Share and Share Alike: Are Associate Programs for You?

What is "revenue sharing?" Well, it depends whom you ask.

I’m glad to say that the business model of revenue sharing, perfect for Internet retailing, is coming of age. Today, we give the model a good kick in the pants, with some solid explanations, theories, and tactics.

When you look at revenue sharing programs, it’s important to examine each perspective that of the consumer, the retailer, and the associate. Only then is it possible to help the consumer with these programs. How do I know? We run Wish-List.com, "The Internet’s Gift Registry" -- a business model based largely on revenue sharing.

The Basics

"Associate programs," "revenue sharing," or "bounties on sales" are all names for this simple Internet model: Associates send retailers consumers who buy. In exchange, retailers pay associates commissions on sales.

The best way to dig in and examine the viability of these associate programs is to view them from the perspective of consumers, retailers, and associates.

Consumer’s Perspective

This is probably the most important perspective.

It’s possible for associate programs to offer consumers advertising that’s value added. It’s almost like word of mouth from a friend. For example, a consumer may have a favorite web site for some particular reason. Each Thursday at work, I might visit a site with the latest ski conditions and related events for my favorite mountain. If I saw links promoting a spring ski sale, chances are I’d be interested and would click-through. What key dynamics are happening here?

I’m familiar with the mountain’s web site, and I trust it’s content. The timing and placement of the promotion was so good, it turned into "my opportunity" to buy new skis.

Dare we say the mountain offers to take delivery of my new skis, and hold them until I arrive that weekend? This can clearly be value-added advertising for the consumer.

On the other hand, consumers might react in a not-so-positive manner:

"I see that retailer’s logo all over! Everywhere I go, someone is trying to sell me something."

"Each time I follow one of those promotion links, I loose track of what I was originally doing."

"Who do I go to for help with my purchase? It’s confusing who’s selling what."

Retailer’s Perspective

The consumer’s perspective above is a compelling story which happens in various degrees. As a retailer, I’m looking for an effect like "word of mouth from a friend." I see the importance of going to the consumer instead of making them find me. Associate programs can effectively bring your products to where the consumer is.

I even argue above that a promotion’s relevancy, surrounding editorial content, timing, and fit with consumers’ receptiveness, can all add value. A key dynamic, therefore, is your product’s placement. Leave it to an associate to create the relevant content and timing, and let them place your product where it matters.

With the right group of associates, and your supporting programs, a retailer can do highly targeted marketing that is still widely distributed.

What else can retailers do with associate programs?

Build incremental sales and improve conversion rates for turning visitors into buyers.
Capture more impulse purchases, with better timing and placement, of your promotions.
Pay for only those buyers delivered to your doorstep, and avoid broadcast advertising.
Build brand equity by leveraging the relationships between associates and their audiences.
So, why do so few retailers have their own associate programs?

Retailers have to relinquish partial control of their marketing and branding to their associates. This is not an easy thing for most retailers to do. The consistency of the marketing message has historically been key to mass advertising. Look at the example of Coca Cola® -- it tightly controls the exact color of red on the logo. But is the concern with consistency applicable to this article?

I would warn retailers not to let associates alter your message or brand equity. Inconsistency between your message, and that of you associates’, will confuse your customers, and reduce their trust in your brand.

And details are important. Is Amazon.com the World’s largest bookstore, or is it the Earth’s biggest bookstore? If you change your message, all your associates have to change their message too all at the same time.

Technology is another hurdle for retailers. The implementation of an associate program is not simple. Retailers have to put time limits on referrals. They have to track associate products, their price points, commission percentages, and all transactions delivered by associates.

An associate program replaces, in part, sales and marketing functions. However, additional infrastructure becomes necessary to support the associates. Tracking and paying commissions, providing help desks, incentive programs, and marketing to associates, are all required elements.

Other snafus may come from risks of your largest associates going out of business, or worse, getting negative publicity. There’s also the risk of lawsuits from your associates.

Associate’s Perspective

Last but not least, what can you expect as an associate?

To make incremental revenues.

To round out your own product section. Put your audience first, and give them a meaningful selection they can use.

To add Internet retailing as one of your revenue generators in addition to advertising.

To find an easy solution to retailing, with no fulfillment, inventory, or distributor concerns.

Maybe, to build your own credibility by joining the right associate programs.

The negatives of being an associate exist, too.

Lower profit margins than you could earn retailing your own products. Less control over product availability and product selection. Poor performance by the retailer reflects negatively on you as the associate.

Higher business risks due to lack of control over your revenue sources. If your largest revenue source goes out of business, you’re out of luck.

Possible conflict of interest between your advertisers and the products you promote.

Need to rely on the retailer’s accuracy in reporting your commissions on sales.

What should associates look for in a good program? First, a warning: Use these suggestions at your own risk second opinions are always appropriate!

Consider the fit between your audience, the retailer, and their products or services.

Look for positive references from existing associates.

A clear definition of what constitutes a buying referral. It would be nice for you if such a referral included any consumer coming from any part of the associate’s site, arriving at any part of the retailer’s site, and buying any product within a 24 hour period. This is not typical however, so expect a more restricted scope.

Sit back and digest. I’ve provided a lot of information on associate programs. I welcome rebuttals and suggestions.

About the Author

Keith Kraemer is CEO of Wish-List.com, a Manhattan Beach, CA-based company. Prior to his current venture, Keith co-founded NarrowCast Media, a banner advertising network, where he worked as Executive Vice President. He is an expert on e-commerce, positioning Wish-List.com as "The Internet's Gift Registry" to capture Internet transactions on a large scale. He is an active participant in Internet marketing circles, and has appeared as a guest on Log On U.S.A., a nationally syndicated radio show. His background is in physics, he is a Deloitte and Touche alumnus, and has received an MBA from the University of Southern California.

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