CHALLENGE

Direct shipping live Maine lobster is not a business for the fainthearted. When Dan Zawacki founded Lobster Gram in 1987, he could not find a bank that would support him, and used his credit card to bootstrap the company.

Apart from all the specialized infrastructure required, there is a web of FDA and other food regulations to tackle. That is why the Company, now the country's largest in its niche, is so attractive to marketing partners.

Lobster Gram started an online affiliate program through the Commission Junction network in November 2001, quickly gathering around 4000 partner sites.

Though pleased with the program's success, Zawacki noticed that none of his affiliates were able to do more than $10,000 in annual sales. Only about 10% were actively promoting his products.

He says, "We needed to find bigger and better affiliates."

The question was how? Zawacki knew a lot about finding marketing partners offline, but was wary of applying offline concepts to the brutal environment of Internet performance marketing.


CAMPAIGN

Last August Zawacki teamed up with performance marketing consultant Jeff Molander of Molander & Associates, to develop an appropriate online strategy.

First they reviewed Lobster Gram's existing affiliate base carefully.

Zawacki's fears were confirmed. The top tier affiliates that can supercharge a program just were not in his program; and, it was not enough to sit back and expect such sites to join "organically" through the Commission Junction interface. Without these top performers, the program's published performance metrics were "fair," but not outstanding, producing the Catch 22 situation faced by many merchants. Without a proven track record it is difficult to attract top affiliates, but without top affiliates, it is difficult to develop a solid track record.

The team set about implementing a five-step strategy to recruit those missing top tier partners.


Step #1: Identify target partners

The team knew they needed to attract partner websites from three groups:

1. Search sites, shopping and loyalty portals, coupon sites.
2. Smart "mom and pop" sites who have mastered SEO to build online malls and other large traffic-drivers.
3. High-performing, topic- or product-related niche affiliate websites.

Although the team looked at all three, they eventually focused on the first two, which were more easily identifiable through Molander's insider knowledge and search engines.

In fact, Molander notes that contrary to popular belief, it is surprisingly difficult to find niche content publishers who can drive significant sales.


Step 2#: Develop customizable offers for target partners

Knowing top tier affiliates will not normally feature a new merchant's offerings without an incentive, the team prepared a customizable set of offers they could adapt to each prospective partner.

First they looked at product margins and the commission and other costs incurred by affiliate management, the network provider and the affiliate itself.

In doing so, they ensured all the internal costs were included in the calculation; many merchants focus only on commission payouts to affiliates and networks, and forget their own affiliate management costs.

This let them plan two core elements of any incentive offer made to a partner:

1. The amount of commission bonus: The team settled on bonuses between 2 and 10 percentage points above the standard 10% payout on sales, the actual offer dependent on a partner's ability to reach set volume targets.

2. Customer promotions that partners could offer their audience, but which were not available through the standard affiliate program.

Again, the actual offer made available to a prospect was dependent on volume guarantees or, in the early days, estimates based largely on Molander's understanding of each potential partner's track record.

Examples were free shipping, a 10% discount, or 10% off orders over $125. The team adjusted the offer to fit the prospects' website and developed appropriate creative in the format best suited to each prospect (see link below for examples).

Molander explains, "We might say, 'look, we'll give a $10-off promotion to these five affiliates, but we have to see this kind of volume in order for it to be profitable and productive for us.'"


Step #3: Approach target partners on a one-to-one basis

The team then approached each prospect partner individually (there were around a dozen in total), first by email, then with a follow-up phone call a day or two later.

Top tier affiliates need the answer to the question, "Why should we work with this merchant?" so the pitch had to both establish Lobster Gram's credibility as a capable, long-term business partner and the value of the affiliate offer.

Molander explains, "It's a matter of saying, 'Well, Lobster Gram is the country's largest direct shipper of live Maine lobsters. They're a privately owned company, they do X million dollars per year of business, you may have heard of them on the radio, and they're a well-branded company.' Typically people respond with, 'Yes. I've heard their radio advertising now that you mention it, let me take a closer look at them'."

The very best prospects also were sent a product sample (lucky them!), to prove the quality of the product and Lobster Gram's ability to ship orders.

The offer itself consisted of the commission incentives, plus the exclusive consumer promotions, any one promotion was only offered to 4 or 5 sites. Once a prospect was hooked, the team sent them promotional creative in an appropriate format (many partner sites will not bother adding timely links if they have to dig about your site to find them themselves).

Molander explains, "We made it simple. Here's the link and the banner you need. I notice you use 120x60 banners. Here are four 120 x 60 banners for you to choose from. Here's the link from CJ, all ready to go and coded for you. You don't have to do anything. All you have to do is place what I've given you on your site." (Link to sample creative below.)


Step #4: Follow-up and review

After sending the material, the team followed up by phone every one to three days to make sure the links went up.

They then monitored the results and modified the incentive structure or promotion accordingly. If a partner was meeting volume commitments, the promotion was extended. If the partner was not performing well, the team worked with them to explore alternatives.

Molander explains, "Often times you get into a conversation where you learn what the shoppers at that particular affiliate react better too. Ultimately you need to develop deep personal relationships with all of these people such that you understand their shoppers' tastes and hot-buttons."


Step #5: Manage metrics

The team knew that adding quality partners would see average EPCs (affiliate earnings per click) and overall sales rise, in turn attracting quality niche affiliates they could not find themselves.

To accelerate the process, they also monitored the performance of existing affiliates to identify those sending a lot of traffic, but generating few sales and thus depressing the program's average per click results.

They then examined these low performing sites and discontinued the partner relationship with those that proved to be generating clicks unethically or without any prequalification, such as through redirects from expired domains.

Molander says, "if it turns out that there's spam involved or just recycled traffic coming through that link, then you need to pull the plug and remove that relationship as quickly as possible."



RESULTS

In December, 2002, the hand-recruited partner websites made up less than 2% of the total number of active affiliates, but drove 38% of all affiliate-based revenues.

Zawacki says, "We're very happy." In 2002, the performance marketing program drove 4% of online revenue dollars, and Zawacki's expecting to double that percentage in 2003.

Average CTR at the new partner sites is around 40%, compared to 1.5% for those recruited organically. The visitors generated by the new sites also convert at *twice* the rate of the other sites.

The improved conversion rates are due to the more shopping-oriented audiences the new sites deliver to Lobster Gram.

Molander explains, "There's a big difference between an affiliate who is simply shuttling shoppers from search partners to their site and then on to the marketer via a banner, and an affiliate who has an audience that's there to do one thing and one thing only, make an incentive-driven purchase."

Sample creative: http://www.marketingsherpa.com/lob/ad.html
http://www.lobstergram.com/
http://www.molanderassoc.com/