#USA #San Mateo #affiliate marketing #Rakuten Rewards #Prohaska Consulting

Understanding the Challenges in Affiliate Marketing Measurement

In the world of digital marketing, affiliate marketing stands out as a cost-effective channel that can generate significant returns. However, a recent report commissioned by Rakuten Rewards and conducted by Prohaska Consulting highlights significant gaps in how affiliate marketing performance is measured, leading to potential missteps in budget allocation.

The Core of the Issue

The report titled "The Next Frontier of Measurement: Fair Evaluation of Affiliates in Marketing Mix Models" brings attention to the challenges marketers face when relying on standard Marketing Mix Modeling (MMM) methods. Despite strong evidence of affiliate marketing's effectiveness, the models traditionally used often fail to capture its true value. This misrepresentation can lead to systemic underfunding of a marketing channel known for its high-intent consumer reach at critical buying moments.

Ameet Shah, a Partner at Prohaska Consulting, underscores this issue, noting that many marketers remain unaware of how their models underrepresent affiliate performance, which can have a tangible financial impact. The report is based on over 25 interviews with senior marketing leaders and analysis of real-world case studies from various retailers and agencies.

Unveiling the Performance Gap

Current statistics indicate that more than 80% of marketers utilize affiliate marketing in their campaigns, with Rakuten Rewards revealing an impressive 17x return on sales compared to commissions paid. Yet, these marketers often find discrepancies in how their budgeting decisions are guided by MMM, with affiliates' performance being systematically undervalued.

The report provides essential case studies to illustrate the severe repercussions of this mismeasurement. For instance, two brands under the same parent company running simultaneously on Rakuten Rewards demonstrated differing performance. A program that used elevated cash back tiers and promotions yielded a remarkable 25x higher return on ad spend (ROAS) compared to a less actively managed program. In another situation, an agency effectively segmented affiliative inputs saw a 10% improvement in iROAS, which would have been lost without proper classification.

Exploring Structural Flaws in Measurement

Prohaska's research pinpointed two primary structural flaws that lead to these discrepancies in affiliate measurement:

1. Lack of Standardized Data: The failure to clearly separate different affiliate types—cash back, coupons, influencers, etc.—confuses the true performance landscape. This broad classification prevents marketers from effectively analyzing and comparing performance across channels.

2. MMM Limitations: Since affiliates earn commissions based on completed sales, MMM models misinterpret their contribution as merely capitalizing on existing demand, rather than recognizing their potential to drive new customer acquisition. Traditional frameworks that prioritize cheaper returns fail to adequately address the strategic value affiliates can offer.

Recommendations for Improvement

The report makes several recommendations aimed at refining how affiliate performance is measured.

For Marketers:

• - Segment Affiliate Types: Marketers should categorize affiliates into distinct subgroups within their MMM datasets to obtain a more accurate representation.
• - Time-Series Variables: This includes tracking cashback rates and promotional changes as they evolve over time.
• - Sustainable Testing: Implementing measures like geographic holdouts and audience-level suppression could yield more reliable insights.

For Publishers:

• - Data Sharing: Affiliates need to provide essential data, including impression and click rates, enabling fair comparisons within MMM frameworks.
• - Enhanced Testing Capabilities: Establishing geo-targeting options and A/B testing protocols can substantiate the affiliates’ contributions.

Industry Recommendations:

• - Unified Definitions: There’s also a call for the industry to come together to establish unified definitions and classifications for affiliate categories, giving them equal footing in measurement alongside channels such as video and display ads.

Conclusion

The implications of this research are profound. Brands that have prematurely scaled back their affiliate programs based on flawed MMM data have found themselves struggling to regain lost ground. Carl Lurie Kalapesi, Chief Commercial Officer at Rakuten Rewards, emphasizes that accurate measurement goes beyond technical adjustments; it is crucial for competitive positioning in the market. For any brand looking to enhance its marketing strategy, understanding and improving the way affiliate performance is evaluated could be a game changer.

For those interested, the complete report titled "The Next Frontier of Measurement: Fair Evaluation of Affiliates in Marketing Mix Models" is available for review here.

About Rakuten

Rakuten offers an innovative shopping experience by providing millions of consumers with cash back from their purchases at thousands of major brands. Established as a leading platform, Rakuten has rewarded its members with over $4.6 billion in cash back since its inception, cementing its status as the largest cash back platform globally. To learn more, visit Rakuten.com.