Friday, 12 February 2010

Voucher Code Affiliates

Why is it that so many e-commerce websites have failed to cotton-on to the fact that they are leaking enormous amounts of cash to Voucher Code sites through their affiliate programmes?

Here's How it breaks down ...
  • Affiliates are a 'good thing' if they drive traffic to your website that you would not otherwise receive and/or if they provide reassurance to punters (who have already found you but are searching further) by redirecting them back to you.
  • Voucher Code (aka Coupon Code aka Discount Code) affiliates rarely if ever do this ... having analysed the traffic paths in some detail (thanks to Hitwise) the reality is that most Voucher Code affiliate commissions are generated as a result of the user searching for your website brand name and 'voucher codes' (or equivalent) after they have decided to purchase from you and normally when they are at the point in your check-out process where a voucher code could be entered
  • Of course they don't need to succeed in finding a voucher code for you to leak the commission, they simply need to click one of the links on the Voucher Code site's page to now be tracked as the last referrer for this transaction
  • And if you think it through, it get's worse; if the transaction had been referred by another affiliate, the Voucher Code affiliate 'hijacks' that commission by being seen as the last affiliate referrer before the order is placed ... and of course if a voucher code does exist and the punter finds it on that site you are now paying affiliate commission and funding a voucher discount on that transaction (so chances are the transaction is economically marginal for you anyway)

Of course there is an argument in favour of the voucher code sites which goes something like this: bargain hungry customers start their journey at the voucher code site (or are prompted by an emailer having signed up to a voucher code site) and follow the journey that goes 'this retailer is offering a voucher so I will shop at this retailer now' (rather than its competitor, presumably). I simply don't buy this logic (even for those firmly established retail brands where the consumer is more likely to respond to the prompt to shop from this retailer because of the Voucher Code offer itself). Certainly for the majority of web businesses the cost of the 'leaked' and 'hi-jacked' commissions far outweigh the benefits of true 'new traffic' generated.

This is relevant not just for those running affiliate programmes of course -- if I was a 'good' affiliate myself I wouldn't want to be driving traffic to a website that is dominated by voucher code activity as I would know my affiliate commission is likely to be hijacked by a voucher code site at check ot.

Glad I've got that off my chest.

And yes, I have been through the process of paying a fortune to Voucher Code affiliates (when the programme was being managed for me by an idiot) and I have observed what happens when you tur them off (no discernible impact on traffic or revenue generated, massive saving on commissions and funded voucher discounts) so for my sites at least I have tested and validated the hypothesis that Voucher Code sites are mostly leeches and to be avoided.

And yes, it irritates me that I know they are highly successful and they make a fortune ... which is why I have written this blog in the hope that the bubble will burst for them soon!

Maybe we can coin a new term: "Vouchasites" (Voucher Sites + Parasites)

6 comments:

Nickname unavailable said...

Well said. This area is yet another one where a lot of the "online boom" apparent "success" is in fact restricted to those providing (or parasitic on) the infrastructure.

We saw this in the original internet boom in the 90s. Sure, that was the beginning of what was indeed a very successful new phenomenon - but many (the majority?) were seduced by the hype, the outrageous enterprise valuations, and a handful of success stories... and charged into it, spending vast amounts on what were highly questionable, or even fatally flawed, business models.

My own variant of your rant is the heavily touted idea that broadcast TV is dead, and we're all watching our TV online. Nothing could be farther from the truth...but many are making money out of providing ways for businesses to spend money in the belief that it's true....

Neil said...

Kevin,

I agree with your argument and we're dealing with the same questions here. However, I think there is one argument in favour of voucher affiliates that you haven't mentioned. Basically they're a method to reach the economic holy grail of price discrimination. i.e. tailoring pricing to match the consumers willingness to pay. Those customers who are very price focused will use the roundabout method of these sites to get their extra discount while less price-conscious consumers use other channels and shop directly. As long as your margins can support the bargain hunters and are actively contributing to overall profit then you shouldn't care. Off course there's problems with leakage etc.. and all the disadvantages that you make, but I thought this point was worth making.

Neil

Kev said...

A fair point Neil -- in our particular cases we are high growth businesses that are focussed on market share gain and growth and by the nature of our brands (ie. not well-known off-line brands) we live or die on the headline price-competitiveness of our proposition. If we have to factor in to our headline pricing the need to fund vouchers in some cases we feel we would be sub-optimising our pricing strategy for those who are doing more direct headline price-comparisons between us and other retailers.

As I say, recognise that is a function of where our online retail brands are rather than a definitive answer.

Matthew Denos said...

Excuse me Kevin, but I don't understand your reasoning. You say:

"And yes, I have been through the process of paying a fortune to Voucher Code affiliates (when the programme was being managed for me by an idiot) and I have observed what happens when you turn them off (no discernible impact on traffic or revenue generated, massive saving on commissions ..."

By turning off commissions to sales that are generated by coupon sites you think that you implement justice because coupon sites do not deserve to be credited the sale. And you saved a fortune doing that. What about all other publishers (non-coupon sites) who brought you all this traffic? Aren't they the ones to be credited the sales? Yes, it is true that the traffic that these publishers sent you visited a coupon site in the buying process, making these poor publishers lose their commission. To me, the "fortune" you saved as a merchant is not the result of "justice" but the result of "steal". It basically allows you to avoid paying commissions to the publishers who send you traffic simply because of your technical inability to track the ones who really deserve the credit.


I guess you are using an in-house affiliate program. If, as a merchant, you were on CJ.com or other affiliate networks, they wouldn't allow you to enjoy all these FREE sales. It is true that coupon sites may not deserve the credit of the sale, but neither do you! This fortune that you saved is nothing but the unpaid commissions to the publishers who sent you the traffic before that traffic visited the coupon site.

I would like to hear your comments on this, Kevin

Matthew

Kev said...

Matthew, with respect I think you have completely misunderstood the dynamics of what I am talking about here.

Most affiliate networks (we use Webgains) attribute commission to the last affiliate to have driven traffic before the sale so

1.*if* the traffic originally came from a "good" affiliate but the customer diverted at the basket to seek a voucher then the good affiliate would have lost out -- now they get the commission they deserve. No net saving to us but commissions going to the right people now (IMO)

2. If the traffic had come from our own organic or PPC activity (>90% of our traffic) then the 'divert to search for voucher at basket' activity no longer causes us to leak commission to the parasitic voucher affiliates and we save (OK, when I used the words 'a fortune' I may have been guilty of hyperbole; I'll give you that).

Alex said...

Google Ventures, the investment arm of Google, acquired a big stake on Retailmenot, the world's biggest coupon site. They paid millions for that. http://blogs.marketwatch.com/behindthestorefront/2013/07/19/google-backed-retailmenot-surges-up-to-33-on-first-trading-day-micro-targeting-the-new-deal-trend/
Why Google spend a fortune to acquire a stake in a coupon site?