Affiliate Marketing: A Case Study Of Ticket Express GesmbH - Oeticket

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Affiliate Marketing: A case studyof Ticket Express GesmbH –oeticket.comBachelor of Business AdministrationTourism and Hospitality ManagementSubmitted to Mag. (FH) Clemens KöltringerStefan Schwarz0811501Vienna, 15th of April 2011

AffidavitI hereby affirm that this Bachelor’s Thesis represents my own written work and that Ihave used no sources and aids other than those indicated. All passages quoted frompublications or paraphrased from these sources are properly cited and attributed.The thesis was not submitted in the same or in a substantially similar version, noteven partially, to another examination board and was not published elsewhere.DateSignature

AbstractThe rapid development of affiliate marketing, a performance based internetmarketing practice, in the recent years has created a very competitive market.Companies need to constantly improve their affiliate programs to maintain asuccessful program and to keep affiliates loyal. Oeticket.com has a functioningaffiliate program, but it has not been reviewed or improved since its firstdevelopment. Thus, the purpose of this study was to find ways to improve theprogram.The thesis identifies the main factors of a successful affiliate program. Based onliterature, the needs of affiliates and the different components of an affiliateprogram were described. The connection between the need and components servedas a theoretical framework to answer the research questions.The thesis depicts how oeticket.com uses affiliate marketing. A case study on threeaffiliate programs highlighted the main similarities and differences on differentfactors that are important to affiliates. Based on the observations made in the casestudies, recommendations on how to improve the affiliate program of oeticket.comcould be provided. Suggestions on topics for further research were also added to thework.3

Table of ContentsContentsAffidavit . 2Abstract . 3Table of Contents . 4List of Figures . 6List of Tables . 61Introduction . 71.1eBusiness. 71.2Online Advertising . 81.3Affiliate Marketing . 91.4Problem Discussion . 111.5Research Purpose & Aims . 122Methodology . 143Literature Review . 173.1Affiliate Marketing . 173.2The Benefits of Affiliate Marketing . 193.3Affiliates Needs . 213.4Affiliate Program Models . 253.5Payment . 283.6Marketing the Affiliate Program . 303.7Summary . 314Establishing the Theoretical Framework . 345Selection of Cases . 365.1Case 1 – Amazon.com . 365.2Case 2 – Ticketsnow.com . 374

5.36Case 3 – oeticket.com . 37Data Presentation & Analysis . 386.1Case no. 1 . 386.1.1Program tools . 386.1.2Payment . 406.1.3Communication & Support . 406.2Case no. 2 . 416.2.1Program tools . 426.2.2Payment . 426.2.3Communication & Support . 426.3Case no. 3 . 426.3.1Program tools . 436.3.2Payment . 466.3.3Communication & Support . 466.4Cross-case analysis . 476.4.1Program tools . 476.4.2Payment . 486.4.3Communication & Support . 497Conclusion & Recommendations . 518Limitations. 539Bibliography . 54Appendices . 57Appendix 1 . 57Appendix 2 . 61Appendix 3 . 625

List of FiguresFigure 1 - Affiliate Program how does it work? . 10Figure 2 - Case study research design. 16Figure 3 - Affiliation Marketing Model: one-to-one agreement. 19Figure 4 - Banner Advertising vs. Affiliate Marketing . 20Figure 5 - How many return days for cookies would you consider to be fair? . 23Figure 6 - percent of total online retail in 2010 . 24Figure 7 - What are your preferred link types? . 26Figure 8 - What is your preferred payment threshold? . 29Figure 9 - How often would you like to hear from your affiliate managers? . 30Figure 10 - What is the most important factor in choosing an affiliate program? . 32Figure 11 - Affiliate program concept map . 35Figure 12 - Affiliate program factors. 35Figure 13 - Case 1: Amazon Associates Overview Page . 38Figure 14 - Case 1: Amazon Associates Links and Banners . 39Figure 15 - Case 1: Amazon Associates Sample Report . 39Figure 16 - Case 1: Amazon Associates Fee Rates . 40Figure 17 - Case 2: Ticketsnow.com Overview Page. 41Figure 18 - Case 3: Oeticket.com Overview Page . 43Figure 19 – Case 3: Oeticket.com Module 1 . 44Figure 20 – Case 3: Graz Tourism Module 2 Partner . 45Figure 21 – Case 3: Erstebank Module 3 Partner . 45List of TablesTable 1 - What Affiliates Want. 22Table 2 - Cross-case analysis: Program tools . 47Table 3 - Cross-case analysis: Payment . 48Table 4 - Cross-case analysis: Communication & Support . 506

1IntroductionThe internet technology has existed for more than 40 years now, yet it was theintroduction of the World Wide Web (WWW) that caused its fast marketpenetration (Chaffey, 2003). In only four years, the internet reached an audience of50 million users in the USA. It took the television over 13 years and the telephoneover 75 years to reach this number (Angeli & Kundler, 2008). Considering that, theinternet can said to be the fastest spreading information media in today’s world.The strength of the WWW was the power to provide easy access to informationusing a network of web sites (Chaffey, 2003). Of course, many people realized thehuge possibilities of this media. Companies saw big marketing opportunities asinternet user numbers increased (Zeff, 1999).A few years ago the internet was mainly used only as an information andpresentation platform. Nowadays, it includes almost all areas of business(Benediktova & Nevosad, 2008). Drucker (2002) argues that it was not the easyaccess to information that helped the internet to become so popular, but rather thepossibility to use it as a worldwide distribution channel for all kinds of products andservices.1.1eBusinessTurban et al. (2010) defines electronic commerce (EC) as “the process of buying,selling, transferring, or exchanging products, services, and/or information vianetworks, mostly the Internet and intranets.” The term eCommerce first emerged in1995 and should be differentiated with electronic business. eCommerce is only asmall area of eBusiness, which consists of a variety of additional business areas suchas customer service, online banking and marketing (Angeli & Kundler, 2008). Thus,the term electronic business is more appropriate for this text, as it is a broaderdefinition.Chaffey (2003) notes, that the WWW brings many opportunities but also threats tocompeting companies. Firms can really increase their competitiveness with onlinetechnologies, but at the same they will need to face newcomers. Therefore it isessential that many firms, especially traditional brick and mortar companies, also7

adjust their way of doing business to the new trends; otherwise they will not survive(Chaffey, 2003).Rowley (2004) notes that creating a website is only the first step in establishing anonline presence, as this will not guarantee visitors. Therefore, with the onlinepresence of many companies, came the need to attract internet users to visit thewebsite (Rowley, 2004). This was the birth of online marketing.1.2Online AdvertisingCompared to traditional marketing, advertising on the web grew incredibly fast(Moriarty, 2009). In fact, online advertising is considered the fastest growing form ofdirect marketing (Kotler, 2008). There has been a debate whether the Internet is tobe considered traditional marketing or is another form of direct marketing(Benediktova & Nevosad, 2008). According to Zeff (1999), “Internet advertising is theconvergence of traditional advertising and direct response marketing.”According to Turban et al. (2010), advertising is defined as an effort to communicateinformation in order to improve sales. Traditional marketing was very impersonal,because it usually only consisted of one way mass communication. With directmarketing, marketers tried to personalize advertising and to make it more effective.Even though traditional direct marketing approaches worked really well, they werejust too expensive and slow (Turban & et al., 2010). Direct mail campaigns had aresponse rate of only 1 to 3 percent. If the campaign cost would then be around 1per person, the cost per responding person would range from 33 to 100(Swearingen, 2010). This would only justify for expensive products such as cars.Another problem was that advertisers knew very little about the recipients. Marketsegmentation helped but did not solve the problem.Turban et al. (2010) argues that the Internet introduced interactive marketing. Thisis because it enabled advertisers to interact directly with customers as consumerscould now obtain more information or send e-mails to ask questions.There are major advantages of advertising on the web over traditional massadvertising. Traditional advertising media such as television, radio, newspapers, andmagazines are widely used, however, the market is constantly changing and more8

people are spending more time on the internet and using mobile phones (Turban &et al., 2010). “Worldwide, the number of Internet users surpassed 1 billion in 2005;the 2 billion Internet user milestone is expected in 2011” (Turban et al., 2010).Marketers and advertisers are very interested in reaching such a potential. Probablythe biggest benefits that online marketing has to offer are low costs, efficiency andinteractivity (Kotler & et al., 2008). This and many other reasons are why onlineadvertising is growing so rapidly.Considering the rapid growth in online advertising, Hoffman & Novak (2000) writethat eBusinesses also need to make bigger marketing expenses in order to get anadvantage over the competitors. They note that e-tailers spend in average over 100to acquire a new customer. This, however, contradicts with what was writtenabove, that online marketing is low cost advertising. Still, compared to other media,online ads are usually cheaper and, in addition, they can be updated at any timewith minimal cost (Turban, 2010).On the other hand, when companies started to look into how many users attractedby banner ads actually turned into customers, they found out that for most of thetime, the customer acquisition cost was higher than the average lifetime value oftheir customers (Hoffman & Novak, 2000). This made companies reconsider theironline marketing practice. Other ways to gain traffic and customers had to bethought of. This was the beginning of the affiliate marketing concept.1.3Affiliate MarketingAffiliate marketing is a very powerful and profitable online marketing tool. Accordingto Prussakov (2007) affiliate programs are a type of marketing where the partners oraffiliates advertise products of the merchant. He further states, that this type ofmarketing is based on performance, since compensation is usually calculatedthrough the amount of clicks. Gallaugher et al. (2001) elaborates on that by writingthat these programs usually provide a site operator (affiliate) with a commission ofany products bought by customers on the partner site (merchant).In figure 1, the basic process of an affiliate program is explained. The contentprovider, also referred to as the affiliate, usually places an advertisement creative9

(for example a banner or text link) on his website. When a user clicks on the banner,he will be redirected to the merchant’s site. If the user continues to make a purchasethis is tracked and will result in a commission for the referring affiliate.Figure 1 - Affiliate Program how does it work?Source: e & Collins (2001) state that in an affiliate program beneficial to both parties.The merchants receive traffic and make more sales, and the affiliates receive moneyfor the users sent.Affiliate marketing was first developed by CDNow.com and Amazon.com. The firstaffiliate marketing program was started in 1994 by CDNow’s Buyweb Program. Thewhole idea started when Greffen Records wanted to offer the fans of its artists thepossibility to easily buy music online. The problem was that Greffen had no intentionto build an entire online shop for this purpose. Therefore, they contacted CDnow tosee if they would provide the sales service for them. CDnow agreed, and Greffenthen put links on its website which redirected its users to the CDnow’s webstore. Itwas a win/win situation for both (Hoffman & Novak, 2000). This was soon followedby Amazon’s Associates Programs which today has over 1 million partners(Prissakov, 2007). With these two affiliate programs came the boom of all the otheraffiliate programs that can be seen today.10

As mentioned earlier, traditional online ads are sometimes not very effective. Fiore& Collins (2001) note that simple banner ads, for example, that just build andmaintain a brand have become just too expensive and their effectiveness hasdecreased over the years as users got used to them. According to Forrester Research(Fiore & Collins, 2001) banner ads had a click-through rate of 40% in 1994. Today,banner ads return less than 0.5% CTR (Pick, 2008). There is absolutely no guaranteethat banner ad will bring more sales.Prussakov (2007) thinks that e-commerce benefits a lot from an affiliate program, ifthe main intention is to increase sales. The affiliate program enables an onlinebusiness to not only sell products on its own website, but to provide links ofproducts on other website and therefore have a much bigger chance of reachingcustomers.Affiliate programs are given many names such as associate, revenue-sharing, orpartnership programs. In this type of business agreement, the merchant approves topay the affiliate a commission (Prissakov, 2007). One advantage of this form ofmarketing is that it is rather cheap for the business, as commission is only paid if theend costumers actually make a purchase. Prussakov (2007) claims that the merchantwill always be in a winning situation as fraudulent or invalid sales do not count. Thisshows that affiliate marketing can be of interest to e-businesses of any size.1.4 Problem DiscussionRecent years showed rapid development in affiliate marketing, and Osmeloski(2008) believes that there will be an even stronger growth in the future. Today,many companies have started their affiliate programs in order to gain newcustomers in an efficient way. The big online retailer Amazon has over one millionaffiliate partners, and it is claimed that over 1/4th of Amazon’s revenue is generatedby the affiliate program (Benediktova & Nevosad, 2008).Starting an affiliate program enhances any online business, but competition is bigand in order for an affiliate program to be successful and to keep affiliates loyal, ithas to be constantly improved. There are various factors that need to be consideredwhen developing the program.11

Affiliate programs can be established on affiliate networks or may be managed inhouse (Prissakov, 2007). The development of affiliate networks, has given manycompanies the opportunity to start an affiliate program as they provide technicalsolutions to manage affiliate programs (Benediktova & Nevosad, 2008). Businessesthat choose to create their own affiliate program, and don’t outsource it, are facedwith various challenges such as development and management of the program.1.5 Research Purpose & AimsThe Ticket Express GmbH develops and manages an affiliate program in-house. TheTicket Express GmbH operates the online retail store, Österreich Ticket(oeticket.com). With over 4,000 active outlets, an average of 20,000 eventsavailable, and well over 7 million tickets sold yearly, oeticket.com is considered theleading retailer of tickets in Austria. With over 250 partners the affiliate program israther small compared to most other programs. Yet, oeticket.com concentrates onbig partners such as radio-, TV-stations, large newspapers, and banks (oeticket.com,2011).Since the affiliate program’s launch, a few years ago, the system has not beenupdated or improved. The affiliate program industry is very competitive, and inorder to maintain partners, companies have to ensure to keep their program up-todate (Brown, 2009). Oeticket.com therefore wants to review its affiliate programand make improvements.The company has to consider various factors to make a successful affiliate program.Thus, the first aim of the thesis is to outline all important factors that make up anaffiliate program. Here it is significant to mention that when defining the factors, theviews and needs of the affiliates have to be considered. Affiliates have thousands ofaffiliate programs to choose from, and only if the affiliate program fulfills theirneeds, will they join (Benediktova & Nevosad, 2008).After researching the necessary factors and components of an affiliate program, it ispossible to study the affiliate program and to compare these factors with otherprograms. The case study aims at finding similarities and differences and based onthis recommendation on improvements for the affiliate program can be made.12

In order to cover the research purpose and to provide recommendations to improvethe affiliate program, it is necessary to discover, what factors are responsible for asuccessful affiliate program, based on the needs of affiliates. Moreover, how doesoeticket.at stand in comparison to other affiliate programs? The research questionsare therefore as follows:FirstWhat are the important factors that define an affiliate program, considering theneeds of affiliates?SecondHow can oeticket’s affiliate program be improved?To answer these questions, a research method has to be selected. There existdifferent research methods that can be used in business area. According to Yin(1994) researched can be carried out by doing case studies, experiments, surveys,and history records. In this paper a case study was the most appropriate method.The choice of the research method depends a lot on the research problem andresearch questions. When research questions are formulated with “how” and “why”then a case study is the recommended research strategy (Yin, 1994).13

2 MethodologyCase studies are about selected examples or cases that want to be studied oranalyzed (Yin, 1994). The purpose of this is to provide better insights into thephenomenon of interest. When performing a case study, the investigator can look atexisting records, observe the phenomenon as it occurs, conduct interviews, or useother methods to understand a given situation. To develop more insights into thecase analysis, benchmarking can be used. Benchmarking is a method of identifyingcompanies that have certain systems working and that can be used as a source ofideas for improvement (Churchill & Brown, 2006).There exist two forms of case studies: single and multiple case studies. In this work amultiple case study will be carried out. A single case study should only be employedwhen the researcher is trying to study extreme or unique cases (Yin, 1994).Therefore a multiple case study was the better option, as it allows for contrastingthe cases using a theoretical framework. This increases the research validity and theresearch will be more credible (Yin, 1994).Yin (1994) provides a model for a case study research design. He thinks that in orderto get a framework to answer the research questions, a researcher should firstspecify the research questions, collect theory, build the conceptual framework,select cases and then present the study results.This paper is structured according to this model. The first step was to defineresearch questions. The questions were mentioned in the previous chapter“Research Purpose & Aims” and the following chapters will provide a framework foranswering them.Chapter 3 consists of the literature review that tries to point out the availablemodels and theories in affiliate marketing. When collecting data and evidence for acase study, different data sources and collection techniques should be used. Yin(1994) writes that there are six sources of evidence: documents, secondary data,interviews, surveys, observation and participant observation. Here it is importantthat the data collection should be linked to the research questions.14

In this study, secondary data and direct observation were used to collect data. As allthe data was collected in the same time period, the temporal consistency wasconsidered as Veal (2006) recommends.The next step in the case study research design is to establish a theoreticalframework. As literature was collected in the previous chapter, the next importantstep was to discover the key factors of an affiliate program. The theoreticalframework, which was included in chapter 4, helped outlining these factors. Milesand Huberman (1994) define these frameworks as follows: “A theoretical frameworkexplains, either graphically or in narrative form, the main things to be studied – keyfactors, constructs or variables – and the presumed relationships among them.Frameworks can be rudimentary or elaborate, theory-driven or commonsensical,descriptive or causal.” (Miles & Huberman, 1994) According to Veal (2006), atheoretical framework is essential to any research projectas it explained the involvedconcepts and the creates relationship between them.With the framework created, the next important factor in the case study method isthe selection of the cases. This was implemented in chapter 5. Veal (2006) states,that there are four ways of selecting cases: Purposive, Illustrative, Typical/Atypical,and Pragmatic. In this thesis, the purposive method will be considered, as this workswell when multiple cases are involved. The cases will be chosen according to thesimilar or different factors (Veal, 2006). In order to achieve best results from thecase study, companies were chosen that had experience and were knowledgeableabout affiliate marketing.Finally, when both the framework is created and the cases are chosen, a way toanalyze and compare the characteristics has to be selected. Moreover, to answer theinitial propositions of the thesis, a data analysis will have to be performed. Accordingto Yin (1994) it is very hard to analyze case study evidence because the differentstrategies and techniques are not well defined. To analyze the data collected for thecase study, three analytic strategies can be applied: relying on theoreticalpropositions, rival explanations, and case descriptions. Any of those strategies canthen be used with one of the five techniques used to analyze the case study: patternmatching, explanation building, time-series analysis, logic models, and cross-casesynthesis (Yin, 1994).15

As this thesis is based on the views of literature, the preferred strategy is to followthe theoretical propositions. This strategy guides the analysis and helps to focus onimportant data and ignore other data (Yin, 1994). The cross-case technique was usedto analyze the data, as this technique is especially relevant for multiple-case studies.First, each individual case study was considered as a separate study. All data waspresented in a uniform manner. At this stage, similarities and differences betweendata from the case study and the literature review were discovered. Finally, all thecases were confronted and the findings were compared and discussed (Yin, 1994).The presentation and analysis of data were included in chapter 6.Figure 2 is a graphical illustration of this research design, and outlines the chaptersto come.Research Questions - "how" and "why"3 Literature Review4 Establishing the Theoretical Framework5 Selection of Cases6 Presentation and Analysis of DataFigure 2 - Case study research designSource: adopted from Yin, 199416

3 Literature ReviewThe literature review will provide an overview of available theories and models thatwill help answering the research questions. First, a broader look into affiliatemarketing will introduce the most common terms and explain the utilization ofaffiliate programs. Furthermore, the advantages of affiliate programs overtraditional online marketing media are presented, and the key benefits aredescribed.Then, affiliate needs will be depicted, as they are necessary to highlight importantcomponents in an affiliate program. Followed by this is a presentation of availablemodels and practices used in affiliate marketing.Finally, a summary chapter will establish a connection between the needs ofaffiliates and components. The most important factors will be outlined. This willprovide a theoretical basis for the first research question.3.1 Affiliate MarketingAffiliate market

Affiliate marketing is a very powerful and profitable online marketing tool. According to Prussakov (2007) affiliate programs are a type of marketing where the partners or affiliates advertise products of the merchant. He further states, that this type of marketing is based on performance, since compensation is usually calculated .

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