By Peter Figueredo, March 2004

10 Steps to Reduce Risk in Online Affiliate and Pay-for-Performance Relationships.

For the past few years, there's been an ongoing battle over which path marketers should take when seeking to acquire customers online. In the beginning, marketing departments told CEOs that online advertising was the golden goose, citing the millions of eyeballs ready and waiting for their company's message. That goose never laid a golden egg, and those eyeballs certainly weren't always translating into open wallets.

In the late 1990s, a new generation of online marketing that "made sense" emerged: Direct marketers took hold of the power of the Internet, and "affiliate marketing" and "pay-for-performance" deal structures were born. How perfect: Pay only for marketing units that led to an action—a click, an order, a subscription, a lead, etc.—and share the bounty with the publisher who allowed an advertiser to market to its readers. The real golden goose! But trouble came quickly to paradise as certain risks became evident.

Often, online marketers are too focused on acquiring customers as cheaply as possible. They fail to realize this mentality leaves them open to the risk of damaging their brand as a result of the behind-the-scenes marketing improprieties of unscrupulous Web site publishers and affiliates. This is more prevalent than one would think. There are many hidden risks, obstacles and safety issues endemic in the implementation of pay-for-performance online advertising and affiliate marketing campaigns.

Watch Out

The top three types of risk for this marketing channel are:

> Fraudulent activity delivered to boost the performance-based income of publishers.

Suppose an advertiser is looking to pay $5 per lead. Disingenuous publishers working with this advertiser can write a devious little program that automatically will fill in these lead forms to get the $5 commission. They even can go so far as to spread out volume so that no spikes occur, and mix in real leads so that not all the orders are fraudulent. Before the advertiser realizes what is going on, he may have paid out several thousand dollars ... or more.

> Damage to your brand through misrepresentation of products/services and/or exposure on inappropriate or illegal Web sites.

I have seen an example where publishers, working on a pay-for-performance basis, were marketing credit cards for a major card issuer. Unfortunately, they were using a lower APR rate in their marketing materials than the advertiser had authorized. These publishers even went so far as to modify creative copy. Luckily this advertiser had a team devoted to monitoring what sites were doing and caught these infractions early. Otherwise, it may only have found out when its customer service phone started ringing off the hook.

> Legal risk through violations of privacy, Can Spam, etc.

With the release of Can Spam, marketers working in the online arena are either ignoring their responsibilities, or panicking because they fear they cannot effectively police what their hundreds or thousands of publishers are doing with regard to sending e-mail on their behalf.

(This topic has recently come up in a New York case against two Internet marketing companies. These companies have been accused of sending spam. In their defense, they claim it was not them but their affiliates who violated the act, and without their knowledge. It will be interesting to see how this case pans out, as it will set a precedent for future lawsuits.)

Unfortunately, an advertiser would not know if its publishers violated this act until it was too late (until after the e-mail was sent and reported as spam). If steps are not taken to fully protect advertisers, then they either leave themselves open to legal risk or they shut down this channel completely.

Protect Your Program

An affiliate/pay-for-performance marketing team can minimize exposure to these types of risk and improve the safety of this channel by following 10 principles:

1. Know your publishers. Establish guidelines for acceptable publishers, and be selective when choosing working relationships. Manually review all sites from publishers that apply to participate in the affiliate program.

2. Cover yourself. Establish terms and conditions (T&Cs) for publishers. These should address fraud, site content, marketing practices, creative, etc. Mandatory T&Cs set a precedent requiring sites to abide by the terms; a signature by the publisher may be warranted. This can take the form of an affiliate agreement or an insertion order.

3. Control your message. Require sites to use only approved creative ad units. This includes text links and e-mail copy. Since publishers frequently look to develop their own, it's also important to require prior approval of these custom ad units. Monitoring is crucial if your messaging is sensitive to your brand integrity.

4. Monitor placements. Monitor ad placements on publisher sites. Regularly check where ads are being displayed and how. Prioritize monitoring of publishers and frequency based on impressions, clicks and order volume. Even if you can't monitor every site, at least check the ones driving traffic.

5. Check the user path. Monitor referring URLs. Check to see where traffic to the advertiser's site originates. This will identify publishers running ads on sites not approved by the advertiser. Referring URL data should be available on your own site or through your tracking technology provider (if you use one).

6. Verify performance. Manually review sale and transaction data. This helps identify fraudulent orders, frequent returns, duplicate orders, etc. If your affiliate agreement or insertion order allows you to cancel invalid transactions (and it should) then doing this can be critical in hitting your target cost-per-acquisition for valid performance.

7. Deter spam. To protect your company from spam violations through this channel, you must do everything in your power (and be able to prove it through documentation) to ensure you comply with Can Spam and any other spam laws. Steps include:

- ensuring Can Spam is addressed in your T&Cs,

- contacting every publisher and informing them of their obligations under the law and your T&Cs,

- seeking confirmation from publishers that they will comply,

- establishing an opt-out database, cleaning system, etc.

(NOTE: This is not an attempt to explain the law, nor do these guidelines include all of the Can Spam Act requirements)

8. Protect user privacy. Require publishers to have a clearly stated privacy policy. This will allow you a peek into the marketing practices of the publishers; it also ensures that end users are informed of the use of their data.

9. Pick up the phone. Keep in regular contact with publishers. Keep the lines of communication open for maximum effect. The best way to know what is going on with your publishers is to maintain an ongoing dialogue. While they may not always reveal what they are doing, you will learn to detect red flags.

10. Take action quickly. React quickly and decisively when violators are identified. Address violations with firmness, and be prepared to take legal action—even though it may never be necessary.

In the past, marketers entering the realm of pay-for-performance and affiliate programs typically did not devote the appropriate management resources. All too common was the scenario where only part of a person's time was dedicated to managing thousands or even tens of thousands of these types of deals. Advertisers learned they cannot rely on technology companies to address this concern. The concept of a fully automated sales channel is only wishful thinking. An appropriate team must be put in place to handle these initiatives.

For most direct marketers, affiliate programs and pay-for-performance deals truly are the golden geese of online marketing. If the right resources—internal or outsourced—are allocated properly, then these geese will be more likely to lay only golden eggs.

PETER FIGUEREDO is co-founder and CEO of NYC-based NETexponent (www.NETexponent.com), an online direct marketing agency for companies looking to maximize their online customer acquisitions.