Performance Marketing: A Guide For CMOs

Chris Trayhorn
by Chris Trayhorn
March 10, 2010

After a year in which the performance marketing industry had to deal with controversies ranging from Oprah to the FTC, many of the larger, smarter networks are trying to move to higher ground. They’re seeking to attract more quality, brand advertisers, but that means selling performance marketing as a solution to Chief Marketing Officers who may have no experience of it.

I recently caught up with Peter Klein, the General Manager of the MediaWhiz MonetizeIt Affiliate Network, to ask him what their approach is and what CMOs should be thinking about when considering performance marketing initiatives. Our Q&A session follows below:

What does a CMO need to know about Performance Marketing? 
Performance marketing is the definition of getting measurable return on investment for marketing dollars.  Unlike traditional marketing platforms such as TV, print or radio, performance marketing is pay-for-performance. That means one only pays a fixed dollar amount per action or share of revenue per sale rather than paying for advertising and then hoping for the best.

Whichever performance marketing method one chooses to use, whether affiliate marketing, email, search engine marketing, social media, banner advertising, or co-registration, all can be tested with controlled spends in approved environments. That allows campaigns to be optimized in real-time and, as a result, to be scaled profitably with the assurance of ROI.

Basically, a CMO can buy $10 bills for $5 by getting a guaranteed return that can then be used to scale a campaign even further. If it’s done right, there is a huge payoff – an immediate and easily measurable return on investment for the marketing spend. 

Are some products/services more suited than others?
It all depends on the advertiser’s product, service, and follow through.  Typically, the best performing offers are those that have mass appeal.  Niche market products or services – such as a lawsuit for a particular pharma product, ethnic dating, etc – can work well but they need to pay out at a higher premium to offset the lower volume/higher spend for the target audience.  Mass appeal campaigns that succeed are generally aimed at the US market (though international is a bonus), open to all types of media (email, search, social, display, etc), and with broad demographic target customer base.

The affiliate network is the key for the advertiser in term of getting feedback on what’s working or not.  It is all about the advertiser and network working together in partnership and being flexible and responsive to sales results. There is almost always a price point that works for every marketing partner.  Some partners will need run at a lower payout to help the advertiser maintain ROI goals on their traffic, while in other cases the advertiser can afford to pay a higher rate for better converting traffic. Both ways allow for scaling to greater volume while keeping ROI at the desired level – it’s all about optimization.

What are typically the limiting factors on scalability in any given campaign?
There are several possible factors that might affect scalability. As mentioned before, the particular market segment can be one such constraint. Niche products, for example, are by definition somewhat limited in terms of scalability. As another example, consider a campaign for a product where there is already market saturation of directly competing offers. In such a situation even a campaign that is successful from an ROI point of view can still be impossible to scale effectively.

Other limiting factors can be avoided while the campaign is being planned and optimized by ensuring that the types of media used are not unnecessarily limited, and that the offer is attractive to affiliates. Affiliates are very metrics based and they’re motivated by how much revenue they can earn from an offer. Get that right and your campaign will scale quickly.

The one factor that shouldn’t affect scalability but is often raised as a potential problem is budget. The fact is that if a performance marketing campaign is working, then it is more than paying for itself. There’s no reason to limit it to a fixed budget. Every extra sale or lead generated means extra profit, so why limit it?

What makes some campaigns fail?
On the front end, depending on the media source, campaigns can fail for publishers based on a variety of reasons, many of which can be overcome.  For email marketing we study open rates (subject/sender lines), clicks, conversions, payout.  Any lower than average combination of those can result in a campaign missing target metrics on total revenue.  For search and social marketers, we study clicks, conversions, payout and therefore EPC.  For display marketers, it’s generally an arbitrage game of CPM to CPA, so we study clicks, conversions and payout.  

On the backend, or the advertiser side, campaigns fail for two major reasons: lack of optimization or feedback to the affiliate partners (good/bad performance), and lack of timely follow up from their call center.  In a lead-gen campaign the intent is normally for the advertiser to obtain contact info so they can call the consumer.  If that doesn’t happen in a timely fashion, conversion rates fall off a cliff and all the leads in the world will not help the cause.  A case study we like to cite here, which sums it all up:  “From just 5 to 10 minutes, the odds of contacting a lead decrease by 5 times” – The Inside Lead Response Management Study Overview.

What kind of internal resource and knowledge does a CMO need to have available to effectively start and manage a campaign?
Campaigns should be monitored daily, even hourly at the beginning.  But while campaigns should never be regarded as set-it-and-forget-it, they also shouldn’t need to consume the time of a CMO.  There are great network CRM tools available now such as MediaWhiz’s own LeadROI. It allows leads to be managed and worked from capture through sale with metrics, reporting, and automation of process. 

Getting the campaign started is easy. Typically the network will provide a detailed spec. sheet as to what is needed, with guidelines on the creative materials, a request for the suppression file (if applicable), and also liaising on placing a pixel for the network to provide affiliates with real time tracking.  If an advertiser does not have creative, a network will often provide it free of charge.  Very little is required from the advertiser from a design/technology standpoint. 

Good networks should also provide the consultative services of an agency whereby they educate advertisers on every facet of online marketing. Certainly at MediaWhiz we regard ourselves as a great online performance marketing agency with control of our own media.

What are the risks? How does one control fraud, brand consistency and reputation?
There is no denying risks will always exist given human/technological error– sometimes creatives expire, a suppression file has a name omitted, etc…and this falls on the advertiser and the affiliate at different times.  However, there are many safeguards we put in place.  We offer full transparency to view the sites an ad may be placed for upfront approval, monitor referring urls to ensure site place placement, seed a partner on an email before and after it goes out, allow the advertiser to log in and periodically review the program on our network, and have a rigorous review of all applicants to our network.  Additionally, within 1 month we will be fully integrated with UnsubCentral, a leading suppression file management and MD5 hash service provider for CAN-SPAM compliance.

Some people feel that performance marketing has a bad reputation. Why do you think that is, and what can be done about it?
It’s important to remember that the online advertising space is really only a decade old, as compared to other media which date back as much as a century. Traditional media forms are extremely transparent – you can see the ads on TV, in print, hear them on the radio – but online there are so many different sites, emails, applications, etc. that it is easy to lose sight of an ad placement.

As a result, particularly in the early days, performance marketing tended to get a bad reputation as a result of the actions of people that only cared for the short term benefit of their own wallets, with no concern for any mutual partnership with the advertiser.  These types of people generally don’t last long in the industry, but unfortunately they pop up in different places like a game of Whack-A-Mole. 

So, of course there are risks as in every type of marketing, but there are an enormous number of safeguards too, ranging from the initial rigorous review of applicants to the network, through to ensuring CAN-SPAM compliance, and from providing full transparency into referring sites to seeding partners into email before and after it goes out. 

On the positive side, online performance marketing spend has a direct, immediate and measurable ROI, whereas TV, print and radio generally have to be treated as branding spend with little in the way of trackable ROI.  Online performance marketing provides accountability of spend and demonstrable results. For marketing executives accustomed to traditional budget planning and justification processes, the demonstrable ROI of performance marketing is a scary new world.

So far as MediaWhiz/MonetizeIt is concerned, we take the approach of presenting all the media options available and educating the advertiser as to how they work. We then start slow with a fixed budget across our multiple in-house media sources, test smart and provide full transparency, and then circle back so that both sides can share results.  We then rinse and repeat with an expanded budget. 

This approach avoids unnecessarily starting and stopping a campaign because the expectations from both sides are fully communicated upfront. This will normally lead to a successful campaign, but even in the worst case if a campaign does not succeed for any reason, the partners know that losses were kept to a minimum and trust has been maintained.

We feel this is the only way to scale and build a successful partnership for the long haul: through network/advertiser feedback and trust.

Peter Klein is General Manager of the MonetizeIt Affiliate Network, a division of MediaWhiz, a leading online performance marketing agency and #256 on Inc. Magazine’s 5000 Fastest Growing Private Companies for 2008.

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Chris Trayhorn

About Chris Trayhorn

Chris Trayhorn is the Founder & Editor of Revenue Performance magazine and the CEO of mThink LLC, a performance marketing services company based in San Francisco. Chris has worked on marketing campaigns with over 200 of the Forbes Global 2000. Friends say he knows a lot about a couple of things and a little bit about everything. He likes motorcycles, Manchester United and making pictures.

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2 Responses to “Performance Marketing: A Guide For CMOs”

  1. rrgan12 Says:

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  2. Devon Says:

    I think that you should use both ROI and ROC when measuring performance on your marketing methods. It is important to know what your return on investment and your return on customers is for affiliate marketing, email, search engine marketing, social media, banner advertising, or co-registration. I’m sure many of these social tools of marketing, like, have a CRM that is able to be tied to them to help measure these returns. If you aren’t measuring your successes and your failures in your forms of marketing, you will definitely fail as a company.