New and existing customers in the affiliate channel

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As affiliate programmes capture more and more data, what are the metrics that advertisers and networks using to determine how to set commissions?

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Introduction

As affiliate programmes mature so marketers shift their focus to more qualitative measurements in order to determine success.

One such metric is the split of new versus existing customers that affiliates drive, with the data proving a popular performance indicator for advertisers. While many brands have been keen to monitor this split behind the scenes, there have been some recent high profile cases whereby advertisers have reduced the commission rates offered for existing customers.

With this in mind, it’s important to examine the issue and how best to reward affiliates based on this measurement.

What constitutes a new customer will vary for each advertiser and sector. For example some will classify this as someone who has never purchased before while others will stipulate that anyone who hasn’t purchased for a period of 12 months or more should be classified as a new customer.

In addition to the classification of new customers, the length of time an advertiser has traded online will impact their share of new customers. As time passes there will invariably be a tipping point at which it is no longer possible to maintain such a high share of sales from new customers.

With only a finite amount of customers, is reducing commission for existing customers counter intuitive? Shouldn’t advertisers also understand the additional value that can be attributed to retaining and nurturing its existing customer base?

Lifetime value of customers is also something that should be considered when determining the overall value of a customer referred through the channel.

In this white paper we consider how affiliates are able to help drive new customers as well as alternatives to lowering commission rates for existing customers.

What constitutes a new customer?

When analysing new and existing customers, it is important to determine what this actually means. It would be logical to assume a new customer is someone who has never purchased from a retailer before. But a typical timeframe will be one year: a lapsed customer not shopping again within a 12 month period.

In the latter scenario, what distinctions are drawn between whether it is a new customer or merely an infrequent customer? This will vary from sector to sector and by advertiser. If we consider a

telecoms advertiser, a new customer may be someone who has not been a customer for over a year. Given that the market is often a switchers’ one, a great value is placed on ‘winning’ a previous customer back from a competitor and someone that returns after an absence of a year is classified as a new customer.

If we look at other sectors though, would a customer that is classified as a new customer within a telecoms scenario just be an infrequent customer rather than a new customer as such? For example, purchasing a bed isn’t something that will happen frequently but would an advertiser selling furniture treat a customer that has purchased before, but has not returned for over a year, as a new customer or an existing one?