To achieve results through digital utilization [13]Negotiations with advertisers and media companies are everything. Behind the scenes of affiliate advertising operations.
*Nextedge Dentsu Inc. became "Dentsu Digital Inc." on July 1, 2016.
Affiliate marketing where advertising fees are incurred only upon conversion
──First, please tell us about your respective roles.
Ninomiya: Leveraging my experience from my previous role at an affiliate service provider (ASP), I manage affiliate advertising campaigns. I feel Dentsu Inc.'s strength lies in applying trend insights and digital intelligence to affiliate marketing—something not possible at an ASP. Beyond daily consulting and campaign management, I also explore initiatives to invigorate the affiliate industry.
Kawai: I oversee all digital initiatives. My goal is to drive results through the PDCA cycle, encompassing not only performance-based ads like search engine marketing but also affiliate marketing.
──First, could you explain how affiliate marketing works?
Ninomiya: In a nutshell, it's a performance-based advertising model. Advertisers only pay when specific actions—like sign-ups or purchases—are completed, which are the results they target.
Our client advertisers span diverse industries like finance, beauty salons, and cosmetics. Many major e-commerce sites also utilize affiliate advertising. For some clients, affiliate marketing accounts for a significant portion of their conversions, making it a highly impactful marketing strategy.
On the other hand, many media outlets display affiliate ads. While affiliate marketing might bring to mind personal blogs, comparison websites you encounter daily also serve as affiliate media. Additionally, companies with their own memberships sometimes use affiliate programs as part of their service, offering point rewards.
──So, for example, on a membership site, you get points for requesting insurance quotes or sample products. Does that kind of system also qualify as affiliate marketing?
Ninomiya: Yes. So, many people likely encounter affiliate marketing in their everyday use of websites.
Advertisers offering high performance-based rewards aren't necessarily the most profitable ads.
──What should advertisers consider when placing affiliate ads?
Ninomiya: As mentioned earlier, affiliate advertising only incurs advertising costs once a specified conversion point is reached. From the publisher's perspective, this means that simply displaying an ad doesn't necessarily translate into advertising revenue.
Publishers demand profitability, but simply raising the per-conversion fee isn't always the solution. For example, consider two $100 per-conversion offers: one where registration completes with just an email address, and another requiring extensive information like name, address, occupation, and family structure.
At first glance, ¥1,000 seems better, but the higher registration barrier makes conversion harder, so profitability might actually be higher with ¥100. Design must consider the necessity of achieving the desired outcome.
When negotiating with publishers, communicating the advertiser's competitive advantage is crucial. Advertisers might expect affiliate marketing to automatically boost sales, but that's not necessarily the case. It's our role as advertising agencies to help publishers understand our clients' intentions and strengths, which then drives sales. This truly requires negotiation and coordination skills.
Kawai: For example, if a competitor raises their commission rate on a particular media outlet, our client's priority might decrease as the publisher's partner. This could result in losing access to prime ad slots and making it harder to secure placements. However, simply proposing to raise the commission rate isn't a solution. What's needed here is negotiation with the media company. This negotiation doesn't mean acting as an agent for either the advertiser or the media company. Instead, it's about building a win-win relationship where the transaction ultimately benefits both the advertiser and the media company in the medium to long term. Our role is to identify that direction and guide the process.
Why do competitors' ads get clicked more? Why do conversion rates vary by media outlet?
──So unlike programmatic advertising, this type of ad requires negotiation, coordination, and mutual understanding for placement, right?
Ninomiya: Yes. Human negotiation is always involved. Because of these circumstances, affiliate marketing isn't suited for short-term operations where results are needed tomorrow or next week. Instead, it's crucial to prepare ads and pricing by anticipating trends one, two, or three months ahead.
Kawai: Conversely, programmatic advertising allows for swift adjustments. At Dentsu Inc., we tailor proposals to meet advertiser needs, often combining it with other digital strategies.
──Could you share a specific case?
Kawai: For example, when ads appear alongside competitors on a particular media outlet, competitors might get clicked instead. Or, when running ads with the same message across multiple publishers, conversion rates can vary significantly depending on the outlet.
Both these issues are actually influenced by the media's characteristics. In other words, since user traits and motivations differ by media outlet, you must identify the specific user characteristics and choose the communication method accordingly to achieve results.
While ASP-based distribution allows bulk placement across many media outlets, it has the disadvantage of making it difficult to tailor appeals to each individual outlet. Therefore, selecting media outlets based on your objectives is crucial. During negotiations, both the media outlet and the advertiser discuss the outlet's characteristics and what kind of appeal will lead to results.
──So it's not just about securing good slots, but also tailoring the ad placement to the specific media outlet. What else is important?
Kawai: Advertisers sometimes provide information about the characteristics of people who converted. We also conduct additional research to better understand user needs. Having previously worked in marketing, I have experience with quantitative surveys and depth interviews, so I constantly think about why users behave in certain ways. This experience is extremely valuable when considering how to connect user needs to advertising.
Customer Development Through Affiliate Marketing: Turning New Members into Repeat Customers
──Listening to you, this seems quite different from what's typically called performance-based advertising.
Kawai: That's right. We hold weekly meetings with our client advertisers, lasting about two hours, and discuss challenges or make proposals daily via phone or email.
──How do you set up the customer journey in affiliate marketing?
Kawai: For customer journey design, we collaborate with Dentsu Inc.'s internal marketing section. While general user trend research provides insights, target users vary by product. We ultimately design the journey together with the client, using information they provide.
In designing the customer journey, we factor in actions at both digital and real-world touchpoints. Combining digital and non-digital elements is one of Dentsu Inc.'s strengths. For example, we visualize the user path based on hypotheses—like seeing a product on TV, researching it on comparison sites, and finally making a purchase—then turn that into a story to develop digital strategies, including affiliate marketing.
Ninomiya: In affiliate marketing, nurturing customers across different media is also a key strategy point. For example, suppose an e-commerce site placed affiliate ads on a points site but saw no sales through that channel. In that case, rather than immediately concluding that channel is ineffective, we investigate how similar industries perform on that platform. If others are seeing results, changing the PR approach could potentially yield success.
In a real-world example, we saw sales increase by implementing a two-step approach: first running a membership registration campaign for the e-commerce site, followed by a product sales campaign. By analyzing user attributes, you can weave in strategies to nurture customers through affiliate marketing—encouraging membership sign-ups, repeat purchases, and ultimately turning them into loyal fans.
In the second part, we'll delve deeper into the essence of affiliate marketing, including initiatives implemented to achieve a win-win situation for both advertisers and publishers.
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Author
Manabu Nimiya
Dentsu Digital Inc.
Five years of experience in an affiliate service provider role. Primarily engaged in media consulting, handling new business development and managing major media accounts. To increase advertiser acquisition, not only adjusted advertising slots with media outlets but also planned new content and tie-ups, proposing these to advertisers. Experience extends beyond consulting to include managing operations for major media outlets. In recent years, experience has expanded beyond affiliate operations to include service design for the affiliate platform itself and directing system development.
Tomohiro Kawai
Dentsu Digital Inc.
Joined Dentsu Inc. in 2006. After working in marketing and media planning departments, transitioned into the world of digital marketing. Currently engaged in operational consulting focused on maximizing client performance, primarily within the financial, telecommunications, and general e-commerce industries. Extensive experience overseeing projects from strategic planning to implementation across entire business operations.