"It's a complex channel. You're not dealing with one AOL...with one Yahoo, but 40,000 different people in different situations with different business models."

That's how Prakash Bharwani Senior Manager, Interactive Marketing, 1-800-FLOWERS.COM, sums up affiliate marketing. And while he notes that most retailers now accept affiliates as a viable, stable sales channel, the challenge is to move beyond the basics and develop tomorrow's best practices..."It's not on auto-pilot."

Here are his four key tactics to do just that...

1. Lifting commission rates is not enough to get loyalty

Merchants must accept the new dynamics of affiliate marketing if they're to succeed. As Bharwani puts it, "Gone are the days where you think the merchant is the one that can set one-size-fits-all priorities, promotions etc. and expect affiliates to pursue them with no questions asked."

Many affiliates are now professionals, and they can (and will) easily switch to a competing merchant. So you must give them the incentives and support they need to stay loyal.

"They know what their placement is worth to them...You have to treat them as smart marketers who know what they're doing. You motivate them or they're going to go on to the next person."

And Bharwani adds that lifting commission rates isn't enough, especially since top affiliates realize that base rates are just one piece of the performance puzzle. Often it's the back-end support and commitment that tips the balance.

"It could be as simple as approving their application within 24 hours, answering email within 5 hours...or coming up with customized promotions all the time."

2. Segment and target communications, promotions and tools

1-800-FLOWERS.COM has well over 40,000 affiliates. Bharwani and his team segment this base according to business model and performance, and work with each segment based on its special characteristics. For example...

Coupon sites

When the team decided to test partnerships with coupon sites, they drew up a shortlist of 20-25 targets. They then approached them on a one-to-one basis, treating them as a standalone group within the affiliate pool.

Some of the features of the relationships they built are:

-> Each site gets its own unique branded promotion codes

-> Commission levels are negotiated separately with each site. "We told them, we're happy to give you a promotion, but I need to keep in mind my marketing expense, so let's talk about compensation. In a lot of cases they were willing to accept the same or lower commission levels (in return) for a promotion code."

-> Bharwani also renegotiates commission levels and promotions as he learns what each coupon site can deliver.

For example, he might give more revenue share to sites that make 1-800-FLOWERS.COM their exclusive floral provider. Or he may start new sites off "high" - with discount promotions for, say, $49.99 purchases, then lowering that dollar number as the site proves itself.

-> The group gets regular coupon-oriented affiliate updates featuring the latest promotions with their customized links built in.

Bharwani's extended the original test group to several hundred coupon sites, many of whom initiated the relationship themselves. "We got calls every day, 'Can I have my own customized promotion code?'"

Email campaigners

Bharwani provides email campaigners with email templates similar to those the company sends to its own customers, but with the affiliate's tracking ID already built in, together with some customization based on the affiliate's target market or customer base.

He says, "All they have to do is pick up that code, paste it, format it, and send it to their permissioned email base."

The benefits for 1-800-FLOWERS are multifold, since customized template emails guarantee:

-> consistent branding and a uniform customer experience

-> copy and product promotions that are best suited to the current season, the company's own priorities and the recipient audience

He adds, "And they're happy because we've provided them with the tools to do what they do on an everyday basis. All the creative work is at our end - it's tedious, but worth it."

As with the coupon sites, Bharwani tested the concept first - working with 2-3 major email providers - before expanding.

3. Optimize top partnerships - phone calls are not enough

The "problem" with top partners is that..."Everybody has top performers and everybody goes after them and gives them special attention."

Bharwani and his team negotiate 3-6 month placement agreements and promotions with top affiliates, often covering traditionally weak months like the summer. That's when other merchants are normally reluctant to commit resources to affiliate partners in the form of higher commissions.

He sees that "cost" as part of his commitment to the relationship..."If you do offer them a higher revenue share in the off months, you can continue at the same rate for the holidays...we can get preferred placement at not always a higher cost, but that's only because we've signed a six month deal with them."

4. (Re)Activate the low performers to spread the risk

Although top performers are key, Bharwani doesn't want all his eggs in just a few affiliate baskets. So in the last year he's changed commission levels and introduced bonus programs to boost sales from the mid- and lower-tier affiliates. For example...

-> He changed the commission structure from 6%/8% to 8%/10% and lowered the threshold at which you get the higher rate from $12,500 in monthly sales to just $2,000.

-> A promotion where new affiliates get a $10 bonus once they generate their first sale.

-> 1-800-FLOWERS.COM joined LinkShare's "Earn More in Q4" contest where affiliates who improve sales from Q3 to Q4 in 2003 qualify for tiered bonuses up to $2000 each. For example, affiliates who generated between $0 and $5,000 in sales in Q3 get a $1000 bonus if they can drive $15,000+ of sales in Q4.

Affiliates who join the program in Q4 also get a $40 first order bonus (which includes a $20 matching bonus from LinkShare).

-> Bharwani set the tiers to appeal to the smaller affiliates. He says, "We could have raised tier levels to include the top guys but I know they're going to do it. The holiday season is make or break for them. It's the small guys where I need to say, 'you know what, you can make some serious money out of this thing'."

The very small affiliates unable to hit these targets got another offer; make five times the Q3 sales in Q4 and commissions rise to 15%.

Do these tactics work? Bharwani says yes - he's more than happy with growth in both the number of active affiliates and the total revenues generated.

http://www.1800flowers.com

Note: 1-800-FLOWERS.COM is a member of Shop.org, a forum for retailing online executives to share information, lessons- learned, new perspectives, insights and intelligence.
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