Affiliate Marketing…Why Not?

Affiliate marketing is quickly becoming de rigueur for micro businesses operating online. And why not? In the best-case scenarios, affiliate marketing can feel like a win-win-win for the maker, the marketer and the customer.

The maker extends her reach:

  • There’s little financial risk. You’re only showing cash gratitude to profitable partners.
  • Although affiliate partners can receive anywhere from a 30-50 percent payout, you probably bring in more revenue than you would have on your own.

The affiliate partner could see a big payday:

  • Through affiliate sales, you get to add an offer to your mix without creating a new product.
  • You may choose to offer bonuses, but you don’t have to go through the hassle of setting up a shopping cart or creating an integrated marketing program to make a sale.

And the customer learns about a product endorsed by her favorite blogger or micro business owner.

For these reasons, affiliate marketing is often positioned as a no-brainer. Want to reach more customers? Offer an affiliate program!

But this isn’t the whole story.

Let’s take a big step back.

To understand how an affiliate program could actually hurt your sales (and your reputation), we need to take a closer look at what affiliate marketing actually is — a form of advertising.

This is easy to forget, because the name is sneaky. So let’s make a comparison.

In pay-for-click advertising, the advertiser compensates a website owner when a specified type of action is taken (the click).

This is the same arrangement in affiliate marketing. It’s just a fancy name for performance-based advertising.

I’m compelled to disclose that, as a PR pro, I’m biased against advertising. We’re the Bears vs. Packers of the marketing world, engaged in a decades-long rivalry. Like most rivals, we’re not all that different from each other — but for one key distinction. In PR, you earn recommendations and endorsements. In advertising, you buy them.

With this in mind, let’s dig into the question, “Why not?” from the PR perspective.

Affiliate marketing discourages word-of-mouth.

Word-of-mouth is the term marketers use to describe organic conversations people have about your brand or business. The key word here is “organic” – word-of-mouth can be facilitated by your company, but by its very nature, is earned not purchased.

You engage in word-of-mouth marketing all the time. When you go to a new yoga studio and write a Yelp review, that’s word-of-mouth. When you take a class, and chat with your friends about the cool new technique you learned, that’s word-of-mouth.

Affiliate marketing often masquerades as word-of-mouth. After all, the best affiliates are also raving fans of the product or service they promote.

The problem is: when you compensate someone to talk about you, you leave the realm of word-of-mouth. Worse, you might inadvertently kill organic conversations about your product.

Andy Sernovitz talks about this consequence at length in Word of Mouth Marketing.

People are engaging in word of mouth because they love you or it makes them feel good. When you offer a monetary reward (or discounts, points, or miles) for a referral, you make it awkward and creepy. Just at the moment someone is about to recommend you, they think, “If my friend finds out I’m being paid for this, they’re not going to trust me. I’d better not say anything.”

When you think about your own behavior, you can see how this plays out. For example, I’m a Groupon-er. I don’t go out of my way to get Groupons, but whenever one comes through for something I was going to purchase anyway, I jump on it.

When you visit Groupon’s website, you can’t miss their incentive offer: “Refer a friend and earn 10 Groupon Bucks!”

I’ve never clicked the link to send a referral email, because it feels gross to spam a friend just to get $10. But that’s not all: I don’t even want to risk the perception of being in it for the money, so I always hesitate before sharing Groupons that I know my friends will love.

This is a missed opportunity for Groupon, and it’s damaging to the bottom line. According to some estimates, word-of-mouth drives 20 to 50 percent of purchasing decisions.

Before you offer an affiliate program for your product, weigh expected revenue gains against the lost income driven by word-of-mouth . . . tweet it!

Affiliate marketing lowers the perceived value of your product or service.

When you see an affiliate offer, a small voice pipes up with the question, “If this product is so good, why do you have to pay people to tell me about it?”

This isn’t fair, but it’s a response with a quantifiable effect.

In one experiment, behavioral economist Dan Ariely and his team ran a study to determine whether the source of information could actually change someone’s perception of the product.

Ariely’s team invited University of Chicago students to their lab to evaluate the quality of stereo equipment. Every participant received a brochure with all the features of the stereo, but the catch was that one group received a brochure said to be from the manufacturer and the other labeled as thought it originated from Consumer Reports.

After being set loose on the equipment, the participants not only liked the stereo more if they were told the information came from an unbiased source like Consumer Reports, but they also said they would pay, on average $407 for the system, compared to the $282 offered by the students who thought the information came from the manufacturer.

As Ariely concludes, “Mistrust in marketing information runs so deeply that it colors our entire perception — even in the face of firsthand, direct experience — causing us to enjoy the experience much less than we otherwise would.”

This is the best case for PR over advertising I’ve ever seen.

Bringing this back to affilate marketing, the potential damage is clear.

Compensation leads to a perception of bias.

A biased review is rated as less trust-worthy than an unbiased review.

Furthermore, this bias affects your perception of a product’s value.

Why buy what you can earn for free?

Personally, I don’t offer affiliate advertising for my course, and this is a big reason why.

I’d rather put my resources into building my network than buying endorsements. Actually, I don’t think this is even a fair comparison. With affiliate marketing, you’re putting in the time (because creating and managing a successful program is time intensive) and paying out. Why not just redirect the time into earning recommendations?

Of course, it’s not an either-or proposition. Many people choose to do both.

Ultimately, it’s your call whether you bring on affiliates.

There are real benefits to creating affiliate programs, as I outlined way back at the beginning of the post.

Perceptive readers may even be thinking, “But I’ve seen Brigitte promote products as an affiliate before….” And that’s true! I do occasionally sign on as an affiliate, even though I don’t currently plan to offer an affiliate program for Your Media Map or any of my other upcoming programs.

Do you participate in affiliate marketing, either as an advertiser or partner? What are the pros and cons, as you’ve experienced them?