Posted by admin on September 10, 2008
If you’re an online merchant like me you’ll know how hard
it is to attract more customers. You’ll probably agree that
customer acquisition is the number one challenge for any
online merchant.
Word of mouth is generally the cheapest and most effective
customer acquisition vehicle. Additional advertising is
often risky and can prove futile when calculating your ROI.
So it comes as no surprise that affiliate programs have
proven popular for Internet businesses everywhere. We now
see thousands of online merchants successfully
incorporating affiliate marketing as a viable business
model for acquiring customers.
Affiliate marketing, however, does have its drawbacks. As a
merchant you are left with less profit as any affiliate
commission you pay out obviously eats into your profit
margin. So to stay competitive and maintain attractive
prices, most merchants have opted to absorb this cost of
customer acquisition rather than raise prices.
A new dilemma arises from this. Merchants who want to
improve product appeal by lowering prices risk losing their
affiliate marketers unless they maintain their remuneration
dollar value per sale.
Many merchants respond to this dilemma by offering value
added services to improve product appeal. These may include
bonuses with product sales such as e-books and other low
cost digital offerings, credit vouchers, and competition
entries.
In general, however, customers tend to compare product
prices before looking into value added package deals.
So what options are left for you as a merchant?
To remain competitive in the price arena you must be able
to offer the same quality product at a cheaper cost to the
customer. Without lowering your ROI after customer
acquisition costs, you can really only try to acquire or
produce your product at less cost.
This is the thinking of most merchants, and this is why
staying competitive with continuous customer acquisition
growth is very difficult.
What if you could subsidize your customer’s purchases?
Would you improve sales if your customers were paid a
considerable cash subsidy for shopping with you? What if
you were not the one paying the subsidy?
Merchants can leverage their affiliate marketers much
further than just benefiting from their promotional
efforts. Affiliate marketers are not just sellers who
profit from providing customers to merchants. They are also
buyers.
In fact, it is much easier to convert affiliate marketers
into customers as they are already comfortable spending
money on the Internet and trust in the security measures in
place.
As a merchant, the critical point is not to market your
products to your own affiliates. It is to stress to your
affiliates that when they are shopping elsewhere, they are
more than likely generating commission remuneration for
other affiliates.
These commission payments can be used as a subsidy to
reimburse the costs of your products to that other
affiliate.
In effect, the two affiliates could purchase at each
other’s merchants, their purchase costs being subsidized by
the commission payment earned from the other’s purchase.
This process is called “Customer Reciprocation”. Any
merchant with an affiliate program can super-leverage their
affiliate marketers by encouraging Customer Reciprocation
to occur.
To facilitate the matching of affiliates based on purchase
intention and merchant partner, is not an easy feat.
A service known as a รข??Customer Acquisition Exchange’ will
facilitate this match-making service for affiliates. This
takes the effort out of finding an affiliate willing to
shop with you when you or one of your affiliates are
willing to shop with one of their affiliated merchants.
A Customer Acquisition Exchange is the key ingredient that
merchants must adopt before they can super-leverage their
affiliate program. Many merchants already adopt this model
unknowingly as their affiliate marketers are using Customer
Reciprocation to subsidize their online purchases.
What merchants need to understand is the magnitude of their
potential sales increase if all their affiliates used
Customer Reciprocation.
A simple calculation will demonstrate the potential power
of super-leveraging your own affiliates.
Lets assume an affiliate marketer makes 6 purchases from a
variety of online stores per year.
YourCompany.com has an affiliate program with 1,000 members.
Members earn $50 per sale
YourCompany.com makes $40 after costs.
Using a Customer Acquisition Exchange to facilitate
Customer Reciprocation, YourCompany.com could make an
additional 6,000 sales worth $240,000 extra income per
annum.
Each affiliate marketer of YourCompany.com would have made
$300 - effectively reimbursing them for the costs of their
product purchases with other merchants.
This is a demonstrable Win-Win scenario for both you as the
merchant (in terms of extra sales and income) and your
affiliate (in terms of subsidized shopping purchases).
Even if a conservative 10% of YourCompany.com affiliates
use Customer Reciprocation to their advantage, this would
still result in an additional 600 sales worth $24,000 extra
income per annum.
In summary, merchants who run an affiliate program are
positioned to super-leverage their affiliates to drive
additional sales. By educating their affiliates about
Customer Reciprocation and Customer Acquisition Exchanges,
merchants can increase product appeal through price
subsidies at no cost to themselves or their affiliates.
This can be the key element for merchants trying to survive
the fiercely competitive world of online retail.
Posted under
Matchmaking