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How Affiliate Marketing Is Reducing Customer Acquisition Cost
With increasing focus on profitability, more and more e-commerce sites have turned to affiliate marketing to drive sales and pay performance-based commissions
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Whether your company is small or in the Fortune 500 list, you'd love to have an arrangement where a partner sends you qualified traffic, and you only pay them if and when a sale actually happens on your site. That is exactly what Affiliate Marketing is! Affiliate websites work with 1000s of e-commerce sites and drive sales to them. They get paid commission for every sale they drive. However, the commission rate is set by the retailer partner and it is usually set at a cost that is much lower than the retailer's cost of customer acquisition on other channels. Moreover, on channels like Google for example, you would first pay to get clicks - only a few people from those who land on your site will actually shop - so between browsing and actually shopping, the funnel keeps getting narrower and your cost of actually generating that sale keeps getting higher. Here is why retailers are more than happy to pay commissions to an affiliate partner like CashKaro.com, because they are only paying if a sale is generated. If budgets need to be cut, Affiliate Marketing is the last channel to get affected because it is performance based and will help acquire sales at 25-30% of the cost one would incur on other channels.
Affiliate Marketing is a valuable means for attracting new business and retaining existing customers. In a world where the cost of a buying customer is increasing every single day, the performance driven nature of Affiliate Marketing sets it apart. The Cost of Customer Acquisition (or CoCA) is the most critical metric every marketing manager needs to determine to grow and maintain profitability. Your CoCA will vary from channel to channel. If we take an example of Indian market, in the lifestyle segment due to intense competition between multiple well-funded players, Cost of customer acquisition can go as high as Rs 1,000 however, for the same players CoCA through the affiliate channel it is only 25%-30% of other paid channels.
Today, almost every top Indian e-commerce store has an affiliate program. In India this paradigm shift happened in the last 2-3 years, when advertisers started testing this channel and discovered that affiliates provide twice the returns in comparison to other digital marketing campaigns. Some e-commerce players run in-house affiliate campaigns like Flipkart, Amazon, Snapdeal while others like Paytm, Jabong prefer to run their campaigns through affiliate networks like Optimise, Payoom, Komli, iCubesWire and DGM. In developed markets like UK, USA merchants get 10-20% of their total revenue from affiliate channel. In fact recently, Nitin Agarwal, AVP Marketing of Shopclues.com commented that 'Performance marketing helps us keep customer acquisition cost low' and at another instance he indicated that the affiliate channel drives about 20% of Shopclues' sales.
There are various models of Affiliate Marketing today which include Product Discovery sites, Price Comparison, Coupon and Cashback sites. Larger sites like Amazon.in, Flipkart, Snapdeal, Paytm etc. and also smaller businesses use the affiliate channel to build brand awareness, showcase their products or services and facilitate customer acquisition. Globally Affiliate Marketing has stood the test of time and there are examples of very successful businesses in this space. Ebates.com, largest US Cashback site was acquired by Rakuten for $1 Billion. Fanli.com, largest Chinese Cashback site recently raised investment at $1 Billon valuation. Others like Shopping.com, Coupons.com, RetailMeNot have also joined the unicorn club. In a price sensitive market like India the love for deals and discounts is here to stay. Given the unit metrics of Affiliate Marketing, this marketing channel will continue growing.
Increasingly more and more investors are also looking at this space as a great way to get exposure to Indian ecommerce. Mr Ratan Tata's recent investment into CashKaro.com was the first for the Affiliate Marketing industry, and we are confident this is just one of the many fabulous firsts to come in this space!
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.