Best Buy Gives Affiliates a Slap in the Face

In tough times companies are forced to make difficult decisions. Sometimes they make wrong ones. Best Buy made an epically dunderheaded one this week when it announced via email that affiliate commissions for two of its best selling product lines was being dropped from 1% to .25%. A quarter of a percent is insulting to anyone you refer to as a partner. The backlash on boards like ABestWeb.com has already built up as professional affiliates wonder how such a big player could display such a lapse in judgment.

Anatomy of a Bad Decision
Corporations are prone to knee jerk reactions. Especially in crisis situations or tough times. When it comes to cutting costs often the cutting is done by those not directly involved in day-to-day affairs.

In this case you can almost imagine the thought process: We are practically giving away commissions to affiliates on items that would sell anyways! Why don’t we cut the commission rate and increase our profit margin?

A bad decision is made even easier by the fact the Affiliate Channel is often a nebulous component to most corporations’ online marketing strategy. Difficult to understand, easy to undervalue, corporate advertisers often make the mistake of treating the channel with a “set and forget” mentality or deliver campaigns to affiliates with the expectation they will accommodate last minute promotions which should have been planned well in advance. Many such advertisers also make the assumption that affiliates will not make business decisions of their own and simply take whatever leftovers are handed to them.

Real Troubles
In Q3 of this year Best Buy reported that profits dropped 77% year over year. According to the report 4,000 employees at its headquarters were offered buyout packages in an effort to cut costs. The report also quoted Chief Executive Brad Anderson as saying,

“We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace. We also believe that customers will continue to reward those retailers who understand their needs and desires, and offer relevant solutions at fair prices.”

Obviously the company is taking serious steps to make themselves more profitable. While I genuinely wish the best for their employees, cutting the commission percentages on a few top selling items will not make or break the company. It will however sour relationships with affiliates.

It’s an Affiliate’s Marketplace

Anderson is right that customers will continue to reward retailers who understand their needs. So will affiliates.

Best Buy runs their affiliate program with Commission Junction. According to numbers released by CJ comparing same store retail sales, network wide CJ affiliates averaged 73% growth on Black Friday and 39% growth on Cyber Monday year over year. Impressive numbers when compared to comScore posting of overall online sales during the same time period.

Presumably sales were good for the Best Buy affiliate program as well. The email explaining the commission cuts seems to support that stating:

“The Best Buy affiliate sales force has exceeded our expectations during these trying economic times. These important contributions are greatly appreciated. This commission reduction originates strictly out of economic necessity in a growingly price-sensitive marketplace.”

According to Yahoo Tech News the Wii is the top selling item this holiday season. Laptops are another hot commodity. Many other merchants sell both including Buy.com, Amazon, WalMart, and Target. All of whom are competing with Best Buy for the same customer.

As an affiliate you have a choice. Are you going to stay loyal to Best Buy and refer your valuable traffic to them for .25%? Odds are you are going to send the traffic to a merchant who is offering better commission on those same items. What’s more, as an affiliate it is just as simple to send all of your traffic to a competitor instead of attempting to redirect traffic for those few items whose commission you are being low balled on.

Gut Check
It would be one thing if Best Buy was withdrawing ads from areas that have a poor ROAS.

Because of their footprint it is doubtful that Best Buy will suddenly pull back from television or print ads, nor should they be expected to do so. The stores that provide jobs to the approximately 150,000 employees are obviously their bread and butter. But surely if they are pulling back from the affiliate channel due to a “growingly price-sensitive marketplace” they are also pulling back from CPM buys online. As typical with corporations more comfortable with offline campaigns than online campaigns, this doesn’t seem to be the case you can still see them in remnant media placements.

So the affiliate channel, the one that creates the most return for the advertiser’s dollar is the one Best Buy has chosen to cut. It’s expeditious to cut revenue to a channel you don’t understand in order to create higher profitability on items you feel you will sell anyways.

The fact is in these tough times affiliates are sensitive as well. The professional ones will send their business to merchants who are truly interested in cultivating a partnership. Only time will tell what a dent .25% will put in Best Buy’s affiliate program and their overall sales.

About Angel Djambazov

Born in Bulgaria, Angel Djambazov has spent his professional career in the fields of journalism and online marketing. In his journalistic career he worked as an editor on several newspapers and was the founding Editor-in-Chief of Wyoming Homes and Living Magazine. Later his career path led to online marketing where while working at OnlineShoes he earned the Affiliate Manager of the Year (2006) award at the Affiliate Summit, and In-house Manager of the Year (2006) award by ABestWeb.

For four years Angel served as OPM for Jones Soda for which he won his second Affiliate Manger of the Year (2009) award at Affiliate Summit.

Currently Angel serves as OPM for KEEN Footwear and MedicalRecords.com. His former clients include: Dell, Real Networks, Jones Soda, Intelius, Graphicly, Chrome Bags, Onlineshoes.com, Vitamin Angels, The Safecig, and Bag Borrow or Steal.

Angel is the Editor-in-Chief and Co-Publisher for ReveNews.com and ReveNews.org.

Angel lives north of Seattle, spending his free time reading up on obscure scientific references made by his wife MGX, while keeping up with a horde of cats and a library of books.

You can find Angel on Twitter @djambazov.

14 Responses to Best Buy Gives Affiliates a Slap in the Face

  1. "A slap in the face" is exactly what this is, Angel. Thank you for summarizing it all so well.

    A merchant wouldn't be able to even think about cutting their marketing expenses by 75% (which is essentially what a drop from 1% to .25% is) in other less productive channels of online marketing! It is just amazing that a merchant this size can afford to underestimate the resonance an action like this could case. It IS a "slap in the face".

  2. Pat Grady says:

    and it's a message that says "we don't know what we're doing"… do they expect a marketer to give thought and planning to selling for them at this rate of compensation? they can't possibly be that ignorant. so the message is, put a banner up for us if you'd like, but don't focus on us, there's no value in it for you. we won't reward you with fair compensation, if you've got other stuff on your plate, we suggest you work on that. and oh yeah, whatever you have been doing for us to produce sales in our stores, we've turned your ROI equation on it's ear, because we decided to give out insurmountable challenges for Xmas presents this year.

  3. Angel thank you for sharing this. That is too bad that BB thinks they can get away with this. Affiliates don't deserve this ridiculous decrease. In the long run they are going to lose a lot of great affiliates.

  4. This is why I prefer smaller companies to the giant corporations. They don't understand, or want to understand, the affiliate channel.

    Thanks for posting this, Angel.

  5. Thanks for the kudos folks, how dense corporations can be at times really drives me crazy.

    Although I don't agree with his points specifically on Best Buy, Scott Jangro has an interesting post on recent holiday numbers networks have been parading, here: http://www.jangro.com/a/2008/12/18/the-year-affil

  6. Intriguing – but not terribly surprising that BB's profits have dropped so drastically if they have people in charge who make such ridiculously stupid decisions.

  7. In the Netherlands affiliate programs just don't pay out. A large number of iPhones were sold through the affiliate channel, but T-Mobile couldn't handle the huge number of affiliate sales.

    In other words: the affiliate business is really immature here, and in your example, sometimes in outside markets to.

    It's a pity..

  8. Robbert,

    Things may change very soon.

    buy.at has just entered the Dutch market: http://corp.aol.com/press-releases/2008/12/aol-s-

    Geno

  9. Shawn Collins on his AffiliateTip blog also chimes in on the matter: http://blog.affiliatetip.com/archives/best-buy-al

    He compares Best Buy's decision to Apple's misstep when it excluded the iPhone from affiliate commissions.

  10. They're cutting off their nose to spite their face, that's for certain. What is 1% Good Lord, they should be upping their percentage. An extra .75% of nothing is zero.

  11. Gina says:

    Not to disagree with you all, but isn’t the margin already razor thin on electronics? And on a wii and other video game consoles, aren’t they selling these things at cost? And finally, this is just speculation, maybe they are saying one thing, but signaling in the nicest way possible that they don’t want to do affiliate marketing right now?

  12. […] At the same time, merchants are slashing commission rates. BestBuy announced that they’re cutting commissions on Notebooks and Wii’s to a quarter of a percent. […]

  13. […] Djambazov got everyone’s attention twittering that Best Buy had dropped affiliate commission rates to .25 percent. Soon after, all hell broke […]

  14. Geld lenen says:

    1 -> 0.25% is really a big drop. I think many publishers will quit the Best buy affiliate program. I think Best Buy made a really bad decision.