That’s the question we began asking ourselves a few months back when noticing the surge in demand for affiliates, influencers, and partner marketing solutions. Since then, the surge hasn’t stopped. In fact, it’s only become stronger as we come in to Q4. But – why?
At Grovia Partners, we speak to affiliate marketers, industry experts, and ecommerce brands every day. We’ve carefully watched the market and have worked to identify the root of this sudden growth. We have found four primary factors driving an up-tick in affiliate marketing spending in 2020:
1 – When E-Commerce Surges, Affiliate Marketing Surges Alongside
Affiliate Marketing drives 16% of ecommerce revenue. With in-store retail shopping seeing a decline due to the pandemic, e-commerce sales have filled the gap and jumped to hold 18.6% of all retail spending (from 14% in 2019). As E-commerce surges, affiliate marketing naturally sees a boost alongside it.
The question remains – will in-store retail ever fully recover from 2020? Will ecommerce continue this increased grasp on the market, or will in-store retail reclaim its lost territory as the pandemic eventually becomes a memory? We believe in-store retail will certainly survive, but predict ecommerce will continue it’s slow conquer of in-store retail spend. The affiliate marketing industry will enjoy the fruits of increased ecommerce spend.
2 – Digital Media Engagement Hits All Time Highs
Digital media engagement is up 61% over normal usage rates in 2020. With many people prioritizing distance and staying home, connectivity and entertainment through online media has become a necessity. People are consuming digital content like never before. This surge in consumption has not gone unnoticed by digital marketers. Whereas total U.S. ad spending will be down by 8% in 2020, digital will be up 6% year over year.
Similar to content marketing, affiliate and influencer marketing blend content and advertisement. In many ways, affiliate & influencer marketing is simply outsourced content marketing. Digital marketers understand that the more content that their brand appears in, the greater they can take advantage of this increase in digital content consumption. The strategy of “appearing in as much relevant content as possible” becomes especially fruitful when operating with affiliates & influencers on a performance model, which we will touch on in the next point.
3 – Increased Focus on Sales Oriented Campaigns
As 2020 has continued, we have noticed companies shift their focus from brand awareness campaigns to sales campaigns. In other words, the KPI for campaign success has shifted away from views and engagement, and shifted towards revenue generation. While ecommerce sales have trended upwards in 2020, the economic environment has brands paying close attention to how their marketing dollars are used. In the realm of partner marketing, this has had a marked affect in how brands are establishing relationships with affiliates and influencers.
In recent years, it’s been common to see partner programs run entirely on a paid-placement (flat-fee) model. Popular content creators and publishers were easily commanding up-front payments of $2000 – $10,000+ for a placement. This model works well for brand awareness, but does little to incentivize your partners to drive revenue for your business. In 2020, the increased focus on tying revenue performance to partner compensation is driving the popularity of CPA-models and affiliate tracking solutions (such as Refersion, Tune, & Impact). Pay-for-performance is a key tenet of affiliate marketing, and is yet another reason the model is seeing increased popularity in 2020. The economy is pushing brands to focus more on sales-based campaigns rather than awareness-based campaigns, and with it, an increased focus on performance-based partner marketing.
4 – Less Reliance on Amazon
The main draw of selling products on Amazon is exposure. Of course, this comes at a cost. Amazon charges referral fees ranging from 6-20% based on the product’s category. This can have a significant effect on gross margins. There’s also increased competition – there may be thousands of other sellers listed directly next to your product(s).
Thus, brands are incentivized to drive exposure to their own online store, in hopes of capturing much higher margins without sacrificing volume. Affiliate marketing is a popular strategy for driving direct sales from an online store. While there’s still a similar referral cost associated with an affiliate-driven sale, it’s common to only pay a referral fee on the first sale. By building affiliate links that point to their own store (as opposed to relying on Amazon Affiliate links), ecommerce companies can save on Amazon costs and better familiarize consumers with their brand. The hope is that this increased brand familiarity will come with an increase in repeat sales. These future sales from the brand’s direct online store will not take a margin hit from referral fees.
Long-story short, affiliate marketing is one of the many strategies that ecommerce brands are taking to drive consumer directly to their online store, resulting in higher customer lifetime value.
Kickstart Your Own Affiliate Program
If you’re looking to take full advantage of the affiliate channel in 2020, reach out to an expert at Grovia Partners to learn how we can build automation into your affiliate program! We help brands kickstart affiliate programs through automated discovery, scaled outreach, and personal activation. Start a conversation with us here!