The big, ugly affiliate marketing scam

Ruslan Kogan is the founder and CEO of Kogan.com.
UPDATE: See the response, “Sorry, affiliate marketing really isn’t a (huge ugly) scam.”
After CES 2013 in Vegas, I stayed on after the present completed for a number of days. An “Affiliate Summit” converged in Las Vegas. I used to be shocked to see the variety of shysters concerned on this rising development. And I don’t use that time period flippantly.
Some time in the past, one of many marketing consultants at my firm, Kogan, got here to me and suggested that we must always get entangled with affiliate networks to broaden our digital marketing attain. I requested him, “Where do these associates get their visitors from? How will they drive visitors to Kogan.com?” He couldn’t actually reply the questions, however I agreed to run a small trial. Based on our outcomes, that marketing guide is now not with us.
To get began with affiliate marketing, we signed up with one of many world’s largest affiliate networks and agreed to pay a ten % fee for his or her websites that drive gross sales and conversion to Kogan.
I used to be shocked after I noticed that within the first week, associates drove about $200,000 of gross sales to the Kogan web site. We had been then in a position to generate an inventory of websites that drove the gross sales to Kogan. I had not heard of a single web site on the listing. “Where are these guys getting their visitors from?” I requested the marketing guide once more. “I don’t know. They will need to have folks going to their website to search for offers,” he instructed me.
I made a decision to use easy business market fundamentals to the state of affairs. Essentially an “affiliate” is a digital salesperson working to your firm, driving gross sales and getting fee. If you supply a salesman a ten % fee to promote your product, assume they’ll promote $200,000 of product per week for you. What if you happen to raised their fee to twenty %? You’d assume they might work more durable as a result of they get extra reward wouldn’t you? And if you happen to lowered their fee to simply 5 %, they wouldn’t work as exhausting as they did earlier than.
So I requested the Marketing Consultant to decrease the fee we pay to the affiliate community to five %. I wasn’t stunned per week later when he instructed me that we nonetheless did $200,000 of gross sales by means of them in per week. I then requested him to decrease the fee to 1 %. Once once more, the associates delivered $200,000 per week in gross sales. Whatever these affiliate websites had been doing to drive gross sales to Kogan.com, it didn’t change as our fee to them was lowered by 90 %. This defied common economics rules, so I began to get very skeptical.
I then received the marketing guide to decrease the fee we pay to half the websites on the community to zero %. Amazingly, they nonetheless saved driving gross sales. Something wasn’t proper. Upon additional investigation, I observed that lots of the websites that had been driving gross sales had been rating extremely for Google search phrases like “Kogan Voucher” and “Kogan Discount Code”. The humorous factor was that we hardly ever have any publicly accessible low cost codes energetic on our website. These guys had been all promoting codes that don’t even exist and capturing a few of our model visitors.
At this stage, we determined to stay energetic on the affiliate community as a result of it was costing us two fifths of candy nothing, and the trouble to correctly examine it will be value greater than we had been paying in fee.
The last revelation occurred after I was enjoying round with our Google Analytics account and analysing numerous tendencies (as I do not less than 10 instances a day). When I checked out our affiliate community in our Traffic Sources part, all the things appeared legit. They drove a whole lot of guests who spent a whole lot of time on our web site and checked out many pages. Visitors from this visitors supply additionally had a really excessive conversion fee. All appeared regular.
This determine reveals the final stats from all guests who got here from the affiliate community. In common, these numbers look effective in comparison with different visitors sources:

That is, till I created a phase of people that had transacted on our web site, after which seemed on the stats for the individuals who got here from the affiliate community:
The above determine reveals the visitors coming from the affiliate community after a phase is created which solely reveals “Visits with Transactions”. The “% New Visits” is alarming.
The outcomes had been damning proof that affiliate networks are little greater than a scam. Of all of the visitors our affiliate community despatched to us that had made a transaction, only one.68 % hadn’t been to our website earlier than. This is greater than 95 % decrease than our website common. Basically, of anybody coming to our website by means of an affiliate community, there was a 98 % likelihood that they had been to our website earlier than.
If you had been hiring a salesman and paying them fee, you’d anticipate them to deliver new prospects into what you are promoting wouldn’t you? In this case, it’s the equal of paying a salesman a fee to go on the market and promote to folks in your retailer which might be already lined up within the checkout queue able to make a transaction.
So here’s what was taking place:
1. Someone involves Kogan.com and finds a product they need to purchase.2. They add the product to cart and begin to checkout.3. At checkout, they discover a “Discount Code” area.4. They open a brand new tab and Google seek for “Kogan Discount Code.”5. They click on across the numerous associates who declare to have a “Kogan Discount Code.”6. When they go to the associates, they drop a cookie and tag the consumer as coming from that website.7. They fail to discover a low cost code that works and are available again to Kogan and end their checkout.8. Because the affiliate tagged the consumer, their reporting system claims that they referred the sale.
So mainly, the associates are claiming fee on a sale that was going to occur anyway, and they didn’t present any worth to anybody in any respect. This is why I referred to them in my opening sentence as “shysters.” They all know precisely what’s occurring they usually’re completely satisfied to maintain taking your cash while posing as your accomplice.
I do know there are in all probability some reputable associates on the market. For occasion, somebody who runs a trend weblog might speak about a sure development, say black pants. If they confirmed their readers how black pants could possibly be worn, after which on the backside of the weblog they linked to some retailers who promote a wide variety of black pants, that might be a reputable affiliate. This relies on the belief that their weblog will get a whole lot of pure readership and natural visitors. This can be a state of affairs the place previous to studying the weblog, the customer didn’t essentially already need black pants.
Unfortunately, the shysters are ruining enterprise for the remainder of these reputable use circumstances.
Be very cautious whenever you signal as much as affiliate networks. Do all of your evaluation. Profile the visitors, after which make an informed resolution for your self. Even although we had been managing to get $200,000 per week of gross sales for all however nothing, this isn’t a sustainable enterprise mannequin.EnterpriseBeat
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