Written by Emma Delaforce, Head of Advertiser Management, Commission Factory
Introduction
The current economic climate has placed significant pressure on marketers to deliver results with limited budgets. As a result, many have turned to affiliate marketing as a way to maximise their ROI and drive sales in a cost-effective manner.
Marketers have been doing “more with less” for a number of years, with many brands tightening their marketing budgets due to inflation, declining consumer spending, and rising business costs. This has had knock-on effects of campaigns resulting in less effective ROI, even around key events and promotions, as advertisers struggle to offer consumers the same prices, discounts, or offers they had in the past. One example of this shared in the Australia Post ecommerce report 2024 states that 43% of retailers raised their free shipping thresholds, and some introduced returns fees.
Despite these economic pressures, the affiliate marketing industry has proven to be resilient. A recent Mutinex report showed a significant doubling of revenue delivered by the channel since Q3 2022.
Affiliate Marketing: A Cost-Effective Channel
Affiliate marketing is inherently cost-effective, making it an attractive option for advertisers during tough economic times. Unlike traditional advertising, which often requires significant upfront investment without guaranteed returns, affiliate marketing operates on a performance-based model. This means advertisers only pay for actual results, such as sales or leads, ensuring a high ROI.
Although an always-on performance marketing channel, there are various steps advertisers can take to monitor spend and budget in the affiliate channel – such as forecasting based on historic program results, reviewing current commission structures, and planning set tenancy budgets per month/quarter ahead of time. They can also control who they work with, the number and types of partners and offer different commission rates based on things like profit margins on brands or categories.
According to the Interactive Advertising Bureau (IAB) Australia survey, 53% of advertisers and agencies have increased their overall spend on affiliate and partnership marketing over the last year and 63% of advertisers indicated they would be increasing their investment in affiliate marketing in the coming year also. This shift highlights the growing recognition of the channel’s efficiency and effectiveness.
Transparency and Trust
Confidence in the ROI of digital channels varies. While the potential for high returns exists, many marketers struggle with measuring cross-channel ROI effectively. According to Gartner, only 24% of CMOs feel they have sufficient budget to execute their strategies effectively, highlighting the need for better tools and methodologies to measure and optimise marketing spend.
One of the key advantages of affiliate marketing is its transparency. Marketers have complete visibility into where their money is going and can track the performance of each affiliate partner as well as types of partners, looking at KPIs on a granular level such as percentage new or return customers driven, number or type of products sold, average order value (AOV), conversion rates and Return on Ad Spend (ROAS) of each. This transparency also reduces the risk of ad fraud and ensures that marketing budgets are spent efficiently. With detailed reporting and real-time analytics, advertisers can see exactly which partners are driving sales, allowing for better optimisation and more informed decision-making.
The programmatic ad industry, by contrast, has faced significant challenges. The Association for National Advertisers (ANA) reported that out of the $88 billion flowing into the programmatic supply chain, around $22 billion is wasted. Only 36 cents of every dollar invested reaches an actual consumer, with over a fifth of reported impressions served to spammy websites. Whilst affiliate and partnership channel is not to the size and scale of programmatic, the level of control and visibility is a stark contrast and highlights the value of affiliate marketing’s transparency and trustworthiness in today’s advertising landscape.
Diversity of Partnership Types
Affiliate marketing offers a diverse range of partnership types, from content publishers and influencers to loyalty programs and coupon sites. This diversity allows brands to reach a wider audience and tailor their marketing strategies to different consumer segments.
Lululemon, for example, has increased its affiliate spend, partnering with fitness influencers and content creators to reach health-conscious consumers. Similarly, Ozhair and Beauty has leveraged coupon and deal sites to attract price-sensitive shoppers.
There is also a growing choice of technology partnerships available in this space now, which is offering a much more agile and risk-free approach to enable advertisers to experiment with new technologies, through the performance channel. For example, Software Publishers, App-Tracking Partners, User-Journey Partners, Cart Abandonment Technologies, Retargeting Software amongst others can utilise the affiliate platform providers tracking set up so no development work required from the advertiser, automatic de-duplication and the centralisation of reporting, and payments makes this an attractive proposition for marketers.
Reduced Spend in Less Effective Channels
Economic pressures have forced marketers to re-evaluate their marketing strategies and shift their budgets away from less effective channels. Traditional advertising methods, such as TV and print, have seen reduced investment due to their high costs and declining reach.
Traditional TV and print media have seen a marked reduction in advertising spend. According to a report by Gartner, the average marketing budget as a percentage of company revenue dropped from 9.1% in 2023 to 7.7% in 2024, a 15% decline year over year. This reduction is part of a broader trend that has been ongoing since the onset of the COVID-19 pandemic, which saw marketing budgets fall significantly and not fully recover.
Marketers are consolidating their ad spend into fewer, more effective channels. Forrester’s 2023 predictions report suggests that CMOs are under increasing pressure to demonstrate ROI, leading to a consolidation of ad spend into digital channels that offer clearer measurement and better returns.
Affiliate marketing has emerged as a reliable and effective alternative. By focusing on performance-based strategies, brands can ensure that their marketing dollars are spent on initiatives that deliver measurable results.
Conclusion
It has long been known by those in the affiliate industry that the channel provides marketers with a cost-effective and fully transparent marketing solution with healthy ROIs. Has the mainstream now caught on to this trend? The evidence suggests so. As economic pressures continue to mount, affiliate marketing stands out as a resilient and effective channel for brands looking to do more with less.
The growth of affiliate marketing investments during tough economic times is a testament to the channel’s efficiency, transparency, and diversity. By leveraging affiliate marketing, brands can navigate economic challenges, maximise their ROI, and achieve their marketing goals in a cost-effective manner.
References:
https://ecommerce-report.auspost.com.au/
https://iabaustralia.com.au/resource/affiliate-partnership-marketing-industry-review-2024/
https://www.gartner.com/en/marketing/topics/marketing-budget
https://annualmarketingreport.nielsen.com/
https://www.adnews.com.au/news/outlook-australia-s-advertising-market-punching-through-to-2023
https://mutinex.co/mutinexmroiindex/