Written By: Tom Ogg, Co-Owner – Travel Professional NEWS
Back when we had several travel agencies, I well remember one of the most effective ways to obtain new clients was to encourage our existing clients that were happy with our service to refer their friends and neighbors. Whenever we received such a referral, the new client came to us already sold on our service and anticipating the same kind of relationship that our agency shared with the person that referred them.
It was the single best way for our agencies to expand our client base. Client referrals were so desirable that we tried every incentive known to mankind to encourage them. When a client referred customers to us on a recurring basis, we made sure to recognize their referral with gifts and recognition. I believe, in any business, third party referrals are the strongest kind of new customer.
Based on the testimonials of satisfied clients who have referred them, they already come to the business with the conviction that the business is viable, honest, effective and reputable. Often times, this third party is a close acquaintance of the person being referred, and other times, the referring party is simply a knowledgeable person, or influencer, who has an expertise in the market and in a position to make referrals. Of course, this all took place long before the Internet started to penetrate the travel industry.
As the web evolved, many travel suppliers embraced the opportunity to change their business models to favor a direct relationship with their customers. By offering direct settlement and e-documentation, they eliminated the need for an intermediary to process the transaction. As airlines, hotels and resorts, car rental firms and such moved towards vertical integration, one thing became crystal clear. They still needed the ability to drive traffic to their websites in order to serve their clients and fulfill their specific needs.
During this period of time, banner advertising was the primary method of attracting the attention of customers plying the web for information and services. Websites that had a readership of business people might well have been the target for an airline’s banner ad in hopes of convincing the consumers that their airline was their best choice. While, initially, banner ads were interesting to consumers, ultimately, the proliferation of banner ads caused consumers to lose interest and become blind to them. While travel suppliers were still paying huge amounts of money to advertise, there was little that could be measured in terms of results. Eventually, banner advertising fell from favor, and as banner advertising CPM rates fell from their lofty highs, suppliers tended to abandon them as a viable marketing vehicle.
About the same time frame, Amazon.com was evolving their marketing model that included giving anyone with content on the Internet the ability to market books specific to their content on a revenue share basis. While Amazon.com did not invent affiliate marketing, it certainly launched the current version. Amazon.com believed if it could enable millions of websites to offer their books with relevant content, the subsequent referral of the customer to Amazon.com to conclude the purchase would be just as good as a third-party referral. Based on Amazon.com’s subsequent success as the world’s largest online bookstore, they were correct in their assessment of the power of affiliate marketing.
The Effect of Current Trends on Affiliate Marketing
One of the most common discussions that occur regarding online commerce is how consumers relate to supplier-direct commerce and the online environment. Many people take the position that complex leisure transactions will always require an intermediary, and while change will not happen overnight, here are considerations that indicate the direction of that change.
The COVID-19 pandemic has trained tens of millions of household that transacting business online is an efficient, safe and wonderful way to conclude their shopping. By buying online, rather than in a storefront they generally save money, have better access to products and services and that the end result will be that the popularity of online shopping will continue long past the end of the pandemic.
Dynamic Packaging: Still evolving, dynamic packaging promises the ability for a consumer to purchase dissimilar items from different suppliers and compile the components into one transaction. As an example, a person traveling to Hawaii on vacation may book a hotel on Oahu, a condo on Maui, their complete airfare, airport to hotel transfers in Honolulu and a rental car in Maui. They may shop for the best available pricing and confirm the entire itinerary in one transaction. Dynamic packaging will dramatically reduce the need for intermediaries in situations where they are present to consolidate travel elements into single transactions.
Online Communities Will Become the Intermediaries of the Future: Consumers researching complex leisure transactions will resource information from online communities that have evolved for the specific purpose of sharing information with its members. Online communities take on the same roll as client referrals did at one time and fit the Affiliate Marketing business model quite nicely. Currently Facebook controls 620 Facebook Groups that deal with all aspect of travel and much more.
Future Consumers Will Think Nothing of Buying Online: There are really three separate types of consumers that Affiliate Marketing affects and by identifying them, it is easy to understand why Affiliate Marketing will continue to increase in size and scope.
The Baby Boomers: Now the “mature” market, Baby Boomers are somewhat familiar with e-commerce. They have adapted to commodity type transactions because they had no recourse. However, most Baby Boomers would rather purchase complex travel events from someone with whom they trust and share a relationship. Most well-traveled Baby Boomers are active in community groups and have also taken to researching the elements of future travel plans online. While they may still purchase from an intermediary, by using the web, they have gained the knowledge to make sound purchases.
Generation X: Generation X made eBay what it is today. Raised on Game Boy, Nintendo, cell phones and personal computers, they think nothing of making purchases on the web and across global borders. Generation X is becoming the center of online commerce. They readily accept new technology and will think nothing of making complex, large dollar amount purchases online.
Millennials: Today’s young adults were raised playing highly complex computer games, participating in social networks and interactive environments and have a complete “self” orientation. They are used to being in control and demand things instantly. Millennials see the value of using intermediaries and accept the rise in global commerce as a natural progression of events.
Increasing Competition Between Online Marketers: As more and more travel related products and services will vertically integrate into Affiliate Marketing in order to capture a huge growth opportunity, competition for key affiliate sites will increase, and the affiliates will be in a great position to profit from the competition. Bid rates for keywords to redirect traffic to supplier sites will increase, and competition between contextual advertisers to obtain affiliates for their programs will increase the affiliate’s share of the bid rates. All in all, it is a very exciting proposition for affiliates that garner enough traffic on the web around high bid keywords.
Understanding Affiliate Marketing
Affiliate marketing is nothing more than an effective form of online advertising that works to everyone’s advantage. The advertiser appoints an independent website as an affiliate. Then, the affiliate runs textual, graphical or other creatives to motivate their visitors to visit the advertiser’s site to accomplish a certain task as defined in the Affiliate Agreement. Upon completion of the task, the advertiser pays the Affiliate an agreed upon sum of money. It is that simple.
Why Supplier Like It: Suppliers love Affiliate Marketing, as it gives them a chance to handpick their Affiliate websites and enter into a lucrative agreement with them. In all Affiliate Marketing programs, the supplier only pays when a specific agreed upon task is accomplished. If an affiliate does not perform, the supplier does not pay. It allows the supplier to closely control his or her marketing budget as it relates to results. Coined also as Pay for Performance Marketing, Affiliate Marketing is becoming the preferred choice of many online marketers of travel services and products. The key to understanding why suppliers rank Affiliate Marketing high on their list is simply this, Affiliate Marketing leads to a consumer direct sale with direct settlement with a known cost-per-sale for the acquisition of the sale itself. This customer to supplier connection promises the highest internal yield of any distribution channel.
Why Consumers Like It: Consumers like the process of controlling their own destiny when researching and consummating an online transaction. When consumers have a relationship with an affiliate’s website, they tend to accept referrals as valid, thus making the affiliate a very productive way for consumers to seek out purchasing opportunities that are somewhat qualified. Online communities are the epitome of this type of affiliate/consumer relationship and generally offer the consumer the opportunity to validate their buying decision with the group.
Types of Affiliate Marketing Programs
While there are many different affiliate marketing programs and all of them seem to be somewhat different, there are basically three different affiliate models and each program will usually fall under one (or more).
Pay Per Click (PPC): A PPC format is pretty simple and easy to understand. The advertiser agrees to pay the publisher (affiliate) a fixed rate each and every time someone clicks on their link to visit the advertiser’s site. Many advertisers will narrow the payment to new unique clicks and some will narrow it even further to simply new and unique to the advertiser’s site. PPC advertising is losing some interest simply because, as consumers become more and more used to contextual and graphical advertising, the click through rates seem to drop. While this means less income to the affiliate, the advertiser still has maximum exposure from their creatives. However, a good PPC campaign can rack up an unbelievable amount of revenue in a short period of time for affiliates if they have a willing and active readership.
Pay Per Action (PPA): This model offers remuneration to the affiliate every time one of the affiliate’s readers clicks on the advertiser’s creative and completes a stated action. An example of this might be that a cruise line will pay x dollars every time someone clicks and then requests a price quote. Maybe another supplier is building a mailing list, and they would offer x dollars every time a non-subscriber clicks and then joins their e-newsletter list. PPA programs can be great sources of revenue as long as the program offers value to the consumer.
Pay Per Sale (PPS) or Revenue Share: This is the most vibrant of the three types of affiliate marketing programs and the one most often seen in the travel industry. Google’s Adsense program is actually a revenue share format, as is Amazon.com’s. No one makes any money until the consumer actually has an economic impact on the supplier. In the case of Google’s Adsense, the consumer used advertising that is paid for by the Adwords advertiser, and the affiliate then participated in the revenue share of the bid rate. In the case of Amazon.com’s program, the consumer purchased a book (or other product) and Amazon.com paid their affiliate a portion of the profits. Many travel suppliers offer Revenue Share opportunities to travel affiliates.
How Affiliate Marketing Programs Work
Initially, affiliate marketing fell on its face, as every Tom, Dick and Harry was using it for MLMs, pyramid schemes and other shaky business concepts. The software itself was unsophisticated and ineffective. Amazon.com spent millions developing their affiliate program and maturing the software category. Today, there are dozens of third party operators that offer turn-key affiliate marketing solutions to anyone wanting to use their services. It is quite simple to start an affiliate marketing program, but a little more difficult to recruit effective affiliates to market your products.
Here is how it works:
Affiliate Marketing as a Supplier: Initially, you would contact one of the affiliate marketing software companies to set up your affiliate program. This will require you to define your objectives and detail your program. You would provide the textual, graphic or other link creatives that affiliates would use, your Affiliate Marketing Agreement and any other pertinent facets of your program. A good amount of thought must go into this process, but the company hosting your affiliate marketing program can help you through the procedure. The best results are achieved when you appoint an “Affiliate Manager” that will communicate and motivate affiliates to perform on your behalf. They should also monitor affiliates to make sure that they are operating within the guidelines of the Affiliate Agreement between the supplier and the affiliate. The company handling your program will take care of all of the operational details and provide you with a dashboard to your affiliate network so that you see exactly what each affiliate is doing, as well as the entire picture. The company will provide you with the payment information so that you can pay your affiliates in accord with your Affiliate Agreement. Basically, the Affiliate Marketing software company will handle all of the details of your affiliate marketing operation, thus reducing your job down to marketing the affiliate opportunity to potentially excellent affiliates to grow your business.
Affiliate Marketing as an Affiliate: When you make the decision to sign up as an affiliate with the supplier, you would visit their site and then click on the “affiliate” or “partner” hyperlink. This will actually direct you to the company that is operating the affiliate program for the supplier. They will ask information about how to make payments to you and specific information about your website(s). Once you submit your application, your site is usually visited by the supplier’s Affiliate Manager to verify that it is consistent with content for which they are interested in placing advertising. Then, you would be contacted with an e-mail of acceptance and provided with the various creative link options for you to use on your site(s). You will also be provided with a link or access code to your personal dashboard that allows you to see exactly what is going on with your account. The dashboard information is usually updated in real time, so you can see exactly how many clicks have come from your site, how many sales have been consummated and, most importantly, how much money that you have made. When you have an affiliate program that is really productive, it is always fun to watch the dollars rack up while you seemingly do nothing at all.
It is important to understand that the third party affiliate marketing software company is the one operating the software and not the supplier. You can rely on the fact that what you are seeing is true and correct. Once you are armed with these numbers, you will want to start improving your site’s ability to generate more income. This can be done by optimizing each page on which the affiliate-links reside, tracking the performance of the creatives and analyzing these results.
Affiliate marketing represents a huge opportunity for agents that provide niche content and have developed a fair amount of traffic.