Listener mailbag: How AI and Substack are changing affiliate marketing

0:09Melissa Daniels:Hello and welcome to the Modern Retail Podcast, our show that covers the ways the retail industry is changing and modernizing. I'm Special Projects Editor Melissa Daniels, today joined by co-host, senior reporter Gabriela Barkho. Gabi, how are you today? I'm great. How are you? I'm good. I'm so glad that we get to have a discussion together today. Been a minute since we've had a co-hosted pod and I can't wait to talk to you. Yeah, me too. This is an episode that's been a couple of months in the making. So I'm excited that we're finally putting it together because we have been getting so many great questions from listeners and readers.

0:49Melissa Daniels:Yes, this is our first official mailbag episode of the Modern Retail Podcast. We asked for your questions about affiliate marketing to help drive this conversation. And thank you so much to everyone who sent in questions and suggestions via LinkedIn posts, via email, via our newsletter. And we're really just going to unpack the state of play in this multi-billion dollar world of affiliate marketing. When it works, when it doesn't, best practices, and of course, where it's all going with the AI of it all. But before we get into the questions, I just want to level set here because we actually had to think about how to define affiliate marketing for purpose of this conversation.

1:28Melissa Daniels:It's not something that's uniform across the industry. And every time I had a conversation about this with someone, they're like, well, what kind of affiliate? Because people call it different things. Yes. I run into this all the time. And so now when I talk to brands and they mention affiliate, just even in passing, I have to pause and be like, do you mean like influencer marketing or do you mean um affiliate links publishers um performance marketing i guess is the technical term which is what like pr agencies have basically started become known for um yeah so i do separate them into two different buckets because to me they're very different i mean pitching um a reporter or commerce editor is very different than having like a creator talk about your product on social media.

2:18So to me, they're very different. So for the purposes of today's episode, we are going to disclose that every time we answer a question.

2:29Melissa Daniels:Yes, we will hopefully be contextual. But you know, there are the similarities there. If you think about what affiliate marketing really is, is it's a way of promoting your product through attract link, because that's something that's common to the creator side, the publisher side, the deal side. Usually there's a discount code involved, not all the time. And then the affiliate, whether it's a deals website, influencer, publisher, they might get a commission on the sale. And this is sort of the win-win-win that we sometimes hear about when affiliate leads to conversions. So let's dive into the questions here today.

3:02Melissa Daniels:The first question is just going to help maybe set the scene for us a little bit. And this came from the PR pros at Propeller Group. Thank Thank you so much for hashing these out for me. The question is, what makes an affiliate partnership feel authentic versus purely transactional? Gabby, your thoughts. Yeah, so when it comes to creators, I think marketers have been beating this drum for years at this point. But the most important thing is that the product actually makes sense and that the creator actually can speak to it in an authoritative way and can come across genuine to their followers.

3:42Because one thing we hear a lot about is that Gen Z and, you know, really just generally young people, they are basically immune to marketing or to advertising. And so they can sniff out, you know, an inauthentic campaign pretty easily. And to me, that really starts with seeking people who are already a fan of the brand. And I feel like that's a generic answer, but it's really step one. And then from there, maybe try to figure out like, why does this person actually want to work with you as a brand? Or why do you want to work with them? Because I have heard, you know, some nightmare stories of brands working with a creator, and then it turned out, you know, they're not necessarily values aligned or missions aligned.

4:31And then the followers will come back to the brand and be like, I can't believe you're supporting this person. We see it all the time with like reality or celebrity sponsored content. And so, yeah, I think the vetting process is also really important.

4:48Melissa Daniels:Yeah, no, I feel what you're saying is that you want to make sure the folks who are out there selling your products and repping your brand fit with who you are, fit with what your vibe is, and are actually like truly fans. You know, I feel like that's why so much of the TikTok affiliate content can really resonate because those are oftentimes actual fans applying to work with the brand. It's not someone who, you know, you're approaching out of the blue based on their follower content. There's already an alignment there. Yeah. I'm curious, you know, on the deals or the publisher side, how that works.

5:25Because one thing we know from our side of the industry is that, you know, these outlets are shrinking and there's just way less people working on these, on the content or gift guides or whatever these, yeah, these links are going to. And so I do wonder whether that's also being impacted now, regardless of the product.

5:50Melissa Daniels:Yeah, this is a question I spoke about with a source of mine, Delaney Del Mundo. She's an SVP over at Platform and does a ton in the affiliate and marketing space. And one of the questions that she said she kind of poses to brands to see if something is a fit is, hey, if the affiliate link is ultimately broken, would your recommendation still be there? And I thought that was a really interesting guidepost of how you know whether something's a fit or not, because that is a question of whether you're actually serving the reader with content that matters versus just trying to get a link in something that you hope is going to get eyes on it.

6:27Melissa Daniels:And yes, of course, that link is convenient and could lead to conversion, you know, but that's really should just be a way of getting credit for a recommendation that was already happening. Right. Because it was already a natural fit into what this piece was, what this publication was about. You know, I think a great example here is gift guides. You know, what Delaney had said is, is this built around inventory or is this built around genuine taste? and to me that's going to be the ultimate question in how you make sure your products are getting surfaced in the right places because like you said earlier readers and followers are smart they know when something is just an ad versus like hey this is actually helping me come up with a decision on what to buy and while we're on the topic of content being curated we got a lot of questions about ai and the effect that ai is going to have on affiliate content and vice versa.

7:24Melissa Daniels:Because you know, all those publisher pieces, all those content logs, all those inventory lists, all those things you're putting out there are getting scraped by LLMs, of course. So what does that mean for affiliate marketing? Just to sort of level set to again, I was looking at some Gartner data recently around AI, said about 17 % of consumers rely on AI summaries to get information for products or services. And about 16 % use AI chatbots to search for new products or services. So we're approaching, you know, maybe one fifth of shoppers using AI at critical points in their shopper journey. So when you think about affiliate that you're putting out there on publisher sites, that's going to impact what those summaries say, right?

8:07Melissa Daniels:All that's going to get looked at. So one of the other specific questions that we got, I'm curious if this was anything that you've come across in your reporting, Gabby. If consumers start turning to AI shopping agents instead of clicking creator links, does the entire affiliate model need to be rebuilt from scratch? Yes, this is the billion dollar questions, apparently, according to affiliate marketers, because, well, first of all, I'm hearing like, none of us know because it's all changing every day, which is something we hear, you know, just more broadly about the AI question. But yes, I think recommendations from these chatbots and the fact that, and, you know, we've talked about this a lot over the last few months on the show, which is that more and more people are asking these platforms for recommendations, for gift ideas.

9:06Yeah. So I talked to Doreen Mooney, who is the director of affiliate marketing at Kinetic 319. They work a lot with direct-to-consumer brands, a lot of CPG brands. And she said that the thing we're dealing with right now is the fact that people are going into the articles that are ranked on ChatGPT. So those are the articles that the LLM is pulling from, let's say, strategist or wirecutter. And then people are going directly to the site of the brand from there. And so the publisher or affiliate is not getting the proper credit through tracking. And so she's saying the biggest decline she's seeing is credit across the board for all of her affiliate programs right now on behalf of the brands.

9:49And that's really scary because attribution is like the number one thing that you're trying to track when it comes to performance marketing, right? It doesn't matter whether it's a social media link or a creator or a publisher. And so if you can't attribute that sale to a specific outlet or channel, that becomes a problem. Because right now, it's not like you can plug that into ChatGPT. I mean, we don't really know what's going on with their advertising ventures. But yeah, this is basically where everyone is getting stuck. So you're just hoping that they'll land on your page, maybe use a generic code that way, and you'll get the sale anyway.

10:33But yeah, tracking is really hard.

10:36Melissa Daniels:Mm-hmm. Yeah, I think that's a great breakdown of how it's changing things. I recently caught up with Wendy Berg, who's the CMO at Rakutan, you know, the deal site. And she was explaining to me how, you know, because AI has collapsed sort of the middle of that customer journey, you know, that experimentation, discovery, look around, read around phase is now all happening in like one prompt and one answer. instead of you maybe going to multiple sites, taking more time, that is sort of shrinking the opportunity that brands have to make affiliate matter in other places. But from the Rakuten standpoint, she says it's actually performing really well because they've been able to sort of drive discovery and they're helping bring new customers into the brand who are already in the Rakuten ecosystem.

11:23Melissa Daniels:So like any change, I feel like that happens in this realm of digital marketing. you know, there are some sites and services that are maybe well positioned to take advantage of the changes in people's changing behavior. Yeah, I do think Rakuten, Honey, you know, all these deals sites are kind of benefiting in an indirect way, to be honest, because they're the ones whose promo codes that are coming from all over the web are getting plugged into the LLM, right? So whereas what Doreen said is that the customer themselves, and I know, I don't know about you, but I feel this way. Like when you're just looking for a product and you want that 20 % off, like they don't care whether that's coming from a publication or from Rakuten or from Honey, right?

12:17Like they want that 20 % off. And so it's the customer journey. Sure, it's like slightly changing, but to them, it doesn't, yeah, it's not really making that much of a difference. It's the brands that are unfortunately being impacted. Yeah. And so, yeah, she's like, you know, they're using these promo codes that are coming from all over the web, but they're not approved through this specific affiliate program. And that's basically, I'm just kind of repeating what I was saying earlier, but it just, I was reminded because as you mentioned, Recton, that, yeah, this is kind of a push and pull situation.

12:55Melissa Daniels:Yeah, it's a great point. I just had a montage in my mind of when my husband was upgrading his smartwatch. It caught to me, like, searching Rakuten, searching electronic sites, looking at our credit card rewards to see who might have extra cash back on certain brands. And he's like, can you just order? Can we just buy my watch? And I'm like, no, we have to find the best deal. I don't know if brands hate me probably, but this is how I shop. Yeah. And I think that's the natural customer journey and we all do it, whether consciously or subconsciously. Anyway, as I mentioned before, we got a ton of questions from people about how AI is affecting this world of affiliate marketing.

13:40Melissa Daniels:This question stood out to me for what it says about where we're thinking about the technical aspects of it all. And that's how will agents parse affiliate content? Will they be able to discern organic reviews from pay to play slop? I mean, my gut instinct says no, but, you know, and I feel like people are already trying to figure out ways to game LLMs, you know, and get their products surface and get their mentions surface. You know, you mentioned earlier about all the things people are doing behind the scenes to get their content ready for LLMs. But I also think that customer trust is going to play a big role here.

14:21Melissa Daniels:Gabby, what do you think? Yeah, so this keeps coming up a lot, right, when we talk to companies, is that everyone's trying to figure out what these agents are, what they're ranking, what their preferences, where they're getting their information from. and you know listeners if you're interested in more of that please come back and listen to my AI reviews episode from a month or so back but one thing I learned is that ranking depending on who you're talking about I mean obviously Chad GPT is going to defer from Gemini etc is that the big one is Reddit for Gemini it's YouTube so like organic mentions more so than maybe like an ad by the brand themselves uh pretty much when brands are talking about themselves that's like the bottom of the list of the priorities like it's essentially it's kind of like how you can't really edit your own wikipedia page usually um it has to come from like an authoritative voice um it's pulling from organic voices on reddit on Instagram, across social, on forums, because the agents deem those to be the most authentic.

15:45And so if it's a paid affiliate link, I think that's where the tension is right now, right? Like, is it coming from, I imagine like, you know, a trusted source, like a wire cutter is probably going to rank higher than maybe some random content farm that's just aggregating links, right? I don't know. What are your thoughts? That's the way I understood it.

16:10Melissa Daniels:Yeah. Yeah. No, that makes sense to me and definitely makes sense as far as what we know about how LLMs work and what they're surfacing. But I also just think there's this kind of like race to the bottom that's still happening with content where, you know, either the brands themselves or people looking to, you know, surface themselves in LLMs for whatever reason as a resource are using AI to make content about things in hopes that it gets surfaced by AI. And that's where I start to get really suspicious of the slop stuff. And I'm like, okay, well, how much of this is going to be leading to recommendations that customers can actually trust?

16:50Melissa Daniels:Because I think, you know, and I go back to that, how nearly one in five people now are are using AI search or LLMs to get product recommendations, right? They're doing that because they want it to be unbiased. You know, they want it to be fast and they want it to be efficient and they don't want to waste their time trying to like go through a million guides for whatever reason. But they also feel like those recommendations are going to be trustworthy and unbiased. And if all of a sudden it's like giving you... Yeah, right? It's thinking, Chad, GPT is giving you the least biased take on a multivitamin or whatnot.

17:23it's like no sweetie it's coming from somewhere we just don't know where

17:26Melissa Daniels:it's coming from somewhere yeah but like you're doing it because you're like okay this is where I'm gonna get my answer from you know there's a trust there otherwise you wouldn't be going to it right and if you started to get bombarded with ads or slop in those results you will lose that trust in that process right so so you're trusting that it's pulling from like an Oprah's gift guide or like some some prestigious affiliate program Totally. And I think that's the only way this keeps continuing to grow, right, is if those results have real legs behind them. All right. Are we ready to tackle another side of this equation and get back to the publisher side a little bit?

18:04Melissa Daniels:We got a really interesting question about the role of sub-stacks. This came from a PR and brand marketing strategist. She says, I'm curious to learn more or hear your thoughts on affiliate and its impact in relation to new media. For example, sub-stack. Should we be weighing these the same as editorial publications or should the model be looked at differently? Okay, so this is pretty interesting because I kind of hear it's a mixed bag for brands. On the one hand, I hear that Substack content tends to be a better converter in that the people reading or consuming the content who are most likely going to be subscribers, right?

18:49So they're like fans of this person. I guess they're more trusting. And so the conversion is higher. So they are probably going to buy that product. On the other hand, it's a lot harder to get placement is what I heard in that like a lot of these creators want like a paid placement in the newsletter because that's the only I believe that's the only way you can advertise right now. right is just through like you can't do it directly on Substack so they have to place it the affiliate link in the actual newsletter which tends to get a lot of clicks sorry I'm not the most familiar with the how Substackers are getting pitched but from talking to brands and marketers it's it's kind of like becoming very sought after and prestigious which happened very quickly I feel like I just turned around and all of a sudden they're like oh like they're we're getting turned down.

19:49Like I'm talking about some really big direct-to-consumer brands being told no.

19:53Melissa Daniels:And I'm with you here. I think this is a totally different model than, you know, your average legacy publisher who has an affiliate system that they've been building and workshopping for the last 5, 10, 15 years. And that's because, like you said, these are folks who are subscribing. They're folks who are potentially paying to read this person's content. So they are taking that recommendation for the product a lot more seriously than something they just stumbled upon via Google, right? There's an inherent trust in the person who's making the recommendation. When I talked to Delaney, a platform about this, she called it kind of like an untapped surface, an untapped area for affiliate marketing yet.

20:34Melissa Daniels:And she mentioned something that I think is really interesting here is that there's 35 million plus active subscribers on Substack. And Substacks also tend to have higher open rates than traditional marketing emails. So you think about that audience and that's more eyeballs than you might get just doing traditional marketing emails through yourself through a collab partner. And that's powerful. I think showing up in people's inbox that way is really powerful. And just the idea that people are paying to read someone will just drive more recommendation power than your average search. Yeah, so it is kind of hard, I guess, because obviously there's like only a tiny percentage of these sub stack creators that are getting a lot of that traffic and engagement.

21:23So if you're a brand, you're kind of competing for the few effective ones. But there are some good examples. I was talking to Logan Bird, who's the president and CEO of Mephisto USA. They make like these luxury footwear and they tested Substack in a pretty interesting way. I think most recently they worked with Jake Wolf and they basically gave a promo code for a specific color of the shoe. And they ended up selling out of that product because so many people clicked through. And so, you know, he's got like a big Jake Wolf that is has a pretty big fashion following. And so it was like it kind of just hit right time, right audience.

22:14Melissa Daniels:Wow, I think that's a great example and just really shows the power of trust that people have in this kind of creator and what people want to see from them. Well, moving on to our final question, we actually got one via voice memo that I want to share. This is from Adil Sabuino. She's an e-commerce and marketing strategist based in San Diego. Let's hear Adil's question. Melissa, this has been on my mind. nothing happening in affiliate right now is really quote unquote new cashback publisher stuff that stuff still feels like plumbing still works but it's not strategy anymore creator affiliate that's the piece that's taken on the more visible role and lately that's driving that intent creation have been loving those tools that i mentioned like super affiliate and what i keep on coming back to is how many teams are still managing both like it's one thing, one strategy, one budget, one way of measuring it, the same success metrics, but it's not one system anymore.

23:19Melissa Daniels:It's two completely different jobs. And treating them the same is getting really expensive. I can't wait to hear what you think on the topic. It's quite one that's on the mind of a lot of teams and actually looking to hear what other people think too. I love this take. I love an inside baseball ops question into how brands are managing the things they have to manage. And what I think Adilsa is asking and getting at here is whether teams should be expected to manage both, if that's the way things should be going, or if really the move is to bifurcate responsibilities out. Because as she mentioned, this is two completely different jobs to manage publisher, to manage creator, and treating them the same is maybe not going to yield the results you want.

24:07Melissa Daniels:Gabby, I'm curious what you've heard from brands. You know, do they keep all this under one person? Do they have a larger team sort of bifurcated to deal with different kinds of affiliate marketing? Yeah, so the answer seems to be it depends on the brand's budget. It's like, what's your budget? Obviously, if you can afford to retain two different agencies or two people whoever it might be in-house to run these two programs separately that's probably ideal but like I said at the top a lot of brands do treat them in the same bucket I'm not really sure why that is maybe they feel like it's more efficient but they'll have one person you know sourcing creators reaching out to creators seeding product and then also the same person might be pitching editors, whatnot.

25:01So it really depends, I think, and it depends how big your program is, right? But yes, what I've heard from marketers is like, do you have the money to do both or not? And we've also seen a lot of performance marketing agencies that are offering like a hybrid or a mix of both. I feel like that kind of came on really strong the last few years as PR agencies like traditional PRs had to really adapt to the challenges of the media industry right now and shrinking newsrooms and whatnot. So they have to figure out, you know, how to bring in revenue themselves and they are taking on affiliates. So yeah, I think that answered the question.

25:49At least that's how I took it. But maybe every company is different.

25:55Melissa Daniels:Totally. And like you said, it's a matter of resources, a matter of budget, and really what your goals are. I mean, I think about a company that is going to launch a TikTok shop and wants to run affiliate there. And, you know, having someone in charge of that and making sure that goes well and is successful is maybe a different skill set than reaching out to publishers and trying to secure gift guides, right? I mean, those are two very different things. You know, that being said, this question of doing it with one budget is going to be really hard, I think, for brands to figure out, especially, again, with the AI of it all.