Major shifts are happening in the retail world at this very moment. We have seen a dramatic change of consumer buying behavior almost overnight due to Covid-19. Today we are seeing a huge increase in internet usage which means a rush of new consumers are entering the world of eCommerce.
For direct-to-consumer (DTC) brands, it means only one thing: A major opportunity to increase their revenue, their market share and obviously their business value.
However, this opportunity also brings a whole lot of challenges.
The cost of digital advertising is rising. Profit margins are becoming increasingly narrower. It’s not always easy to capture high lifetime-value (LTV) customers. Moreover, let’s not forget that consumer behavior is also changing. There’s less impulse buying. Consumers require a more personalized approach. They love getting a ton of additional information before making a buying decision.
Relying solely on media buying (via Facebook and/or Google) has become unsustainable.
This is where affiliate marketing (I prefer to call it performance marketing) comes into play. Affiliate marketing’s pay-for-performance model and its ability to scale is a great option for brands that are looking for new ways to grow.
Here are three ways brands are using affiliate marketing to speed up their growth:
Open new audiences, attract new customers
Did you ever have a feeling that you are not reaching everyone in your target group? Well, you are probably right. Not everyone is browsing on Facebook or doing Google Search.
Some direct-to-consumer brands work with content partners to get the attention of consumers who might be unfamiliar with their brand or product. These content partners usually are bloggers, coupon sites, influencers, product review websites. They prepare valuable, interesting and/or analytical content that educates consumers and directs them to an offering.
These content sites usually have highly engaged audiences and are extremely influential in a consumer’s purchase decision.
Pay for performance, limit your risk
One of the best parts of affiliate marketing is that brand owners lower their risk by paying for the performance. There is a fixed price for every customer that affiliates are bringing in. You remove the volatility factor out of your customer acquisition cost this way.
Obviously, you need to know your DATA well. I mean AOV, LTV, CPA. If you know that your customer LTV is 7x bigger than AOV than you are capable of offering a bigger commission for an affiliate to promote your offering. Don’t forget that there are millions of offers to choose from. Affiliates are comparing your offer to other offers available on the market. CR, EPC, commissions etc. Your offer has to be competitive to be able to attract bigger affiliates (they are usually called super-affiliates).
Particularly at this time, brands are looking for new ways to limit their risk, so a pay-for-performance model is a perfect option for that.
Cut down your marketing cost, manage your cash flow
If you are a DTC brand owner you know this problem really well. You are scaling hard your media buying activities, spending a lot of cash for your ads, everything is going very successfully as ROAS are super high. However, you are constantly struggling to maintain your cash flow. Sooner or later this becomes a big issue and you need to start raising capital or cut down on your ad spend. Well, this is a bummer…
Well, if you are looking for quick, but more sustainable growth than affiliate marketing is a perfect solution.
In the affiliate marketing model, brands pay only for marketing that generates a desired action. In most cases, it’s customer acquisition (aka purchase). Because all partner activity is tracked and measured, brands only spend their marketing budgets after results are generated.
For DTC brand owners (especially for their investors), this is a perfect solution to solve their cash flow problem and lower the risk. Cost per action (CPA) compensation structure (or a mix) is the most popular model in an affiliate world.
To sum up, affiliate marketing is a perfect option if you want to grow your DTC brand in a more sustainable, effective way. Be able to reach new audiences, pay for performance, and manage your cash flow.