Monday, March 28, 2005

Affiliate Programs Don't Work in the World of Local Marketing

Last week I had a local retailer “offer” me the “opportunity” to become an affiliate of their store. Their offer entailed my company giving them free advertising in our publication. In exchange, they would pay us an affiliate fee on any sales they could track back to their ad in our publication.

As you can see by my use of quotes I consider this to be neither an offer nor an opportunity. (I'd call it a waste of time but, that would be rude.)

On the surface it might seem like a good deal. If the ad really works well we could generate more in affiliate fees than we might have received in advertising revenue.

And, of course, this type of deal is done routinely on the Internet so people have grown accustomed to it without thinking it through.

But if you take a little time to think about it, this deal fails to pass muster in several ways.

One is that it fails what I call the business model test. In local print media, the business model is this: 1. The publisher pays the production, distribution and marketing costs to produce the publication. 2. People read it. 3. Advertisers pay to be in the publication so they get exposure to the people who read it.

The risk a publisher takes is that they will not get enough paying advertisers to cover their costs at the time of publication. It's the primary risk in the publishing business. And, every business carries a similar risk. As business owners, we front the working capital required to start a business and we plan to generate enough revenue to cover the costs plus our time and some profit. It's part of doing business.

As a business owner, that's the risk I have planned to take. I am not interested in adding another risk to my plate. However, this affiliate advertising deal puts a whole new risk on the table. It's the risk that not enough people will carry in my ad to this store and buy enough product to cover the cost of running the ad.

So, I have increased the risk I am taking without increasing the upside in any meaningful way. Plus, the risk I have added is one I have no control over. No thanks!

The other test it fails is the local marketing test. If a local retail business is doing their marketing well, their potential customers should hear about them in a variety of ways. So, each ad they place actually works with the others to build awareness of the store among local shoppers. Over time this can develop a steady flow of new customers to a store like this.

But, in an affiliate program, all the ads are competing with each other for the affiliate fee because only one of them will earn the fee on any given sale, even if they all helped bring the customer in the door.

So, you see, a system like this does not fairly compensate the advertising vendors for the service they are providing to the retail store.

The fallacy here is to think the only value the store receives is when a customer walks in the store, hands them a coupon and makes a purchase.

That line of thinking completely ignores awareness generated by the exposure the store gets from the ads they are running. That's like saying every time you exercise you should expect to lose weight, or it's not worth it.

This thinking fails to account for all the work that goes into building something before the result can be seen. Most things take time to build. Fitness and health come from exercising and eating right over time. Successful careers develop over many years. Relationships blossom and mature through many shared experiences.

With most situations what you see on the surface is just the tip of the iceberg. Below the water is a lot of work and effort that made it possible for the iceberg to break through the surface. So, it's foolish to think you can just pay for the tip and ignore everything that lies beneath the surface.

I won't do business with someone who wants to pay for just a small part of the service I'm providing. Neither should you.

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