This is fueling the next wave of growth in affiliate marketing
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The affiliate industry is growing rapidly today, but that’s not just due to the overall increase in consumers shifting their buying habits to e-commerce. Affiliate marketing has long been an integral part of most online retailers’ marketing mix, and it is estimated that affiliate marketing currently accounts for 16% of all online purchases in the US and Canada. According to Statista, it’s growing by another 10% each year and is projected to reach $8.2 billion in 2022.
Now, loyalty and cashback rewards programs that build on the existing affiliate industry “infrastructure” are driving new growth in the affiliate channel.
How affiliate marketing laid the foundation for cashback and loyalty rewards
In the affiliate marketing advertising model, online merchants pay fees in the form of commissions, most often as a percentage of sales, for referrals from “publisher” websites. This is also commonly referred to as revenue sharing or rev share.
Publishers come in many shapes and sizes, including themed content sites, deal finder sites, niche industry blogs, social media influencers, and more. These publishers encourage links to retailer websites in their content in hopes of driving their audience to those retailers and earning sales commissions from the traffic they generate.
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Affiliate marketing networks such as CJ, Impact, ShareASale and others provide retailers with technology platforms that track referrals from publishers, to attribute purchases resulting from those referrals to the appropriate publisher, and to submit revenue share payments from retailers to publishers.
In fact, affiliate networks serve as marketplaces that connect publishers with online merchants and allow them to establish marketing relationships with each other. Publishers join the network so they can access online retailers who are willing to pay them for sales driven by their audience. Online retailers join the network to acquire customers cost-effectively and increase sales.
How cashback and loyalty programs work on affiliate networks
The existing affiliate network tracking platforms provide an incredibly efficient infrastructure for rewards and loyalty programs. Rewards platform and solution providers are now publishers who participate in affiliate programs where revenue sharing commissions are paid on online merchant sales. But unlike traditional affiliate publishers, who keep the commissions, rewards and loyalty programs offer some or all of the earned commissions to consumers (e.g., their audience) in the form of shopping rewards like cashback.
These types of cashback rewards programs, powered by existing affiliate infrastructure, have grown in popularity over the past few years. Examples of these programs include PayPal’s Honey, Capital One Shopping, Microsoft Rewards, and Acorn’s Earn.
Also see: 3 Secret Reasons Your Brand Needs a Rewards Program
Why should brands consider adding cashback and rewards programs to their affiliate marketing channel?
Affiliate-backed coupon and rewards programs benefit reward providers and consumers in two ways:
Rewards program providers are seeing stronger brand loyalty, better customer retention, lower user acquisition costs, and increased revenue.
Online retailers also benefit directly in several ways.
Increase conversion rate and reduce shopping cart abandonment
Activating cashback rewards during an online purchase increases the likelihood that the customer will complete that purchase. When a shopper activates a cashback incentive at the start of a shopping journey, it acts like a magnet, drawing the shopper to a converted sale from the first click.
Globally, the average e-commerce conversion rate (the percentage of visitors to e-commerce websites that complete a purchase) is 3.29%. However, according to data from Wildfire Systems, when consumers activate cashback rewards during their online purchase, over 15% of them complete the transaction – that’s a 6x to 10x increase.
Increase in average order value
The typical order value for retailers in the Wildfire retailer network has historically been in the $60-$70 range when consumers made purchases through social media platforms like Pinterest and Facebook after visiting the retailer’s website. But in Wildfire’s experience, when customers activate cashback during an online shopping experience, the average order value jumps to $130. This is where the psychology of the “bargain” comes into play.
According to data from CJ, a leading affiliate network, loyalty and rewards publishers achieve significantly larger transaction size with 25% higher average order value compared to other publishers in the CJ network, based on data over the past two years.
Related: Here are the most valuable hotel rewards programs in 2022
Improving Return on Ad Spend (ROAS) by budget shifting
The price of cost-per-click (CPC) and cost-per-1000-impressions (CPM) advertising continues to increase. In fact, according to Tinuiti, a performance marketing agency, prices in these channels are at an all-time high, and with evolving legislation around privacy and third-party cookies, it’s becoming increasingly difficult to target social and digital advertising. Additionally, advertisers’ trust in CPC advertising continues to wane due to the proliferation of click fraud and bots. Cybersecurity firm CHEQ estimates that bots and fake users now account for a whopping 40% of all online traffic, directly impacting ROAS for CPC and CPM-based advertising.
This combination of factors is forcing online merchants to shift budgets to the affiliate channel due to its performance-based model of paying publishers a percentage of it indeed Ecommerce sale generated. By shifting spend further up the purchase funnel, affiliate marketing represents one of the highest-ROAS and lowest-risk components of advertisers’ marketing mix. In fact, CJ also found that loyalty and rewards affiliate publishers in his network Achieved a 34% higher ROAS than other publishers in 2021.
Rewards programs have gone mainstream and consumers are not only becoming accustomed to these benefits, they are increasingly expecting them. This is a win-win-win for everyone in the ecosystem: consumers benefit from rewards and rebates, retailers benefit from higher sales conversion and lower ROAS, and the services offering rewards programs benefit from retention, user acquisition and new revenue streams. You can expect an increase in rewards and loyalty programs in the form of online shopping companions as these programs move from differentiators to table stakes.