Bonus: How DTC Brands Scale Affiliate Marketing Without Fraud or Bad Attribution

0:00Why do you think everyone's talking about affiliate marketing right now?

0:03Yash Chavan:It's the best marketing channel. On Facebook, you pay for impressions. On Google, you pay for clicks. On affiliate, you pay for sales. 5 to 20 % of the commissions that you're paying may actually be fraudulent, which cuts deep into your margins. There's two breakthroughs we've done. Every affiliate marketing platform relied on cookies. Sati's affiliate marketing does not rely on cookies. Number two breakthrough is its multi-touch. So now you no longer have to rely on the last touch. Sati will show you the entire journey. You can retarget affiliate traffic with ad creative of that affiliate. Imagine that.

0:51Yash, welcome back to the D2C podcast. This is, I think, your third appearance on the podcast. always rely on you to discuss the world of influencer and now affiliate marketing. I come from a background in affiliate marketing. I started my career in like 2006. And it's one of the most uttered things I hear brand owners talking about these days. I feel like affiliate is really having a moment right now. Why do you think everyone's talking about affiliate marketing right now?

1:20Yash Chavan:It's the best marketing channel. It is on Facebook or TikTok ads. you pay for impressions on Google, you pay for clicks on affiliate, you pay for sales, which is eventually what everybody wants out of every channel is you, why do you market? You want to sell. Um, and affiliate is like this dream channel, which is like, Hey, I only pay when they do all the work and I only pay my, my cost of acquisition only gets spent when I have already made the money. Right. And maybe like, I can also pay them 30 days later, like in terms of like cash conversion cycles and so on. So it's like, that's why I think affiliate is, and I think it's always been that way.

1:59Yash Chavan:I think affiliate has always been this dream channel. It's just like, it's hard to execute. It's hard to track versus something like a meta or a TikTok ad is way easier to track. But CFOs love it. Yeah, the CFOs definitely love it. If you could invest the same amount of money as your meta ads, but on affiliate, you would do it in the blink of an eye because you can dictate your ROAS. So if you offer a 20 % commission, that's a 5X ROAS, right? But then it's hard to scale. You can't get the same volume of results, typically. You don't have the same transparency with affiliates. Some of that we're solving at Sati and happy to talk about that.

2:43Yash Chavan:But it is objectively speaking on a per unit, on a per say level a better marketing channel well talk to me about the evolution of of my sadhi because you uh you know get soral we've talked about multiple times on the pod talk to me about why you decided to expand the pyramid of influence to include a very specific focus on influencers yeah i think the so the pyramid of influence which we have spoken about on the other podcast link will be somewhere here the middle layer is still affiliate it's just that that layer was so hard to track, to scale, to grow, that it was hard to get to the top tier, to the pinnacle of the pyramid.

3:22Yash Chavan:So we were like, hey, let's just build something that solves that. Because Sural does the seeding part really well. Like we can help you find influencers, seed them at scale, ship them products, track when they post, all of that. The affiliate piece was still broken in many ways. And that's why we decided to build Sati. So yeah. So talk to me, you know, pound for pound, We're talking about affiliate as, if not the best, one of the best channels. But what are the pitfalls? What are the reasons that have traditionally held affiliate marketing back from dethroning meta, for instance? Yeah, a lot of brands still approach.

3:59Yash Chavan:And when I say affiliate, I also mean the modern form of affiliate marketing, which tends to be influencer affiliates, because influencers are the ones with all the reach. back when you started in affiliate marketing, it used to be blogs, publishers, email lists, these types of people as affiliates. Now, because they had all the attention, now it's influencer affiliates. And fundamentally, I think the consumer journey is less of a funnel than it ever was. Yet, affiliate marketing relies a lot on last click attribution, which basically means whoever had the last touch, the last click, or the last coupon code, gets all of the 100 % attribution for the sale.

4:40Yash Chavan:But we all know that's not how consumer journeys work. I think like on a very core foundational level, that racking dilemma of when I have five influencers post about me, but somebody uses one person's discount code to make a purchase, that person gets all of the credit for the sale that shows up in my dashboard. But the other four people did all of the hard work for no credit whatsoever. I think that fundamental problem leads to a lot of brands just cutting their affiliate programs, even though in reality, they may actually be working and having an impact on your bottom line. And affiliates are crafty.

5:15Having been an affiliate back in the day, that's another aspect to the channel is that sometimes these leaks happen accidentally, but also sometimes it happens because affiliates are just trying to get that last click in a lot of ways. Can you talk about instances where problems like that happen?

5:30Yash Chavan:That's the other side. With what I spoke about so far, the people who are actually doing like the other four people that I said who've posted but got no credit that's like a measurement problem so there's that on the flip side of that so there the good people are not getting credit on the flip side is affiliate fraud which is another huge discussion to have which is like hey some affiliates will literally leak their codes intentionally sometimes it's unintentional some affiliates will pay click farms to drive a lot of traffic which may or may not buy. So that clicks are inflated. So if you're in case you're paying for clicks, you end up paying them on a CPC basis and it's just like random geotraffic from somewhere.

6:13Yash Chavan:Some affiliates will run ads and then against your own keywords and that counts as fraud. Some affiliates will buy their own products and get the commission for that. And then they refund and then there's no clawback in your terms. Then that ends up becoming fraud. So like affiliate fraud is a huge component. And there's so many types where one of the most glaring ones was just recording this on a Wednesday. I think just this Friday, I was speaking with someone. We were onboarding this new brand on Sati and they were like, we connected, it has this fraud detection system. So we just, we were looking at some of the dashboards and there was this one influencer who had made some$40 ,000 in sales.

6:54Yash Chavan:And we were like, that's interesting because they were not that big of a brand. And then we were like, okay, most of your other affiliates have only made maybe like$500 or$1 ,000. What's special about this person? They must be like a huge influencer or something. And we went to their profile and it was like, it was like a mom fluencer with 3000 followers. So there's no way this person's selling 40K worth of goods. Then we ran the fraud check. And then we find out there was actually her code was, it was leaked somewhere. So that fraud engine picked it up and this brand had already paid them some i don't know i think roughly around nine thousand dollars in commissions over the last quarter um so it was pretty bad um so we were like okay this is clearly a problem this happens and then sathi is also able to catch it so easily so now in the future they won't pay any fraudulent commissions so yeah i think a lot of brands who are listening to this if you have an affiliate program onboarding i would run a fraud scan on that.

7:50Yash Chavan:I'm sure there is, we've seen historically, like even with other brands that we've tested, five to 20 % of the commissions that you're paying may actually be fraudulent, which cuts deep into your margin. So yeah. And it affects your program too, right? Because you're rewarding the wrong person. So you'll, you know, that person will continue doing the bare minimum and the person who's actually doing the work gets no result and then falls off your campaign because they're not getting paid. Correct. Exactly. And you end up making strategic errors because not only are you paying commissions to the wrong people, you are, like you said, Eric, making bad decisions because of that data.

8:27Yash Chavan:So on the other side, like if you're making decisions based on last click data, you're going to incentivize the last person a lot and not the people who drove like the discovery or the nurture process. You're only rewarding the last click. So the other affiliates drop off, aka stop posting about you, and then your affiliate program falls off the cliff. Um, cause the right people who are doing all of the hard work were never rewarded. Um, so there's definitely that, like you to end up giving credit to a lot of people who don't deserve it. Um, and then your program ends up crashing. So, yeah. I feel like affiliate is really, it's like a natural evolution in a way, because you know, when you have influencers, a lot of, a lot of influence, like it's about them maturing in a way, right?

9:07Because when you have influencers and you're first getting into influencer game, it's like, okay, it's pay to play. I make a post, you send me, you send me some money or whatever. But then as you gain actual affinity for a product or these influencers learn a little bit more about marketing, it becomes like a natural fit for them to actually be incentivized and actually rather than just make a post, like actually sell on your behalf, become an actual advocate on your behalf because they have skin in the game. They're getting paid when you get paid, right? So it's a way to align your incentives when you do it right.

9:39Correct.

9:40Yash Chavan:The good thing in favor of this is more and more influencers are starting to see themselves as media companies and not as influencers, which means they've started to think like business people. And what business people want is uncapped upside. When you're being paid flat money for a post, even if that post goes viral and gets millions of views, you're going to get paid a thousand bucks for it. Right? But if you have uncapped commissions on top, then you're incentivized to make better and better content that gets more and more views because you make more money as a result. So what we're increasingly seeing brands do, especially on the Serral side, is they do a mix of flat plus affiliate.

10:25Yash Chavan:So traditionally, if an influencer is going to charge, say,$1 ,000 for a reel, they're going to bring them down to, say,$600 plus 10 % of any sales that come as a result of that. And then typically, we've seen the good influencers who are like a perfect fit end up making way more than they're initially quoted$1 ,000. So sometimes the brands end up thinking, hey, maybe we should have just paid them the$1 ,000. bucks. But yeah, you can always add caps to these things and so on. But yeah. I see it being a perfect storm as well, because more people are looking for ways to make money too. So people are professionalizing their influencer profiles.

11:05People are looking for these new ways to make money. So I feel like affiliate, it's really like the perfect storm for affiliate right now.

11:11Yash Chavan:Yeah. Correct. On top of that, I think one interesting thing to mention, Instagram just allowed linking to external websites on Reels, which is fantastic for affiliate because now what used to happen previously was, you know what the highest converting asset was across affiliate influencer marketing? It was the Instagram story. And the reason for that, not TikToks, not Reels, stories. And the reason for that is you could link inside of a story, you could add like a link and then people could click on that link and go by. The downside of this was stories only last for 24 hours. There's only limited creativity you can do with a story because of the, it's either a picture most often, which is a static or a short video.

12:00Yash Chavan:So there's that. And it does not reach as many people. It maybe only reaches 10 % of their audience, right? And then disappears. Not everybody sees all your stories. So stories were limited yet highest converting because they had links in them. Reels, on the other hand, were the highest reach asset across influencer marketing, which means because reels can get on the explore page, reels can go viral. Now, if you add a link on a reel, that's just unreal for influencer affiliates because now you have the highest reach asset with potential to be the highest converting asset. And I think more and more influencers are going to look to do affiliate deals now because it's much easier to make money as an affiliate if you can link to the link on the reel instead of a link in bio or in a story.

12:50We've talked about the benefits of affiliates. We've talked about a few of the drawbacks. So then how does Sati actually sit in the middle and help you get the best of both worlds? How does it actually prevent fraud, for instance?

13:02Yash Chavan:Yeah, so we've actually worked on an AI fraud engine for the last three months. So the types of fraud that we even discovered was just unreal. People ordering their own things is the most basic fraud. But most affiliate fraud engines only catch things like, hey, if the influencer's email is the same as the order email, then that's a self-referral. We go one step beyond. We're tracking if they have similar emails. We're tracking if their IP address is similar, if their billing address is similar. It'll look at like dozens of criteria like this to flag if it's a self-referal. So things like that.

13:41Yash Chavan:It's a very deep fraud engine. It keeps scanning all the coupon websites for leaked codes. It automatically blocks when Honey or one of these, Capital One or one of these extensions try injecting code, codes directly at checkout to steal credit. It does that, prevents that automatically. We have leak-proof codes, which are one-time use discount codes that are only generated on link click, which means there's no code really, and then there's no leak as a result. So a bunch of these things is how we prevent fraud. There's suspicious geotraffic analysis, so to track if traffic is coming from a suspicious location, let's say locations where you don't ship, for instance.

14:20Yash Chavan:So there's that, and that's how we handle the fraud side of things. On the flip side, what's just personally more interesting to me is the opportunity with tracking. So there's two breakthroughs we've done. Most affiliate marketing so far until Sati, I'm pretty sure this is like words first. Every affiliate marketing platform relied on cookies, which means the way they worked was when you click on the link, it stores a cookie in your browser for seven days, 14 days, 30 days, whatever that length is, called the cookie window. And then whenever you buy within that cookie window, that sale gets attributed to the affiliate.

14:59Yash Chavan:The problem with that is cookies are increasingly unreliable. Most people opt. Whenever you get that cookie banner, your instinct is to click no, don't accept, don't allow cookies. That's one. Some people have ad blockers enabled. Some browsers such as Brave, such as Safari, do not support cookies. is Chrome might sunset cookies anytime. They keep releasing these heads up marketers. Cookies are going to go away. So that's like an impending doom that's coming. That'll hurt a lot of affiliate software. Sati's affiliate marketing does not rely on cookies. So it's cookie-less tracking. So even if they don't have cookies, they've disabled it, they're on an unsupported browser, they have an ad blocker enabled, the affiliate tracking will still work.

15:45Yash Chavan:So that's number one breakthrough. Number two breakthrough, true is it's multi-touch. So now you no longer have to rely on the last touch. Sathi will show you the entire journey. If they clicked on the first person's affiliate link and they just browse the website, it'll track that. If they clicked on the second link and then they added to cart but did not purchase, it'll track that. If they then finally seven days later visit the website and then use a third person's discount code to make the purchase, it'll track that. So you're now able to see all three touches it took to make the sale versus in the old world, the last person whose discount code was used would get all the credit.

16:23Yash Chavan:In the new world, you can choose how you distribute credit amongst the three affiliates that were part of that conversion. So these are some of the ways we are changing the game. I guess it's up to every person how they would choose to credit that, but maybe from brands that you've seen or even just how you think about it. In that case where you talk about three different touch points with three different affiliates, what's a good rule of thumb for how to actually attribute something like that properly? Very good question. And this is such an important strategic decision to make for any marketing team who's using this.

16:58Yash Chavan:And we're advising brands on this right now so I can speak to this. The answer is there is no really good thumb rule. The rule is look at how the conversion journey typically works for your brand and attribute weight accordingly. So generally speaking, the way you would attribute is you would assign certain weights or, hey, percentages to every touch. So for instance, if you're a new brand, so one of the brands that we work with, it's called Brick. I don't know if you've heard of them, but it's literally like a brick. You've heard of it. It'll brick your phone. It stops your phone. It bricks your phone.

17:31I need it.

17:32Yash Chavan:Yeah, it bricks your phone. Yeah. But this is like such a, yeah, yeah. It's such a interesting new technology. Like you don't see it. You can't visualize it. You have to like almost be educated about it. So for them, driving discovery is a much higher value event to them as a brand than driving the sale. Because if somebody like you already knows about it, they're like, okay, this person's going to buy one day or the other. What matters a lot is getting in, like getting in the mindshare, right? So discovery matters to them. So for them, they would buy us more towards the first click, the first affiliate who drove discovery as opposed to the last click.

18:11So maybe they're doing like, hey, you know, 70 % of the

18:14Yash Chavan:commission goes to the first affiliate and then 20 % goes to the second and then 10 % goes to the third. It's like a decaying affiliate model. On the flip side of that, for more common products, like say supplements, great example, everybody has a supplement brand. So what matters to supplements is not discovery, but sales. So for them, biasing more towards the last click is better. So maybe they do the opposite. They give 10 % to the first person, 20 % to the second, and then 70 % to the last click. That's one model. There's so many. Maybe it's just equal for you. Maybe you're just like, hey, I want to play the safest game.

18:52Yash Chavan:So I'm just going to give like 33, 33, 33. You could do that. So that's like linear attribution. You could do both. Some brands do like, I want to value the discovery. I want to value the purchase. And then everything that happens in between is nurture. So what they do is 40 % to the first touch, 40 % to the last touch, and then the remaining 20 % is spread evenly across all touches in the middle. So that's another attribution model. So there's different ways you can play around with this. And it really is down to you have to make a strategic decision of what works for your brand. Super helpful.

19:26Actually, I really like the instance of rewarding the discovery in the first touch, because once you have them on your site, then you can also retarget them through other methods as well. Exactly.

19:36Yash Chavan:One of the things that Sati does, by the way, is like it'll train your Facebook pixel. So yeah. So if you get affiliate traffic through Sati, you can retarget through a Facebook. This isn't like a POC stage right now, but I think by the time this podcast comes out in a week or so, it'll be live. But yeah, you can retarget affiliate traffic with ad creative of that affiliate imagine that right like hey this person drove eric drove like a thousand people to my website and let's say only five of them purchased um the other 995 i can retarget with a facebook ad with eric's ad creative um right which can then boost sales so it's like whitelisting but on steroids it's like whitelisted content but shown to the people who already know that affiliate um so those are some of the interesting things you're working on yeah we're seeing that actually from some B2B creators in the B2B space that they were wondering, you know, all these B2B influencers have sort of sprung up and then we're seeing the products that they're advertising being whitelisted back to us on their own handles.

20:43That's how they're getting those leads. Interesting.

20:45Yash Chavan:So we've talked better attribution. We've talked fraud detection. And the third pillar of this product is, and it's something you guys have mastered really well in the way you think about your influencers in Sorrel, is that like elevation or the gamification of the actual program. Talk to me about what Sadi does in that case. Yeah. So this is like the third problem with affiliate marketing, which is more on a, cause like the two fraud and measurement were more like strategic high level problems on a tactical level. Most affiliate programs are not gamified. And what that does is it leads to a lot of creator churn or affiliate churn.

21:24Yash Chavan:By that, I mean, if your creators are just on like a 20 % commission tier and they're just forever on that, no matter performance, no matter what, it's like, okay, they get bored and then they're going to leave and join some other brand who's giving them maybe a higher percentage. So you want to almost create this almost like in a B2B context, like a sales team incentive structure for them because your affiliates are like that. They're like your sales team at scale, like they're selling your brand to their audience, right? There's these micro salespeople in some sense. So you want to give them a commission incentive structure that gets them going, that gets them excited and pumped to sell your products, right?