Five Key Tactics Overstock.com Used to Quadruple Affiliate Revenues

Back in January 2002, CTO & VP Marketing Shawn Schwegman took over Overstock.com's two-year-old affiliate program with a mandate to "kick it in the butt and increase the amount of revenue we were pulling in."

Here are the five tactics he and his team used to meet the challenge:


-> Tactic #1 Restructure the technology to better meet needs

Schwegman sees affiliates as sales people on commission-only, rather than an advertising channel. So he re-evaluated the major affiliate marketing providers in the light of this belief, and decided a service switch would support more and better affiliate relationships.

But how do you manage a service changeover to minimize the annoyance factor to affiliates, who have to update all their links to reflect the change?

-- Communicate

The Overstock.com account at the new service went operational March 7th, 2002. But as soon as the contract was signed (a week previously), Schwegman sent an email alerting affiliates to the forthcoming change.

He also kept the old service live until April, sending affiliates weekly reminders of the change until that time.

-- Make it easy

During that period, he matched about 95% of his old affiliates to existing accounts at the new service (affiliates tend to have accounts with all the major providers). So he sent each an email asking them to verify that the match was correct and, if so, offering direct links to appropriate updated link code.

-- Offer an incentive

Finally, affiliates who updated their links before the end of March got access to a tiered bonus system, offering cash rewards for reaching different levels of revenue through the new service.

Schwegman says, "Nobody likes extra work. But when we gave them an incentive to switch over, people switched over really fast." And he notes that there was no substantial negative feedback from affiliates about the change.


-> Tactic #2 Proactively recruit affiliates

Overstock.com doesn't just rely on their affiliate network provider's internal communications system to reach new affiliates. Schwegman and his team recruit promising affiliates or promote the program by:

o Looking for affiliate sites bidding on relevant keywords at PPCSEs.

o Identifying high-traffic sites using reports by comScore, netScore and others.

o Trading affiliate newsletter space with non-competing merchants. "We push their program and they'll push ours; we trade top affiliates that way."

o Participating actively on affiliate discussion boards.

o Participating actively at offline events, such as the affiliate symposiums.


-> Tactic #3 Don't treat all affiliates alike

The team segments the affiliate base by, for example...

o revenue generated (Top 100 affiliates; medium revenue producers; low revenue producers; affiliates generating no traffic)

o content type (e.g. sites that only deal with digital cameras)

o website theme (e.g. coupon site, "daily deal" or bargain site; shopping portal; content site)

Communications are segmented to each group. Schwegman explains, "An affiliate that only cares about computers and electronics, we're not going to send them info on products like bedding and bath."

The greater the revenue an affiliate produces (or has the potential to produce), the more tailored the communication. "If they're a content site and specifically targeting a female demographic, we'd put together offers customized for that affiliate - a best fit for their demographic."


-> Tactic #4 Be seen and heard

Schwegman says, "You just have to be out there. You have to have affiliates hearing your name. And you have to contact your affiliates on the phone."

He's expanded his team to include several full-time affiliate marketers, thus allowing the required level of communication with affiliates.

"We've got two or three folks here that pound the phones all day talking to affiliates, listening to what works, what doesn't work, and we try and help out wherever possible."

He adds, "Affiliates are just a name and a number to a lot of affiliate managers and that's probably the most horrible strategy a merchant can have. You have to get on the phone, talk to people and establish these relationships."


-> Tactic #5 Offer the right tools and incentives

Schwegman sees successful affiliates leaning toward affiliate technologies that reduce the amount of link maintenance and other mundane website management tasks. "It's hard to build your business if you're constantly replacing links on your site."

That observation, the recognition that different affiliates have different needs for their websites, and the data obtained from segmenting the affiliate base drives the development of new affiliate tools and creative.

Two key examples...

-- Datafeeds

Rather than offer affiliates one product database feed - as most merchants do - Schwegman's team evaluated and segmented affiliate product sales to come up with a set of around 25 suitable datafeeds, each updated daily, for affiliates to choose from. They also produce customized feeds for top affiliates to use.

"If an affiliate just has a website dedicated to digital cameras, they can come to Overstock.com and get a free datafeed every night that contains only digital cameras."

Sales generated through datafeed implementations at affiliate websites are set to become the largest contributor to affiliate revenue.

-- Dynamic rich media creative

With dynamic rich media, affiliates place a piece of code on their site that might, for example, display the top four bestselling digital cameras. When the base data changes, the display at the affiliate site updates automatically.

"It makes it easy for affiliates to put a link up once and let us manage the content. We can change it on the fly our side and all of our affiliates take advantage."

Schwegman also runs frequent sales promotions and contests for affiliates. These may be one-on-one deals with single websites, offering a cash bonus for achieving a revenue target. Or they may be network-wide promotions, with, for example, tiered bonus programs for a month, where different increases in generated revenues qualify the affiliate for increasing levels of bonus payments.

Schwegman notes, "We've found that money talks - affiliates are very incented when the bonus is monetary."


-> Results

So have these tactics worked? The metrics suggest so. In the last 18 months...

o Topline revenue from the affiliate program increased five fold over the first year and monthly revenues are now about seven to eight times the figure back in January, 2002.

o The contribution of the affiliate program to total revenue has risen from 5% to between 15% and 20%.

o In the same period, the number of active affiliates increased from 3,500 to just over 30,000, with 1000-2000 new affiliates joining each month.

Schwegman comments, "Even at this stage we're still growing 20- 30% a month."

Useful links related to this article:

MarketingSherpa's past Case Study Overstock.com's email tactics (includes campaign samples): http://library.marketingsherpa.com/barrier.cfm?ContentID=1901

LinkShare, the affiliate network service providing the infrastructure that drives Overstock's program http://www.linkshare.com

Overstock home http://www.overstock.com

Note: Overstock.com is a member of Shop.org, a forum for retailing online executives to share information, lessons- learned, new perspectives, insights and intelligence. http://www.shop.org