The big, ugly affiliate marketing scam

You have a discount code at your checkout? So basically instead of capturing the sale you're ASKING the buyer to google for discount codes.

Think of a sneakier way to give people discount codes that doesn't show it RIGHT THERE ON THE FORM. It makes me feel like I'm getting ripped off when I see discount code and I don't have one.

No shit. This is why you create a page on your site called "Discount Codes". You put in an email signup and offer a small discount coupon. You get the email address in case they abandon and you can re-market to them, and the discount so that they won't abandon, because they found what they were looking for and will complete the transaction. Google will rank you high because its your page and you catch at least some of the search traffic, and you give them what they want with the discount code and they will shop with you. Any retailer worth their salt knows this. Just because coupon sites can game SEO doesn't mean its a scam, it means they're just capitalizing on the fact that you're blind to your customers' behavior

I was expecting to read about click fraud, but it was just a newbie's experience with running an affiliate program.

Kogan had some wild expectation that the majority of affiliate traffic would be first-time visitors to his site. When he uses google analytics to estimate that only 1.6% of referrals were new customers, he trashes affiliate marketing as a business.

Unfortunately, he spent no time thinking about how to optimize his campaign to reward affiliates for first-time customers, among other things.

"So basically, the affiliates are claiming commission on a sale that was going to happen anyway"

You have someone in your checkout process. Why on earth would you give them a reason to leave that process and go search for a discount code if you know they won't find any? Assuming they will come back doesn't feel right. What if their search for a discount code didn't prove there wasn't one, but did prove a competitor was going to be a) cheaper, b) a better service, c) offering discount codes, or they got distracted by cat videos on YouTube.

And maybe I'm naive here, but since adding affiliate marketing, if the revenue was going to be guaranteed anyway, wouldn't there be a drop in $200,000 from the regular revenue?

I don't follow.

Where did the extra $200K in sales come from and why is he not happy about it? It sounds like there is a pool of customers that will not finish the purchase unless they can google "kogan coupon" and hit few coupon sites beforehand (even if to leave these sites emptyhanded). So the affiliates appear to help convincing on-the-fence visitors and push sales to completion. If anything, it's a clever hack. Not sure why he's so pissed.

If you visit the site, put stuff in your cart and get all the way to the checkout page, you must know by that point who sent them to your site. If the customer then goes away and googles for voucher codes, it shouldn't change the source. When (if?) they return, you should know they are the same person, from the same original source.

How did the affiliates manage to steal these customers? It seems to me like your referral tracking is massively broken.

This article is so bad. I mean, there is a lot wrong with the affiliate world. Believe me. And, it attracts more than its fair share of shady characters. But, this guy is reckless and woefully uneducated.

I was all settled in for a sordid tale of intrigue or some yarn about a clever heist. I could spin a few of those stories myself.

But, of all the things this guy picked on, it's that his traffic is searching for discount codes and coming back with an affiliate tag? This is not a scam. It's perfectly legal and anyone wading into affiliate marketing should do his research and understand how it works. It's not just activating a magical digital sales force. Like any other marketing, it needs to be understood, researched, and applied to the business properly (or decided that it is not a good fit for the business).

The first tell-tale sign is that he didn't even know who his affiliates were. He just blindly flipped the switch. He could (and clearly should) have hand-picked his affiliates and worked with them to cultivate the activity he desired. It's ridiculous to blindly open the flood gates and complain about what comes floating in, then declare the whole affiliate marketing space one tremendous scam.

Even now, this is so easily fixable and could really be used to his advantage. His customers are telling him exactly what they want. He also knows where they are going to search for discounts. One supremely simple step would be to start creating and marketing the codes himself to his current customers. Let them know that the best codes are sent to their appreciated customers. Another step would be to cull his affiliate partner list to those where his users (and presumably others like them) are actually going to find his codes. He should also start by working with his account manager on the network (assuming he sprung for one) to devise a strategy around his goals. For instance, on all major networks, he can explicitly indicate that his affiliates cannot engage in keyword bidding or search engine marketing.

There's not enough space here to get into it. I understand his frustration, but he is being irresponsible and reckless in making the generalized statements he's making.

Kogan.com itself seems pretty scammy. An auto-loading give-me-your-email pop-up that doesn't appear to have a close button. Nice.

Welcome to the wonderful world of brandbidding - and yes, you facilitated the scam by using coupon codes (hint: by 2013, they do you a major UX disservice for the reasons everyone is mentioning). It's been out there for a decade, but networks still do a horrible job at explaining the situation for you, as they're cashing in as well. Affiliate marketing is no more of a "free lunch" than all the other marketing methods out there. You got to either know your shit to protect yourself from fraud or pay someone to do it for you. Either way, you need to actively manage your publishers and watch out for the metrics you presented for all of the channels you're employing. If you're handing out free money without looking after what you are getting out of it, be sure that there will be someone to claim it. Wisely used and managed, affiliate marketing can definitely be another valuable tool in your marketing chain, but the total costs will be comparable to anything else.

There's a lot wrong with this article and it stinks that this person paints the entire affiliate canvas with a poop-colored brush. The fact that they continuously pushed the commission all the way down to 0% is also terrible for affiliates. As people in the comments stated, this was a poorly run affiliate campaign and is no fault but their own. There's "shysters" in every business, and the fact that they pushed down the commission to 0% for all of their affiliates and not just ones taking advantage the coupon code entry field to base their affiliate site on makes me label Kogan.com as "shysters" moreso than all of the affiliates they tried to portary in that light.

Manually approve affiliates that will add value, remove affiliates or don't approve affiliates who are going to advertise non-existent coupon codes. The end, don't treat an affiliate campaign as an easy money button.

edit: And they also seem perplexed that affiliates kept sending $200,000 in sales no matter the commission. True evidence they had no knowledge of how affiliate sites work. If they're performing well, webmasters can essentially set them and forget them. It's not like they're actively working 8 hours a day pushing sales, it can be a static website that never changes as long as the revenue is steady for the affiliate.

So it sounds like there's an opportunity for someone here. If you read to the end of the article, you'll note that the actual scam is in spinning up discount code sites.

We need a Rapgenius for online discount codes. Right now, it's full of scummy, crappy sites (just like lyric sites), but could be easily improved with a simple interface, minimal advertising, and collaboratively sourced content.

There are over 600 sites purporting to offer "Improvely coupon codes" despite there never being any kind of coupon code box on my signup form. It's a bit ridiculous, especially since none of these sites are being paid an affiliate commission for their fake coupons.

While the OP did run into some interesting problems that many of us in Internet Marketing face, I was very thrown off by the direction this post took. There was a pretty substantial lack of understanding of cookie tracking and first-click/last-click attribution.

The affiliates didn't do anything wrong here, which was ironic, because I've met affiliate marketers at conferences in Vegas, and there's PLENTY of shady stuff that some of them do. That said, none of that is taking place here.

Ranking for "name of company I'm an affiliate for" discount code is practically step 1 on the affiliate SEO checklist. This post was almost comically misleading, to be candid.

So where did the 200K come from? Or did the sales just remain at status quo, while the affiliate claimed an increase in sales? In which case, why didn't the alarm bells ho off right that second?

Yeah, I think everyone running an ecommerce site and an affiliate marketing campaign has seen this. I don't think Kogans stats on the new customer percent are really an outlier. I have yet to see a coupon site that I could see actually provided us with any value to have as an affiliate.

We also a long time back went down the road of paying a network a lot of money based on their promises of the type of affiliate sales they could provide. The traffic was horrible, generated a ton of fraud when there actually were sales and the program was canned after probably only 100 sales. So definitely would stay away from any major investment with an affiliate network.

That being said there are good affiliates out there (like to think I have been one myself promoting products rather than ecommerce brands) that will deliver great customers. Likely though you will have to do the leg work to find them, they won't just join your program.

The major red flag for me in this article was the line "He couldn’t really answer the questions, but I agreed to run a small trial. Based on our results, that marketing consultant is no longer with us." It really colored the rest of the article for me - making me incredibly skeptical of the manager and his instinct, opinions and judgement. It was no surprise then when the reason he was "scammed" was because his checkout process had the form equivalent of a big red call to action saying "leave my site" in the discount code box. I always Google for discount codes when I see those boxes.

If anything, this should be read as an educational piece for consumers about who is really making money when you search for discount codes online, rather than outrage at the affiliate marketing world.

So when someone makes a reasonable suggestion that doesn't work out, you fire them? Yeah, that sounds like a company I'd want to work for.

These guys really need a good affiliate manager. On most networks you are allowed to specify the rules - no coupon code sites if you so wish, and all affiliates using it can have their commissions revoked and get banned.

Affiliate marketing can be a great way to make sales - think about it this way: you pay the network, which in turn pays the affiliates say 20%. These affiliates then use their own methods (their own sites, Facebook ads, AdWords, forum posts, a lot of stuff that you'd normally never think of) to drive traffic. They do all the marketing and you make sales - the only thing they don't do is manage your brand, if you are worried about that you're better off without affiliates online.

This is not a scam, but simply unawareness by Kogan. Affiliates want to make money - they're rational people. They'll do anything to make money as long as you don't take action.

The funny thing is if you forbid affiliates to have discount codes/coupons, affiliate marketing is not worth it at all. It's only the loopholes that keep affiliate marketing as profitable as it is right now. I mean who in their right mind would want to exert effort to bring traffic where .01% of it converts just for a measly 5% commission? No. You have to cheat a little to make it worthwhile.

If you aren't experienced / competent, and you try to outsource it, you're going to get taken. In this case it was marketing, but you could easily be talking about outsourced development, buying a car, seeing a new dentist, etc.

The proper way to introduce affiliate campaigns to your product / service is to succeed using paid advertising in-house. You need to establish your typical CTR, EPC, CPA, LTV, bounce rate, for different channels. Restrict the channels that affiliates use. Once you have your baseline, you can look at the numbers for each individual affiliate to determine their numbers stack up against your baseline. There are a lot more details that can't fit into an HN comment made on my way to work heh.

One concrete example, so it's more tangible. If you don't explicitly restrict pop up traffic, affiliates can pop and drop their cookie when someone with adware installed visits your domain.

Edit: This story is very one sided. Sure the marketing consultant was probably sleazy, and the affiliate marketing tricks were unethical, but the op did not even do basic due diligence. If I were the op, I would at least look at how the affiliate marketing programs of other mature ecommerce sites were set up. Amazon for instance has an affiliate fee of 4% on electronics. Paying 10% instead of 4% as affiliate fees is a red flag. Amazon payouts are made 60 days after the marketing period, where they can conduct their fraud analysis. Also you should be paying very close attention to their operating agreement which outline what does and does not earn you an affiliate fee.

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Even though it seems like your setup is not really good, (as others have remarked here) I think the central question you posed here still holds up to some extend: "where do they get their traffic from?".

When getting involved with aff-networks I have noticed that there are quite a lot of 'low quality' (of course depending on your needs) networks around that basically lure people into visiting your site, other than referring truly interesting people to you. That seems like business 1-0-1, but it really amazed me how many large networks use shady landingpages with obscure lotteries and other 'prizes'. (This was a about 2-3 years ago, but still..)

Always do a small run first, track what's happening and why and always be suspicious about people 'selling' you other people's data/attention (data-pushers, is what I used to call them) because that's basically what is is, to some extend.

I'm suprised Retailmenot doesn't get called out for this link baiting more often. I've studied their practices for years now and they do alot of shady stuff.

I remember posting coupon codes to their site and having them being taken down constantly because they weren't getting commission on them. They were original company specials so no affiliate was getting paid (including me) but I posted them merely for the people who were searching could save money. They gave users 50% off hosting and the links on the retailmenot page were simply regular links to the products page disguised as specials.

When I emailed them asking why they keep deleting my posted coupon they said that any specials need to be run through them and they need a way to track aka put their affiliate id on them.

Left a bad taste in my mouth.

When I saw Ruslan Kogan listed at the top, I thought the story was about him ... same guy who launched the IE tax publicity stunt - got to wonder if this is more of the same.

This story would have been just as informative without the words "ugly", "shocked", "shyster" and "scam".

This is another reason why you should rank for [your brand name] + coupons / discount. Read Zappo's take on coupons http://www.zappos.com/truth-about-zappos-coupons . If people know they can save 5-10% by a simple search they will at least try a quick search.

The user flow issue that Ruslan is describing was probably already happening before he signed up for an affiliate program. The only thing that the affiliate programs did was expose that he may want to rethink the way he offers coupons on his site. Like most others have said, whenever I see a "Discount Code" box, I go search for the code.

Lessons learned: only pay affiliates whose customers forwards lead to a new shopping session, not an existing shopping session.

Sounds like the bigger problem is showing the user a discount code field when not utilizing discount codes.

Remove the field, not the affiliates

What about limiting affiliates with advertising a Kogan related keywords and even some traffic sources? I've seen such limitations for many of brands represented in the affiliate networks.

If managed properly affiliate marketing definitely works and yes, it's worth expanding to.

Of course a lot of people are trying to leech revenues in Affiliate marketing, that why affiliate need to be reviewed and monitored. It's not a scam you just accepted to do business with people without checking where their traffic comes from.

How the hell did he not notice his overall sales not being affected by $200k/wk. I figure you'd be able to tell right away if your sales went up that much.

On the topic of networks- anyone know a good affiliate network for startups?

This is more than a scam, it's outright theft.

I don't quite get it.

Was there sales growth of 200K or not? Yes/No - it's that simple.

It seems like this would be the main thing to look at.

But instead the post goes into hypothesis - almost like either:

A) The answer is so blatantly No that it does not need addressing.

B) He's trying to sweep the above question away because he dislikes the idea of Affiliates driving previous visitors back for more business.

It's called cookie stuffing. Your company should have done your research before doing affiliate marketing and taken steps to prevent this kind of fraud.