Affiliate Marketing Fraud On Rise

Money-Flowing-through-window-ARetail marketers running affiliate programs on their brand's Web site want to ensure they deliver to customers -- but a series of emerging fraudulent techniques has put managers like Wade Tonkin at Fanatics, which sells sports merchandise, on high alert.

Unscrupulous affiliate marketers scamming the system have become sophisticated, similar to click fraud on display ads or viruses and malware in mobile devices and desktop computers. A group of marketers have stepped up efforts to identify the latest practices and heighten awareness to help other retailers.

"The bad guys have taken things to another level with cookie-stuffing scams that don't even require ads to be displayed or software to be downloaded," Tonkin said.

An unscrupulous affiliate marketer might post a comment and image in a forum on a merchant's site providing support for customers. A piece of code in the image would verify cookies in the site visitor's browser. If it found none, the code would send the consumer back to an invisible image and force a click to the affiliate. If the consumer came back to the site to make a purchase, the affiliate would be compensated for the sale, attributing the credit wrongly. Tonkin calls that "fraud."

Those taking advantage of affiliate programs also impersonate merchants in paid-search ads and landing pages, use software tools to either stuff cookies in browsers or use tools triggering "shopping helpers" for traffic the merchant may have already paid to acquire from other sources like paid-search campaign, search engine marketing or social marketing.

More affiliates have begun to outbid companies for keyword and brand terms, according to David Naffziger, CEO at BrandVerity. Determining lost revenue requires estimating the volume of hijacked terms, cost per click and conversion rate, and average sales price. He says companies such as Microsoft and Jenson USA experience this all the time.

Losses can make up between 10% and 15% of affiliate commission fees, and can cost retailers between $10,000 and $20,000 per month. "About 60% of the Fortune 500 companies have affiliate programs, and of those, 96% have placed certain restrictions on their program, and about 85% deal with this problem in one way or another," he said.

Larry Fisher, VP of client services at Rise Interactive, points to an affiliate marketer who bid on a client's best-performing brand term, and copied the text of a paid-search ad and the landing page. The term quickly decreased in efficiency and value for the retailer. The keyword, which had once driven more than $50,000 in revenue daily for the site, fell to $10,000 for a series of days, he said.

During the past six months, Fisher has seen a lot of redirect strategies using URL shortners to "mask their trail" and try to get around the retailer's rules for their own gain. He also reports a lot of deduplication -- paying for the same campaign twice.

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2 comments about "Affiliate Marketing Fraud On Rise".
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  1. Robert Glazer from Acceleration Partners , August 10, 2012 at 2:16 p.m.

    It’s great to see these issues being discussed. From our experience, there are two structural problems in the industry that allow this behavior to go on. The first is poor oversight of the program. Program managers are not asking enough questions, especially about affiliate partners with sales numbers that are just too good to be true. In house management is often π of a junior person’s time, and network-based managers have a conflict interest because they represent both merchants and affiliates. Outsourced program managers often assign 10-15 accounts to inexperienced account managers, which is far too many to be effective.

    This leads to the second issue, which is poorly aligned incentives and the wrong management tools. Affiliate programs are measured on revenue which is often duplicated from other channels because the majority of affiliates in a program target existing customers, rather than create new ones as originally intended. When companies say they have a $5m program, it’s often that they have a $500k program of incremental revenue and a $4.5m of revenue that is being double counted with another channel - resulting in hundreds of thousands of dollars in unnecessary commission payments. We like to say that most companies have a very expensive retention program masquerading as an affiliate program.

    The affiliate marketing industry really needs to get back to basics in terms of partnering with sites whose methods are transparent, and with a focus on new customer acquisition. Even more than in other industries, if it seems “too good to be true” with affiliate marketing, it always is.

    -Robert Glazer
    Founder & Managing Director
    Acceleration Partners

  2. Robin Solis from , September 19, 2012 at 7:34 a.m.

    That's why we invented a different kind of "operating system" for out there in the online world. Everyone doesn't have to use the 5o+ year old html.