimates that UK sales from
affiliate marketing were worth £3.82bn in 2008, a 22 percent increase from 2007. And,
despite the recession, the study found that affiliate marketing sales are expected to grow
to well over £4bn by the end of 2009. With further expansion clearly on the horizon, this
form of performance-related marketing has significant benefits when budgets are tight.


Affiliate marketing is used by brands looking to increase their web presence, deliver
returns that can be directly linked to marketing activity and create a wider brand building
campaign. Due to its performance-based nature, affiliate marketing presents a relatively
low risk marketing option for merchants and requires low initial investment. In today’s
economic climate with reports of decreasing marketing budgets dominating the news,
affiliate marketing can help companies step up their return on investment for marketing
spend.


Research from EntroPay conducted at the A4U Expo 2009 and ad:tech 2009 highlights
decreasing marketing budgets as the key concerns for the industry in 2010. This is in line
with the 2008 results of the same survey. The present challenging economic climate means
affiliates need to work even harder to drive sales at the merchant’s site if they are to
generate the levels of commission they have been used to.




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Affiliate Marketing
In addition to decreasing marketing budgets, 26 percent of respondents also felt that
developing an industry standard for making and receiving payments will be a significant
challenge over the next 12 months, a 10 percent increase from the 2008 results. This
concern was particularly acute for intermediaries, such as affiliate networks and agencies,
who deal with multiple merchants and provide various payment options to affiliates
[Figure 1].


       Figure 1: Biggest challenge to affiliate marketing
                    over the next 12 months
                                         Decreasing marketing
                                         budgets

                                         Making/receiving payments
            25%                          under £100

                                         Making/receiving cross-
                            48%          border payments
       6%                                Increasing the speed of
                                         making/receiving payments
          11%
                                         Developing an industry
                  10%
                                         standard for making/receiving
                                         payments




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Affiliate Marketing
Survey Overview
EntroPay conducted a survey of 90 delegates at the A4U Expo 2009 and ad:tech 2009
about the current state of the affiliate marketing industry and international payment
processing. The following is a summary of the results:


Highlights of Survey Results


 Decreasing marketing budgets will be a key concern for affiliate marketers in 2010,
       with 48 percent of respondents predicting that this will be their top challenge. This
       represents a 10 percent decrease from the 2008 results.


 26 percent of respondents felt that developing an industry standard for making and
       receiving payments will be a significant challenge over the next 12 months, a 10
       percent increase from the 2008 results. This concern was particularly acute for
       intermediaries, such as affiliate networks and agencies, who deal with multiple
       merchants and provide various payment options to affiliates.


 Although a majority of respondents claimed to be happy with their payment processes
       overall, 34 percent of affiliates were not satisfied with how quickly they receive their
       commissions.


 The administrative costs of payments were also identified as a pain point, with 32
       percent of merchants not satisfied with the costs associated with their payment
       processes.


 The most popular method for making international payments in both the UK and the
       US was bank transfers1, despite the fact that the administrative cost of these can be as
       high as £25.


 The potential opportunity presented by the rise of micro-affiliates was highlighted, as
       49 percent of respondents believed that tapping into the long tail of affiliates could
       allow them to drive up to an additional 20 percent of web traffic to their sites. Around
       7 percent of respondents believed that they could more than double their traffic.




1
    EntroPay report on Global Payment Processes for US Affiliate Marketers [September 2009]




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Affiliate Marketing
Current Affiliate Marketing Landscape
The last year was notably turbulent across many sectors of the economy. In turn, the
results of the survey reveal the main impact of the economic downturn has been to drive
the growth of vouchers and discount affiliate marketing similar to that of 2008 [Figure 2].
The economic downturn has not had as strong an impact on the affiliate marketing
industry as was predicted in 2008. Only 21 percent of respondents felt that the recession
had increased demand for affiliate marketing, compared to the 46 percent that predicted it
would have a positive impact in 2008.


                        Figure 2: Impact of economic downturn
                                  on affiliate marketing
                                         2009    2008

    50%
    45%
    40%
    35%
    30%
    25%
    20%
    15%
    10%
     5%
     0%




Internet users have developed a seemingly insatiable appetite for information sharing. The
rise of blogs and social networks has led to the emergence of micro-affiliates that cannot
individually drive a large amount of traffic to a brand’s site. For this reason, marketers have
traditionally avoided this segment of affiliates as it is perceived as uneconomical. On the
other hand, micro-affiliates collectively make up a ‘long tail’ and have the potential to drive
significant click-through.


Recent discussions suggest that the tide is now changing. Web entrepreneur, Steve Poland,
recently stated in the Washington Post that real-time discussions are becoming important
sources of referral sales and leads for websites. 2 Earlier this month, on the official Amazon
associates blog, Amazon launched a new feature called Share on Twitter, which
encourages its affiliate network to use Twitter as a new channel to earn commissions:
‘When Twitter users click on the link in your post and make a qualifying sale, you’ll earn
referral fees. That’s it.’ Or is it? Whilst leveraging the long tail of affiliates through online
channels such as Twitter holds great promise, the influx of micro-affiliates has also led to
new challenges for brands.


2
    http://www.washingtonpost.com/wp-dyn/content/article/2009/11/15/AR2009111501370.html




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Affiliate Marketing
                                            The recent research conducted by EntroPay reveals that over a third of affiliates are not
                                            satisfied with the speed at which they receive their affiliate commissions [Figure 3]. This
                                            can be attributed to two factors.


                                                                                       Firstly, to minimise the impact on internal resources,
      Figure 3: Level of satisfaction with speed of current
           payment methods for affiliate marketing                                     many brands and networks impose thresholds that
                       Satisfied   Dissatisfied      Don't know
                                                                                       affiliates must meet before they are paid, which can be
90%                                                                                    as high as £100. Micro-affiliates find it difficult to meet
80%                                                                                    payment thresholds imposed by merchants and can
70%
60%
                                                                                       therefore miss out on regular payments. At the other
50%                                                                                    end of the scale, the larger affiliates have considerable
40%
                                                                                       costs associated with generating the traffic that they
30%
20%                                                                                    convert into commissionable sales. When affiliates get
10%                                                                                    paid infrequently, cash flow becomes an obstacle to
0%
      Affiliates       Merchants       Networks          Agencies        Other
                                                                                       sales— and growth. Speed of payment is therefore a
                                                                                       crucial part of increasing brand loyalty and ultimately
                                            helps drive sales back to the merchant’s site.


                                            Secondly, the increasingly global nature of affiliate marketing means that organisations
                                            must deal with high banking and administrative costs across different countries.
                                            Organisations can end up spending thousands of pounds making global payments, which
                                            are often slow to process. This is reflected by the survey’s less than 33 percent of
                                            merchants who were not satisfied with the administrative costs they current incur. The
                                            administrative cost associated with payments can often be as high as £25 per transaction –
                                            both in terms of processing costs and time taken to make the payment across regional
                                            borders.


                                                                                         Bank transfers are the most common method of cross-
                   Figure 4: Predominant method for
                                                                                         border payment in the UK, whereas cheques are more
                        cross border payments
                                                                                         popular in the US [Figure 4]. Whilst national systems
                                       UK       US
                                                                                         such as ACH in the US and BACS in the UK can provide
70%
60%                                                                                      an efficient payment system, there is no viable global
50%                                                                                      alternative. Of all the affiliate networks and agencies
40%
30%                                                                                      surveyed by EntroPay, just under half recognised that
20%                                                                                      the biggest challenge to the industry will be
10%
 0%                                                                                      developing an industry standard for making and
      Cheques         Bank transfers     Pre-pay            Other         I don't        receiving payments.
                                         solution




                                            3
                                                EntroPay report on Global Payment Processes for US Affiliate Marketers [September 2009]




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                                            Affiliate Marketing
Developing a Global Payment Standard
Organisations increasingly need to conduct business on a global basis, which presents a
fresh set of operational challenges. Companies must be able to cope with making efficient
cross-border payments of varying sizes and frequencies to operate effectively in multiple
geographies. Whilst larger transactions can usually be handled quite efficiently, smaller,
more frequent payments pose a significant problem in terms of the prohibitively high
administration costs and time associated with them.


Developing a global payment standard is necessary In order to overcome the inefficiencies
and administrative costs that are traditionally associated with making payments,
particularly when operating online where the boundaries between countries are
increasingly merging. This would allow payments to be processed instantly with
predictable costs around the world, thereby alleviating the burden for merchants often
encounter relating to the amount, destination, method of transmission and redemption.


A standard global payment process means merchants and affiliate networks can increase
the speed of payments particularly across borders. Preferably, payments should be issued
in a variety of currencies to allow affiliates to claim their funds in whatever currency suits
them best , which would reduce foreign exchange fees. One solution is prepaid open-loop
cards that operate with the international card networks such as Visa and MasterCard.


Prepaid open-loop cards offer a cost effective, simple and secure way to pay affiliates that
overcomes currency conversion and administrative issues that arise when issuing
payments across the world. There are a number of challenges that organisations must face
in order to develop such a global standard; however, successfully addressing these issues
will results in an improved working relationship between affiliate and merchant.


Managing Micro-Affiliates
The rise of social networks has made the internet much more communal and interactive.
As such, some brands are beginning to look for solutions to capitalise on this trend. The
potential of micro-affiliates was highlighted in EntroPay’s recent survey, where 49 percent
of merchants and networks believed that tapping into the long tail of affiliates could allow
them to increase web traffic as much an additional 20 percent . Around 7 percent of
respondents believed that they could more than double the traffic to their sites.


As previously mentioned, the challenge associated with tapping into the long tail of
affiliate marketing is how to effectively manage micro-affiliates so they remain loyal,
promote the brand favourably and continue to drive traffic back to the merchant’s
website. Communication, which is often linked to the payment process, is an important
part of building the relationship between the brand and the affiliate. For example,




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Affiliate Marketing
communicating more effectively with affiliates about their commissions can help to
increase loyalty and maintain a positive brand association. Brands and networks can
streamline their processes to manage micro-affiliates by integrating payment processes
with their affiliate management software. This allows brands to manage their accounts,
see who needs to be paid and send payments all in one process, thereby increasing the
speed and ease in which payments are made.


Performance marketing software has evolved so that brands can manage and analyse their
affiliate marketing programmes, whilst simultaneously providing an interface for affiliates
to monitor their commission payments. The use of advanced technology not only allows
brands to more effectively manage their affiliate programmes, but also helps to improve
affiliate loyalty and experience through clear and open communication. In addition,
operational and transactional email marketing messages can be sent to affiliates informing
them of a recent payment with links to check their account. These messages can be
branded with the merchant’s logo to ensure that the positive feeling of ‘being paid’ is
directly associated to the merchant, helping to instil brand loyalty.


Five Ways to Develop a Successful Marketing
Scheme for Global Affiliates
EntroPay recommends five ways merchants and networks can effectively manage their
global affiliate communities:


1. Implement a global payment standard. Doing so will help you overcome the
inefficiencies and costs that are traditionally associated with making payments. This issue
has become more pressing over the last year, as just under half of the affiliate networks
and agencies surveyed by EntroPay reported that the biggest challenge to the industry will
be developing an industry standard for making and receiving payments.


2. Issue faster, more frequent payments. EntroPay research shows that the speed at
which the affiliates receive their commissions is a major concern for both UK and US
affiliate marketers. Over a third of affiliates are dissatisfied with the speed in which
payments are made. Merchants should look to remove payment thresholds and pay
affiliates of all sizes using a payment solution that is efficient regardless of the size of a
payment. This should help to drive loyalty and promote traffic generation.


3. Look after the little guys. Micro-affiliates may not generate vast amounts of click-
through, but collectively they can drive significant traffic. New social media channels such
as Twitter can be an effective tool for brands if they are managed in an efficient manner
through advanced performance marketing software. By removing payment thresholds and
keeping the lines of communication open, merchants can generate brand loyalty and
improve the affiliate experience for even the smallest affiliates.




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Affiliate Marketing
4. Keep communicating. One option is to use operational and transactional email
marketing messages to let affiliates know they have been paid, complete with links to
check their account. This can be branded with the merchant’s logo, ensuring the
merchant’s brand is associated with the positive feeling of being paid. Another option is to
create a central interface where affiliates can monitor and track their commission
payments. This can be offered in multiple languages to enhance the local impression of a
global affiliate marketing campaign.


5. Use ‘frictionless’ payment methods. Regular payments serve as a “reward” for affiliates.
Whilst prepaid solutions have become more popular for cross-border payments in the US
(with 23 percent of respondents stating that this is the main method used 4), these are yet
to take off in the UK. Prepaid open loop cards that operate within international card
networks such as Visa and MasterCard provide a quick, efficient way to send money to
affiliates that overcomes barriers that can slow the speed of payment.




4
    EntroPay report on Global Payment Processes for US Affiliate Marketers [September 2009]




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Affiliate Marketing
Conclusion
The importance of driving online sales, increasing web traffic and generating brand
awareness in today’s market environment is paramount. It is also clear that affiliate
marketing is proving to be a strong driver of traffic and sales to a brand’s site. However,
EntroPay’s research revealed that issues surrounding commission payments are a major
obstacle preventing the affiliate marketing industry from achieving its potential in 2010
and beyond. There is a clear need to introduce a global standard for payments that
increases speed and efficiency, regardless of how small each transaction might be or
where the affiliate may reside.


The rise of social media has encouraged forward-thinking brands such as Amazon to begin
capitalising on this trend and maximise the long tail of micro-affiliates. To do this
effectively, and maintain momentum, marketers must address key issues such as payments
and communication in order to keep micro-affiliates motivated and fully achieve the
competitive advantage they are proactively seeking.


Paying affiliates infrequently can lead to cash flow problems, which are obstacles to sales
and growth. Speed of payment, especially when targeting micro-affiliates, is a crucial part
of increasing brand loyalty and sales. And by communicating more effectively—and more
often—with affiliates, merchants will enhance their overall experience with their brands
that can only help to further maximise revenue opportunities.




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Affiliate Marketing
About EntroPay
EntroPay offers a simple, cost-effective alternative for merchants to pay customers and
affiliates quickly, securely and efficiently. Merchants can avoid the high cost of issuing
checks and make payments anywhere in the world with no currency conversion issues.


EntroPay is one of the most cost-effective, convenient and rapid means for businesses and
consumers to make safe and controlled online purchases and to remit funds around the
world. EntroPay has operated since 2003 by Ixaris Systems, Ltd, which is certified to issue
e-Money for EntroPay by the UK Financial Services Authority and is registered as a Money
Service Business with the HM Revenues and Customs in the UK.


For more information, visit www.entropay.com.




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Affiliate Marketing

								
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