Special Order

News of the death of the catalog is greatly exaggerated. It’s no secret that the catalog retail universe is a big one. Brands that started as paper catalogs sent in the mail go back more than 100 years to the Sears & Roebuck catalog sent to families in rural parts of the country. In its pages people could order everything from bars of soap to do-it-yourself homes delivered right to the doorstep.

Catalogs in general have gone through a sea change of sorts and nowadays the best-known ones sell mostly apparel, kitchen and bath goods, electronics and other home and gift items. Many of the brand names are nearly ubiquitous: L.L.Bean, Eddie Bauer, Chadwick’s, Patagonia, Harry & David, Spiegel, The Sharper Image, Brookstone, Crate & Barrel, Hammacher Schlemmer, Pottery Barn, Williams-Sonoma, Land’s End, Lillian Vernon and Victoria’s Secret.

Some of these brands are, of course, multichannel marketers now – be it Web sales, catalog, physical store or telemarketing. The printed catalog may be how the brand is recognized, but it’s the various channels that keep sales humming.

In fact, multichannel marketers are very big participants in the $2 trillion U.S. retail market, according to the Direct Marketing Association (DMA). About 40 percent of retailers sell through three or more channels, 42 percent through two. That’s almost a quarter of all retail sales generated through direct marketing efforts and that direct mail (such as paper catalogs) accounts for half of that revenue, according to the DMA.

Smooth Transition

When e-commerce came along many predicted that the pick-up-the-phone-and-order-from-a-paper-catalog model would die out. It hasn’t and is in fact thriving, especially as affiliates for these catalog businesses do extremely well.

Like the overall affiliate cosmos, the top 20 percent of affiliates for catalog retailers bring in the heaviest sales. Contrary to their fears, catalogers, as they are known, have transferred the catalog model to the Web rather well.

Online catalog and call center revenues reached $9.87 billion last year, and online sales through retail chains brought in $27.75 billion in 2005, according to Internet Retailer. Eighty-two percent of multichannel retailers who have a catalog component run profitable Web operations, according to Internet Retailer/WebSurveyor. This is actually ahead of the virtual-only merchants – only 75 percent of them are profitable.

Contrary to what might be suspected, the Web presence does not take away from the overall catalog brand. All catalogers believe in e-commerce, says Chris Henger, vice president of affiliate marketing at Performics. He says the days of catalogs asking if they should invest in the Web are over. “There may not yet be best practices in what channels get the credit for sales, but they are learning. Sending a catalog is a tremendous vehicle and so what better time to be omnipresent with an interactive message,” says Henger.

Performics manages affiliate marketing programs for more than 300 advertisers, including more than 100 catalogers. Catalogers are kind of its specialty, he says. Some of its top catalog clients include Blair, Cabela’s, Eddie Bauer, Brylane, Chadwick’s, Patagonia, L.L.Bean, Harry & David, Spiegel, Newport News, Sears, and Sportsman’s Guide.

According to Henger, the message from consumers is loud and clear: The customer needs to touch the brand the way it wants to – whether that is on the Web, over the phone or walking into a store. The good news is that those channels all help each other.

“Customers are seeing growing sales on the Web – 30 to 60 percent of sales,” Henger says. “They have all come to the conclusion that [mailing] catalogs is not going to go away. It builds brand equity and there is a balance to the push and pull.”

Others agree.

“Going online in general has benefited us greatly,” Chris Park, affiliate and partnerships manager at Blair, the men’s and women’s apparel seller, says. “We may drop catalogs all the time and [customers] may look at a catalog a few times but they go to the website many times.”

Teamwork

He says there’s really no choice anymore: The print catalog and online have to work together. Many customers look through the catalog and then come online when it’s time to buy, Park says. Blair can then promote a $0.99 shipping offer once customers come to the website.

Some catalogers take the time to look at the affiliates themselves and measure their value in a more granular way instead of just heaping together all affiliates into one category.

“Before we were just looking at the sale and now we are looking at the affiliates themselves and putting them in different buckets,” Park says.

Knowing so much of their sales are now attached to the Web and by extension, affiliates, some catalogers believe they need to go the extra yard for their earners. Brad Sockloff, vice president of e-commerce at Lillian Vernon, says he works personally with top affiliates every day.

“We do special promotions with the top 20 percent and we do monthly meetings with them,” he says. The top earners get to know when Lillian Vernon has overstocks prior to the holiday season. “Why sit on it for another year?” Sockloff says. The company also produces a newsletter exclusively for affiliates.

Lillian Vernon additionally has a link to find out about their affiliate program prominently displayed on their home page, as does Brookstone, The Sharper Image, Eddie Bauer, Hammacher Schlemmer, and Chadwick’s of Boston. None of that personalization is too surprising from Lillian Vernon, who markets gifts, housewares, gardening, seasonal and children’s products among other gift-related items – most of which can be personalized with a name or monogram.

As far as helping affiliates, you might not get any better than at Sierra Trading Post. They were named Innovative Merchant of the Year by LinkShare in 2005. The tools on the company’s site to help affiliates are plenty, more so than most of the other cataloger affiliate Web areas. Sierra has available on its site an extensive guide for affiliates, website templates in three different styles, a product data feed and tools for easier product showcasing on your site. In beta are two new tools: Synonymizer, for maintaining your search engine rankings even with a data feed; and Linkwrapper, an automated linking tool.

Justin Johnson, affiliate manager at Sierra Trading Post, says if he makes the affiliate’s job easier they will make more money. “Help them fill the hole,” he says. “Data feed sites give visitors a good idea what they are looking for and we automate some of that for those that don’t know. I try to figure out what affiliates are struggling with” and base a tool on that.

Sierra also posts sales contests for affiliates where they can compete for prizes. Johnson says while making the sale is great, he loves to learn something from the contests, such as finding out an elusive metric like numbers of new customers. He says Sierra’s recent Summer Camp contest will try to get the affiliates to communicate with each other and learn from each other. “I ask myself, what affiliates do not know,” Johnson says. “It benefits us all. Customers profit because they find what they are looking for and affiliates profit because they get high conversions.”

On A Shoestring

While catalogers restate their commitment to affiliates, there are still the somewhat- tight budgets driving an affiliate manager’s workload. Recent DMA statistics say about 9 percent of catalog/Internet marketing budgets go to affiliate marketing. That’s in line with about 8 percent of affiliate budgets for all retailers.

And JupiterResearch recently determined that search engine marketing managers also did five other jobs on average, including Web design, IT staffing, email marketing and e-commerce management. Or in the case of Andrew Dunn, online advertising manager for Vermont Teddy Bear Company, you manage stuffed bears, pajamas, flowers and mail-order gourmet foods. He agrees he could be doing more to reach out to affiliates. “We’re such a multichannel brand,” Dunn says. “The affiliate is a smaller channel for us, but we will broaden things as much as we can.” He says less than 5 percent of overall sales come from affiliates.

The Vermont Teddy Bear Company began selling personalized stuffed bears on the radio in 1981. The company’s other catalog brands include Pajama Gram, Calyx & Corolla, Gift Bag Boutique and Tasty Gram (which is online only). Dunn says he considers any business in the “gift” category to be his competition, so he admits he is often too busy to attend to all affiliates. Paying more attention to the big earners is just “physics,” he says.

While staying in contact with affiliates keeps him very busy, he finds ways to steer everyone somewhere. He says if an affiliate emails him with a simple html question, he may refer them to an online tutorial. He says he will refuse entry to affiliate applicants whose Web address is a provider name with a tilde denoting their personal site. A person who isn’t going to spend the money for a unique Web address is probably not going to be an earner, he says. Blair’s Park says that some affiliates never want extra emails or phone calls, preferring to be left alone. Some, he says, want all the details – “They IM me, call me and I know who they are. I’ve got to keep those people happy.”

Search Sells

In the performance marketing world, catalogers and other e-commerce sites – whether they sell through multi-channels or not – can’t deny the effectiveness of search engine marketing. While a DMA study stated that 58 percent of catalogers said they use affiliate marketing as an advertising strategy, 65 percent said they used search engine advertising or the buying of search keywords. Interestingly, both pay-per-performance and shopping aggregators have a decent presence among retailers with catalogs, at 41 percent and 24 percent respectively. And it is good to see that the annoyance of pop-ups and adware keep their numbers low, at 9 percent and 4 percent respectively. Up-and-coming strategies still in the beginnings of a groundswell are Flash ads and video ads, at 8 percent and 3 percent respectively.

Park agrees that catalogers will employ better conversion methods as they get more used to the possibilities. “Search is definitely the big thing,” he says. “Aggregators will also get big.” He says he would like to see more of an understanding of adware. He says he won’t work with anyone where software attaches to your computer. He publicly speaks out against adware when he can.

While some catalogers have put a ban on bidding of brand keywords, search may be the only thing catalogers have a certain control over. Some catalogers would rather not lose control over the brand. If you have, say, 50,000 affiliates, all with a different Web address, you don’t know what’s being done to your brand, says Sierra Trading Post’s Johnson.

A high-profile catalog such as Crate & Barrel chooses to have no affiliate program whatsoever. “We wouldn’t have anything like that here,” a spokesperson says.

The more affiliates contribute to your online sales, the more time and investment you’re going to give to an affiliate program, says Johnson.

“There’s lots of pressure more and more in the affiliate channel,” Vermont Teddy Bear’s Dunn says. “There is more competition for ad space, and from a search perspective, contextual ads-wise. I can pick and choose as a marketer but if I’m an affiliate marketer there is more work involved.” He says in his year and a half as online ad manager, “We are growing up with it and see what works and what doesn’t.”

Unlike Vermont and its relatively small 5 percent of online sales that come through affiliates, Lillian Vernon’s Sockloff says affiliates bring between 10 and 15 percent of their online sales. Not only is it a fairly large percentage as far as affiliate involvement in sales figures goes but for Lillian Vernon, half of their overall sales come in the fourth quarter since the holiday season is its busiest. Sockloff says the affiliates really begin to ramp up in early September for the holidays. While he says that increases the incremental customers they get – buyers who wouldn’t otherwise come to Lillian Vernon – those customers are used to looking for items on the Web and the self-serve aspect is a “perfect fit,” he says.

Dunn says that at the end of the day, he sees themselves as multichannel marketers and not just catalog retailers anymore. “If our transactions are online, we have to ask, Would we have gotten that order anyway? The multichannel challenge is what we have every day,” he says. Does it make him think the paper catalog is dying out? He points to the radio market – where Vermont got its start – as an example. With satellite radio now in the picture, he says, the market just evolves.

Henger at Performics is more than optimistic about catalogers’ longevity in the business. “[Catalogs] capitalize off e-commerce growth,” he says. “We [at Performics] see continued growth in the sector. They often need something like us – they don’t typically have a full ad marketing dept. Target [stores] has it and has a history of keeping it in-house. Most catalog retailers, however, are budget-challenged and need us.”

Budget-challenged or not, the benefits for consumers have only multiplied with the choice of sell channels and that means catalogers continue to grow with the rest of the affiliate world – one innovation, one sale, one page at a time.

What Clicks At Performics

To the surprise (and delight) of many, 2004 has put the spotlight back onto e-commerce for the first time since the dot-bomb exploded in the spring of 2000. Web stocks rose over the first three quarters, while mainstream stocks were weighed down by geopolitics.

Google went public with the kind of swagger that conjured up memories of the late ’90s. Online spending continued its rapid rise. And big advertising companies went shopping for smaller Web properties.

ValueClick bought Commission Junction. And Internet ad giant DoubleClick bought Performics.

Few have more insight into the recent past or the long-term future than Performics President and CEO Jamie Crouthamel, who shares his views in this one-on-one chat with Editor in Chief Tom Murphy.

TM: How and when did you get into the affiliate marketing business?

JC: I started Performics, which at the time was called Dynamic Trade, in 1998 and we started as an affiliate marketing service provider addressing the needs of the catalog industry, now really the multichannel marketing industry. The needs they had at the time were affiliate marketing and performance-based technology as well as services and execution help as they were executing these programs.

TM: Why and when did you change the name from Dynamic Trade to Performics? What was the strategy on that?

JC: Early on in affiliate marketing, the term performance marketing wasn’t really being used. As we grew the business and saw other performance marketing opportunities start to evolve out of affiliate marketing, Performics was a better descriptor of what we were trying to accomplish. Today, we view ourselves as a performance-based marketing services and technology company. The fact that we’re leaders both in affiliate marketing and search engine marketing points to our focus in those areas. The two needs that companies have to be able to execute on are technology to facilitate these programs and marketing expertise to execute on them as well.

TM: The acquisition by DoubleClick is complete, and now the real work begins. What changes do you foresee at Performics in the coming months?

JC: DoubleClick acquired Performics because we have a proven track record for success. So many things will remain the same. But we immediately began to work together to build DartSearch, which is a DoubleClick solution, powered by Performics’ technology. Performics also uses DartMail for merchant email campaigns and affiliate communication, and our clients think the product is terrific. Already, we see the benefit of being part of a larger company and ultimately clients and affiliates will enjoy that benefit too. We now have global reach with 19 offices around the world, so as our clients look to expand into new markets, we have the right resources in place. In addition, DoubleClick has great research and a lot of talent. Affiliate marketing is a very good fit within the DoubleClick suite of products. The biggest changes at Performics are always driven by growth. For example, we already have more than 130 employees and will add at least another 30 or more before the end of this year.

TM: The acquisition is another sign the interactive media business is converging. Is the day of the independent affiliate network coming to an end? Do you think a new network could start up independently at this point?

JC: The online marketing industry is consolidating, and affiliate marketing is part of that. Last year, there were four major networks, and now there are three, with two of us owned by larger online advertising companies. So clearly the industry has consolidated. A new network would have many barriers to entry, because established affiliate networks have already built successful companies and achieved some level of efficiency with their businesses. That still does not mean it would be impossible to launch a new network, but a new affiliate network alone wouldn’t be enough today. Marketers want access to multiple performance- based marketing channels, and they expect more from fewer vendors. They want to participate in several performance- based marketing opportunities. Affiliate networks that provide only affiliate marketing services while ignoring other performance-based marketing services lessen the value they can provide clients and hurt their own chances for success in today’s environment.

TM: Are there ways that you would say Performics is different from the other major affiliate networks?

JC: We’re very different in that we look at the performance-based marketing sector as a whole versus components of it being affiliate marketing or search marketing or other forms of it. We started out in affiliate marketing. If you look at affiliate marketing today, and back then, it really set the benchmark for performance- based marketing. Today, everything is really compared to it. It’s interesting to note that affiliate marketing, often the most cost-effective channel in an online marketing mix, provides a platform for pricing. And any media today is really based off of an effective affiliate marketing or rev-share measurement that people use. We started off with that and we started seeing other concentrations of performance-based marketing around affiliate marketing. The first one, which really is pretty obvious, is search marketing. So we broke that out as its own practice per se. We’re the only major affiliate marketing leader who is also a leader in search marketing. We looked at what our clients needed and branched out from there.

TM: A lot of affiliates do search engine marketing as well as affiliate marketing. How does your company avoid competing with your own affiliates on that level?

JC: One way is we know very much about every affiliate in our network. We take great pride in that. Every affiliate who enters our network is screened and it’s understood what their business model is, versus an open network where they come in unfiltered and just start performing their activities. Many clients prefer that Performics run their affiliate marketing program and their search marketing program in parallel because of the inter-workings of the two programs you just described. There are a lot of affiliate programs and a lot of affiliates within those programs who help to complement the marketer’s search program. There are many terms and many categories in which the affiliates are better off participating. That’s advantageous to the affiliate and to the merchant.

TM: There are other areas emerging in the performance marketing field that seem to be fairly lucrative. I wonder if Performics might start competing in such areas as search engine arbitrage or creating blogs to increase revenue flows.

JC: We keep looking at performance-based marketing opportunities as they would be beneficial to advertisers. We always represent the advertiser in ways that would be beneficial to them. We probably wouldn’t get into the blog creation market because that would basically be creating content, which we don’t necessarily do. We just help our advertisers take advantage of it. So as blog advertising may or may not unfold, we would participate in that. With search arbitrage, we tend not to work in that market. But we would convince our clients that it’s better for them to run their own programs so they can reap the benefits of those programs.

TM: You guys are well known for your proprietary tracking technology. How is that system run? Is that a cookie-based system?

JC: There are different elements to it, and there is also a cookie component as well. As with any tracking technology, if you’re trying to track some return-day or some come-back to the site, you have to use cookies. So every tracking technology uses cookies. But there are other elements to it as well.

TM: In our last issue, Steve Messer from LinkShare raised some eyebrows by suggesting cookie systems weren’t accurate enough for this business. Would you care to comment on that?

JC: Well, in our technology, one element of it is a cookie technology. And DoubleClick, which now owns us, also leverages cookie technology. And everybody in the industry uses cookie technology, including LinkShare because they track some type of return-day. So I would think that’s a standard.

TM: Is there something beyond that you use to back up the accuracy of the cookies?

JC: Yes, we have other means that are a little technical to describe in an interview that also do backups to it. But if you’re trying to track any sort of return to a site once you leave, cookies are about the most accurate way to do that. There’s no tracking that is 100 percent. For every pro, there’s a con to it as well.

TM: There’ve been some complaints on the forums that links from Performics don’t go live right away, and that of course makes it harder for affiliates to check their links as they upgrade their sites. Why does that happen and can it be changed?

JC: I don’t know the technical answer to that. But once our links are created, they’re basically live in the system within seconds of being created. So it might be getting approval of those links instead of technically being ready.

TM: Like some other networks, Performics is said to block its affiliates from speaking directly to merchants, which could prevent affiliates from seeking higher commissions.

JC: That’s not true. We encourage meetings between our merchants and our affiliate partners. There’s contact information where a merchant can contact an affiliate. In most cases, an affiliate can contact a merchant. In a lot of cases, a merchant prefers that Performics handle the potential thousands of conversations on their behalf. So it’s really an efficiency request by the merchant, but it’s not a restriction.

TM: People seem to be a lot more aware of predatory advertising now. Do you think that problem is lessening, growing or staying about the same?

JC: I think it has picked up over the last few years. I think it has leveled off. It has become more heightened in the marketplace, and I think that’s why people hear more about it now. At Performics, we’re strong opponents of it. We’ve taken steps with our code of conduct, with our partnering with Commission Junction on that. Again, we screen every affiliate in our network, so it’s difficult for the spyware or the wrong side of the equation, predatory advertising, to take advantage of our merchants.

TM: Blogging, of course, is exploding with affiliates right now because they’ve figured out they can get high search engine rankings. What do you think is going to happen with that trend?

JC: We’re watching blogging very carefully. I don’t have any predictions at the moment. It’s a very efficient form of moving creative content back and forth, but there’s still a kind of non-standards going on right now with blogs being created and with blog writers. So I think there are still a lot of things that will unfold in that area.

TM: As merchant revenue grows in the affiliate marketing arena, do you think some of the smaller affiliates will be forced out by bigger players in their field?

JC: No, I do not. I think the beauty of affiliate marketing is that it’s a way for small publishers or affiliates to participate in the marketing mix of a merchant. I think that’s the beauty of affiliate marketing, that publishers of all shapes or sizes can participate because of the leverage you can get out of an affiliate program.

TM: Do you think, as the industry grows, more merchants will bring their programs in house instead of going through a network?

JC: Again, from the past question, I’d say not, because affiliate marketing allows publishers of all shapes and sizes to participate efficiently in it. It allows for the next evolution. Affiliate marketing seems to create new performance-based marketing vehicles. That’s the catalyst of it. So participating in a network that gives you broader reach in new opportunities allows you to see those emerging trends.

TM: What do you see as the biggest challenges for affiliate marketing in the coming months? It’s an area that changes all the time. Is there anything on the horizon now that seems like a threat to affiliate marketing?

JC: I don’t think there’s a threat per se to it, but I think what you’ve seen over the years is a trend toward more tightly controlled networks. You’ve seen folks who’ve run massive affiliate programs with tens or hundreds of thousands of affiliates starting to scale those back in an effort to get better understanding and control of their affiliate marketing program, as merchants are performing their other performance marketing-based activities.

TM: You said you screen affiliates closely. Do you also remove unproductive affiliates from your ranks? Do you keep them active in hopes they’ll start producing?

JC: Performics reviews each affiliate applicant as a service to all clients. Many Performics clients provide criteria for their program, and the evaluation matches the affiliate against the provided criteria. If a new affiliate applies to our network, we don’t necessarily make a judgment upon application about how productive that applicant will be, but we do make sure they have an active Web site and check for any content or practices that violate Performics’ policies, including our Code of Conduct for Fair Practices. Performics may remove affiliates that do not generate transactions over a period of time, usually one year. Many clients ask that we clean up non-productive affiliates more regularly, but before we remove an affiliate, we attempt to contact them to inquire about the status of their account. We do our best to encourage productive referrals from and commissions for all affiliates.

TOM MURPHY is Editor in Chief of Revenue and the author of Web Rules.