I am just back from an interesting meeting with a London based VC in Ha Noi. We talked about lots of things but Affiliate marketing is one of them.
It reminds me about the fact that i haven’t been covering this topic for quite a while now hence today’s post.
For the benefits of those who don’t know, i will start with “Affiliate marketing” concept and then move to the current state of Affiliate marketing in Vietnam or even in SouthEast Asia.
1. What is affiliate marketing?
It’s obvious that one can google affiliate marketing and find this definition from Wiki “Affiliate marketing”
If it contains too many big words and too complicated to understand here is an example:
Imagine you have Vietnam Airline or Samsung Vietnam on the right-hand side and end consumers on the left-hand side.
At the moment, Vietnam Airline or Samsung or other companies are paying their distribution networks (their agents if you will) a certain percentage every time the agent sells a ticket or a mobile phone for them.
Depending on the size and the monthly volume of this agent, the commission can be 5%, 10% or 15%
Another simpler example is when you pay your sales team commission every time they sell a product/service for you. Everyone is doing this OFFLINE.
Now taking this model ONLINE, instead of an OFFLINE distribution network/sales team, Vietnam Airlines or Samsung will pay online publishers/website owners a certain amount of commission every time they sell an air plane ticket or a phone by displaying the ad on their site. This can be a percentage deal (5-10% of the basket value) or a fixed amount for each item ($10/sales) etc…
The question is then how publishers or website owners convince their readers/visitors to buy an air ticket or a mobile phone on their site?
Does that mean their website is e-commerce enabled?
The answer is NO. Publishers only need to display a banner, a text link or the like on their site, customers while visiting their site may click on the ad. Once they click on that ad, they will be redirected to the advertisers’ site (Vietnam Airlines or Samsung in this case) and they can buy there.
The beauty of this is that Advertisers do NOT need to care about how Publishers convince their visitors to buy a product through an ads on their site (may be the publishers offer some product reviews?). Of course any illegal methods are to be prevented and they will be discussed in part 3 below.
2. What are the advantages of Affiliate marketing?
2.1 Virtually no risk
Since advertisers ONLY pay the affiliate when a sales occur, they don’t have to worry about spending money on different marketing campaigns and hoping for the best.
In the offline world, it’s the equivalent of companies only pay their sales agents if the agents sell any products/services without the basic salary or 100% commission structure.
Vietnam airlines won’t have to worry about the fixed cost of renting an office space, hiring people to maintain the office and do selling.
2.2 Flexibility to define a desire action
Besides sales, there can be many other desire actions that a company may want like sales lead, customers who download software trials, whitepaper etc…
Basically advertiser just needs to decide which ONLINE actions they want the prospective customers to take when visiting their site; define how much each action is worth to them and how much they are willing to pay their extended sales arm to deliver that action.
2.3 Unlimited budget for Affiliate marketing
Since affiliate marketing works essentially like an extended sales arm for a company, it’s a self serving “marketing” or sales initiative. The company doesn’t have to take money from the marketing budget to fund for this, they can keep the marketing budget to do other things while affiliate marketing budget should be taken out of the sales budget.
However, since advertisers ONLY pay when they have VALIDATED sales/customers, they actually only need to take into consideration cash flow.
Since the budget should be unlimited or the whole concept of budgeting is not even applicable, advertisers can afford to run this program 24/7 until they have too many customers that they can’t service.
2.4 Free exposure
Why free exposure? It’s because when publishers/website owners run the banner ad for a certain product on their sites, if the customers don’t click on the ads and buy, at least they see the ads, which means increase brand awareness for advertisers.
If they click on the ad, land on the advertiser site but don’t buy anything, again free exposure for advertisers, increase brand awareness at NO COST.
3. Affiliate marketing in Vietnam or SouthEast Asia
At this point some of you may ask
“ok Chandler, that sounds good, actually too good. How come nobody in my industry is doing it?”
or “from my experience if it’s too good to be true, it’s often is”
Well the fact is Affiliate marketing is not that big in SouthEast Asia in general and virtually none in Vietnam in particular.
3.1 Lack of clearly defined Online actions
Yup this reason comes at the top because if a company don’t sell online, a bank which doesn’t have an Online application form, or any other desired online action then they can’t do affiliate marketing.
In some countries, especially in Vietnam, offline is still the main sales channel since the credit card adoption rate is low and e-commerce is still in infancy
For many companies, websites are just places for them to display information. If their customers want to buy or transact, they have to physically go to the branches.
3.2 Lack of understandings/red tape
This happens for every single new way of doing thing, every single industry so it’s not a surprise. The whole online marketing concept is still relatively new in the region so that’s why people are reluctant
3.3 Lack of trust, transparency and security
In order for Affiliate marketing to work, both advertiser sites and publishers’ sites need to be tracked.
Why is it so?
This is to make sure that validated sales are being attributed back to the correct publisher. If the same consumer who visits multiple sites, clicks on multiple ads for the same product and only buy once, which publisher will get the credit/the sales.
Normally it’s “last click win” meaning the last publisher’s site before the customer makes the sales got the commission.
But there is another concern… Since advertisers only pay for actual sales/ validated sales, there will be a percentage of sales/conversions etc… are not valid/duplicate. These invalid sales/conversions will be ignored and publishers will lose revenue.
Can the advertisers be trusted enough to police their own work? What framework there is to make sure that they don’t cheat especially if publishers are promoting the advertisers’ products heavily using their own money??
Also tracking means putting a piece of code on advertiser site to collect information about the sales? How about security or even confidential information like customer name etc… Security risk is a very big hurdle for Affiliate marketing in SouthEast Asia or Vietnam.
Advertisers may not worry about confidential information like customer name being leaked out, but they worry about their own sales performance, the integrity of their site being compromised.
3.4 Consumer’s behavior
This is not a problem for markets like Singapore but it’s a big thing for markets like Vietnam.
In Vietnam people tends to buy/transact OFFLINE. They don’t have the habit of buying things online or apply for credit cards/loans etc… online yet. They worry about security, their credit card/personal info being stolen.
Also not many companies have the mechanism in place, have enough information/help on their website yet to get the customer transact.
Consumer’s behavior will lead to one thing: the lack of volume. No matter how great a marketing/sales channel is, the efforts being spent by personnel of a company need to be justified by sales volume driven, number of online applications driven.
Because realistically in order to maintain a affiliate marketing program, a company need to involve their IT team to support the set up, a dedicated person to keep track and validate sales/conversions, reporting, budgeting, etc…
The bigger the company, the more complicated the process is for them to get things moving. And all of this hard work for extra $200 worth of sales/month or 5 credit card applications/month.
Obviously this is a bit exaggeration from my part but you get the picture. The potential volume needs to be there to justify the efforts from advertisers’ side.
“If something is not worth doing, it’s not worth doing right!”
4. What next?
It’s not my intention to provide an in-dept coverage on affiliate marketing with just one blog post. I hope all the basics are being covered roughly though.
It’s my personal opinion / hope that affiliate marketing is here to stay and it will grow rapidly in the next 2-4 years. I don’t see meaningful movements in the 12 months or so in Vietnam.
I can’t say the same for Singapore, it may grow much faster because the infrastructure is there from consumers’ preference to online transaction to technology, trust factor etc…
Industries that affiliate marketing may be big in this region are: finance (everything related to finance really), travel, consumer electronics, fashion, education etc…
As per usual, if you have anything to share/comment, feel free to email me at firstname.lastname@example.org
Have a good night!