Going beyond bargain hunters 


August 30, 2016

Ankita Rai, Financial Express
New Delhi, 30 August 2016 

Affiliate marketers such as coupon, cashback and deal sites often work as a match made in heaven for retail/e-commerce firms when the latter take baby steps into the business world. These sites drive traffic to e-commerce players on commission basis, similar to the cost of acquiring a new customer or a sale.

Till last year, affiliate marketers benefitted a great deal from the e-commerce slugfest as e-tailers doled out attractive commissions.

But in recent times, something has changed as e-tailers focus on positive unit economics and relook at their business models in light of new government norms and investor pressure. With GMV being considered an ‘old school’ metric now, e-tailers are rationalising affiliate commissions and looking for quality customer traffic beyond deal seekers.

Take the case of Snapdeal. According to industry sources, it has cut down on commission paid to affiliate marketers by 50-60% for existing customers from March this year.

For high volume categories like mobile and tablets, it now pays 1% for the existing customers for upto a monthly threshold of 2,500 transactions against the flat commission of 2.5% paid in August 2015.

In case of high margin categories like clothing and accessories, the commission is down to 3% from 12% in 2015 for existing customers for upto a monthly threshold of 2,500 transactions. Snapdeal was unavailable for comment.

Paytm, which was the darling of affiliate marketers due to its cashback offers, has also stopped paying commissions for its marketplace this year, with its focus shifting towards services such as ticketing, mobile recharges, billing etc.

While Flipkart’s affiliate commissions have remained the same, more or less in the last one year, there is a shift in favour of new customers and apps. It pays 1.5% commission on mobile phones for existing customers while and 2.5 % for a new customer order.

This figure stands at 3.5% for mobile apps. For high margin categories like fashion and lifestyle, the commission for a new customer order in apps is as high as 15%. Flipkart and Paytm didn’t reply to the emails seeking their comments on affiliate marketing commissions.

Amazon India, on the other hand, has a flat structure of advertising rates and pays 4% commission for electronics. But top selling brands such as Xiaomi Redmi Note 3 or MotoG4, do not qualify for advertising fees.

The top e-commerce players are moving away from coupon and cashback affiliates in favour of price comparison, product review, aggregation and blogging-based models. “We have discontinued business with cashback and rebate sites.

We want to enable customers to discover and shop directly on Amazon without the need to come through intermediaries,” explains Kishore Thota, director, digital marketing, Amazon India.

“While we still work with rebating sites for enabling discovery of deals and prices, we have stopped any cashbacks from being passed on to the end customer.”

Also, wallet players have changed the game for cashback-centric affiliate marketers. “While wallet players may not be traditional affiliate partners, they have certainly eaten into the affiliate pie,” says an e-commerce expert. With GMV in the e-commerce space down by 20-25% this year during the first six months, a similar impact is expected on the affiliate industry. Does all this spell doom for couponing and cashback sites and other kinds of affiliate marketers?

Focus on the bottomline

Traffic obtained from affiliates may be even more valuable than qualified leads since affiliate sites already provide some context to the product (for instance, product comparison websites or lifestyle blogs). However, the e-commerce business has changed in the last six months.

“It is not surprising that e-commerce companies are relooking at affiliates. Most of the traffic coming from affiliates is of bargain hunters. Therefore, they are rationalising the commission as they are trying to focus more on quality organic traffic and customer loyalty,” says Pragya Singh, vice president at retail consulting firm Technopak.

While price comparisons, deals and cashbacks were significant contributors in the initial years, lately e-commerce players are seeing good traction from individuals with social media accounts and from content sites who have regular visitors/fans.

For example, the Amazon Associates programme allows individuals to connect with relevant products from articles.

Lenskart is now working with only five partners in the affiliate space which include CouponDunia, Komli and vCommission. “Till last year, we were working with 15 affiliate partners. We now work with few partners who have better capabilities of buying inventory, provide quality traffic and are doing better customer segmentation at their end,” says Amit Chaudhary, co-founder, Lenskart.

]The firm offers up to 20% commission to the affiliates and, in fact, has increased its commission over time. “We are capitalising on the situation. We are 90% a private label entity,” he explains.

With affiliate marketing being the “cheapest medium after email” investing 10% of overall marketing spends in it is a no-brainer for Lenskart.

However, for e-commerce players who are at a slightly more mature growth stage, discounts can’t be the main driver anymore. “Now price is less of driver,” says Nitin Agarwal, AVP, marketing, ShopClues.

“Majority of the traffic coming through cashback and coupon sites is from tier II and tier III cites. Only those affiliates are doing well overall which are adding some value beyond deals and discounts.”

The big picture

The business environment for affiliate websites is becoming tougher with time. “With fewer sites to send their traffic to, margins may be reduced, business thresholds for higher margins may be moved up, payment thresholds may also go up to reduce administrative effort and expenses, and the period for expiry of a referral may be shortened,” says Devangshu Dutta, chief executive, Third Eyesight.

However, affiliates are upbeat about their business models and see consolidation in e-commerce space, cutting down of deep discounting and focus on quality traffic as a boon for the ecosystem.

CouponDunia added cashback as a feature in April this year and believes cashback and coupon will continue to work well in the space because it’s human nature to save.

For every commission it earns, the portal keeps 30% and pays rest as cashback. “The economics of transactions has to make sense. If a retailer is losing money or has very low margins on a transaction, it cannot afford to pay us high commissions,” says Sameer Parwani, founder and CEO, CouponDunia.

“The new discounting norms won’t impact coupon and cashback players. If retailers reduce discounting, they have more room to pay for our commissions and the cashback part will see an increase.”

He cements his argument saying that once the e-commerce player cuts back on discounts, the only way for consumers to look for the best offers is through affiliates.

Then there are others like Rohan Bhargava, co-founder of cashback site CashKaro who say that the e-commerce focus on profit is good for affiliates. Due to investor pressure, e-commerce companies may have cut down on affiliate commissions but this could be short-term.

“In certain cases we have seen a rise in commission like in Healthkart’s case. Niche sites are doing well while commission has been steady for players like Flipkart and Amazon for the last one year,” he says. He further states that the beauty of cashback is, the discount happens after transaction and therefore, doesn’t impact GMV. But not everybody agrees with him.

Ravi Kumar, founder, FreeKaaMaal.com, says the cashback model is totally incentive-driven and doesn’t add any value and at the end of the day, affliates also need to be profitable.

Currently, a large chunk (80-90%) of the revenues earned by cashback sites is going back to the users.

“To offset this, these companies need to increase the transactions manifold. But that is not possible anytime soon,” he says. “If you look into the traffic trend of cashback sites, 90% of the traffic is repeat users. This is contrary to deal sites where 50% traffic is new users.”

A focus on profitability is also forcing affiliates to adopt better business models. Currently, two models exist: charge on per pay basis and per customer visit (PCV). The industry is moving towards the latter as the risk is minimal.

The price comparison and product discovery platform MySmartPrice attracts 10 million unique consumers on its platform every month and claims to do three lakh transactions per month. “Annually close to 660 million unique customers transact on our site,” says Sulakshan Kumar, co-founder, MySmartPrice. “We help e-commerce get two to five times increase in daily GMV volumes during the sale season.”

Industry experts say affiliates will soon be as big as e-commerce sectors. In developed economies, 15 to 20% of the sales come from affiliates. In India it is less than 10%. The affiliate industry in India is less than Rs. 1,000 crore.

“In the US, online branded apparel stores such as Nike work a lot with coupon and cashback sites because their margins are good. But horizontal players prefer price comparison, deal and review sites. This trend is yet to catch up in India,” Kumar adds.
The new government rules on e-commerce marketplaces and discounting have actually made players go back to the drawing board and relook at their financial models.

“Changes in affiliate commissions are a byproduct of this. Affiliates are part of the e-commerce ecosystem and cannot be seen in isolation,” sums up Anil Talreja, partner, Deloitte.

(Published in Financial Express)