This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here.
‘Tis the season for editorial gift guides — and brands are clamoring to snag a spot on one of these articles.
Over the past several years, affiliate marketing has become a more important part of direct-to-consumer startups’ marketing strategy. That’s for a few reasons — one, there are simply more publishers taking cues from the likes of New York Magazine or BuzzFeed and building out affiliate commerce businesses in order to diversify their revenue makeup away from advertising. For a DTC brand that’s just starting out, getting featured in a national publication can be a useful way to build brand recognition. Additionally, some DTC founders say they have started focusing more on affiliate marketing as Facebook advertising has become less reliable following Apple’s iOS14 update earlier this year.
The result is that DTC brands are starting to dedicate more in-house resources to affiliate marketing, as are public relations firms that work with e-commerce startups. But for many brands, affiliate marketing remains a murky, relatively untested channel — and they are still trying to figure out which websites or affiliate commerce networks are the best place to spend their time and money.
Affiliate marketing is an umbrella term that businesses sometimes use to encompass other revenue-sharing agreements, like ambassador programs. But typically, affiliate marketing refers to when a publisher or third-party site features a brand’s products, and subsequently takes a cut of each sale.
Connie Lo, co-founder of natural skin care brand Three Ships, said that her company started testing out affiliate marketing this year, after historically investing nothing in it. After Three Ships saw its Facebook and Instagram ad performance decline following Apple’s iOS14 update Lo said she started asking other founders what marketing channels they were testing out, and affiliate was one of the most common responses.
“My impression of affiliate before I really dug into it was that it was just discount sites — I genuinely thought it was just promo codes that would cheapen the brand,” said Lo. But, since doing more research into the affiliate space, her position has changed.
Lauren Kleinman, founder of self-described performance-driven PR consultancy Dreamday which works mostly with DTC clients like Fly by Jing and Brightland, said that that’s a common misconception, but argues that affiliate has become a higher-quality channel as bigger publishers launch affiliate commerce sites. “When we do affiliate, we’re usually talking about a feature piece in Vogue… not just turning on Honey and deal sites,” said Kleinman.
The rise of affiliate marketing went hand-in-hand with the blog boom in the early to mid-2000s as average writers realized that they could make a quick buck by say, spinning up mattress reviews sites. But, affiliate commerce got a facelift once traditional media sites started embracing it — particularly after the Wirecutter sold to the New York Times in 2016 for $30 million, proving to other outlets that it could be a big business. The following year, for example, CNN launched its commerce business called CNN Underscored.
Investing in affiliate marketing requires more than just sending cold emails to publishers en masse. While some publishers direct most of their readers to Amazon links when featuring products, DTC brands that don’t sell through Amazon have to get set up through an affiliate marketing site like Shareasale or Pepperjam, that help track which publishers get credit for a sale.
But it’s costly. Through a site like Shareasale, for example, brands decide what commission rate a publisher receives for a sale (they may offer a better commission rate to a publisher they really want to be featured in). Then, Shareasale takes a 20% fee of whatever the merchant is paid out.
As a result, Lo said that Three Ships — which she said started testing affiliate marketing at the beginning of the fourth quarter — set aside about $10,000 a month for the channel. Lo said that Three Ships also experimented with hiring a PR agency that focuses exclusively on affiliate marketing, but decided it wasn’t worth the investment. Now, she said that one of the company’s employees who handles brand partnerships, as well as another PR agency that Three Ships works with handles, handles most of the company’s affiliate pitching.
Katelyn Glass, founder of Fifty Six Advertising, said that whether or not brands should invest in affiliate marketing ultimately comes down to the company’s margins, as is the case with every other marketing channel. While companies might get excited by the flood of orders coming in through an affiliate channel, she said brands need to take into account average order value and lifetime value of a customer that comes through affiliate — on top of the commission rates or special deals they might offer — in order to calculate whether it is right for them.
“It is easy to be on them and to get set up, but it is a lot harder to sustain your business on them,” Glass said.
But, in a world where Facebook advertising costs have more than tripled or doubled for some brands, a double-digit commission on each sale isn’t out of the question. And, Kleinman argues, the value of affiliate marketing compounds; it can help drive up a brand’s SEO ranking, and one pitch might result in a publication featuring a brand in multiple gift guides or product roundups.
Kleinman says that when it comes to pitching publications, one of the most common mistakes brands make is pitching the wrong person. The people at a publication who deal with gift guides and product roundups might have one of many titles: heads of affiliates, commerce managers, or vp of marketing.
“Commerce managers want to see the business opportunity,” Kleinman said. “That might include: what’s the brand’s average AOV, what preferred commission rate can you offer, what’s the brand’s average on-site conversion rate, what case studies or angles have performed best in the past, what ‘hype’ data you can leverage and so forth,” she added.
Lo said that while it’s still early days for Three Ships’ foray into affiliate marketing, the company plans to spend more on the channel next year. She said that Three Ships got placed in more than 20 gift guides and product roundups ahead of Black Friday as a result of focusing more on the channel. The company recently signed onto another affiliate marketing platform called Narrativ, which purports to offer brands more data on what’s trending to inform pitches to publishers, among other analytics.
Kleinman, for her part, said that she believes “affiliate marketing and PR are inextricably intertwined,” and as a result, more brands will continue to explore it.
“It takes consistent outreach, knowledge of the ecosystem and all of its players,” she said.
More Cyber Week sales data
While the biggest headline from Cyber Week was that both Black Friday and Cyber Monday sales declined slightly year-over-year, interesting data has trickled in over the past week about how people’s shopping habits are changing during the biggest sales week of the year. Below are some of the notable Cyber Week data points that caught my eye:
- According to SMS provider Attentiv, 8.5 million new consumers signed up to receive text message alerts from brands during Cyber Week, up over 60% from 2020.
- Shopify merchants continued to see big gains during Black Friday and Cyber Week: according to the e-commerce giant, Shopify store owners sold $6.3 billion worth of goods between Black Friday and Cyber Monday, at 23% increase over 2020.
- Also from Shopify: customers continue to embrace curbside pickup — and place larger orders. The average order value for curbside pickup orders placed between Black Friday and Cyber Monday was $96.60, up from $79.84 last year.
What I’m reading
- The ultra-fast grocery delivery space continues to be volatile, with some companies raising hundreds of millions of dollars, while clothes flame out. Jokr is now valued at $1.2 billion after raising a $260 million round, the same week that one of its competitors, 1520, shut down.
- Electronics retailer B8ta has gone all-in on video shopping. Since the pandemic, its stores have also doubled as studios for store employees to show off products on live streams. Now, the company is also exploring video partnerships with other companies, such as Indiegogo.
- A lack of profitability is of little concern to DTC investors, at least according to those interviewed by the Business of Fashion. As money has once again started pouring into consumer startups, ultra-fast growth is once again taking priority over short-term profitability.
What we’ve covered
- How EyeBuyDirect refreshed its customer referral program in order to make it easier for shoppers to understand what perks they could earn for recommending friends.
- Healthy Roots Dolls founder Yelitsa Jean-Charles spoke about how she’s building a modern toy company on the Modern Retail Podcast.
- The Body Shop recently switched to an open hiring program, no longer requiring resumes or previous experience for store and warehouse associates, which has helped the retailer fill positions in a tight labor market.