The COMMISSION JUNCTION NETWORK BENCHMARKS

The COMMISSION JUNCTION NETWORK BENCHMARKS Advertiser Program Performance Insights January – June 2013

Released: September 2013

Advertiser Program Performance Insights, Jan – June 2013

INTRODUCTION CJ advertisers are seeking benchmarks for their own affiliate growth as well as insights into what is occurring in the network, overall.

Even in the face of overall slow economic growth, US advertisers are reporting growth in their online sales, with some advertisers averaging 28% sales growth in 2012 1. Consumers continue to choose online shopping for its value, convenience and selection. The CJ Network, with its comprehensive reach into many aspects of the consumer shopping experience, also saw its sales grow and more online ad dollars allocated to it. Consequently, CJ advertisers are seeking benchmarks for their own affiliate growth as well as insights into what is occurring in the network, overall. This third installment of the Commission Junction Network Benchmarks report presents the key performance metrics that advertisers use to measure the success and efficiency of their affiliate programs. In order to provide greater insights, this edition debuts detailed metrics for the following categories: Accessories, Automotive, Business, Department Stores & Malls, Health & Beauty, Gifts & Flowers and Sports & Fitness. The Commission Junction Network Benchmarks report is compiled from CJ Network sales activity for January - June 2013 and compared to the same time period in 2012. The performance trends are presented by advertiser industry. This analysis focused exclusively on the sales for CJ advertisers operating in the US and Canada.

1

Shop.org “The State of Online Retailing, 2013: Key Metrics and Initiatives”, Jan. 2013

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METHODOLOGY To create the Commission Junction Network Benchmarks report we focused on major categories for the CJ Network, closely aligning them to other 3rd party categorizations. This may result in some categories being named differently than in the CJ Account Manager and/or being grouped together with other categories. This edition of the report looked at all advertisers for the First Quarter and Second Quarter of 2013, calculated their individual program metrics and then averaged those metrics to achieve a category average for the first six months of the year. Network Benchmarks Category

CJ Parent Category

Accessories

Accessories

Automotive

Automotive

Business

Business Careers Online Services

Clothing

Clothing/Apparel

Computers & Electronics

Computers & Electronics

Department Stores & Malls

Department Stores/Malls

Financial Services

Gifts & Flowers

Health & Beauty

Home & Garden

Media & Entertainment

Financial Services Insurance Gifts & Flowers Beauty Health & Wellness Home & Garden Art/Photo/Music Books/Media Entertainment Recreation & Leisure

Sports & Fitness

Sports & Fitness

Travel

Travel

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METRICS Clicks: The consumer traffic that is sent to an advertiser’s website by their publishers. Conversion Rate (CR): The ratio of clicks to an advertiser’s site from consumers who complete a desired action, such as making a purchase or completing a lead.

Average Order Value (AOV): The average dollar amount spent per customer order. Cost Per Action (CPA): The total cost an advertiser pays to affiliate publishers for each action. Earnings Per Click (EPC): is a relative rating that illustrates an advertiser’s ability to convert clicks into commissions (this ratio is multiplied by 100 for aesthetic reasons). Return on Ad Spend (ROAS): is a measure of how much gross revenue an advertiser earns for every $1.00 spent on acquiring the sale.

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EXECUTIVE SUMMARY Consumers have signaled a willingness to spend more per shopping trip and the first half of the year presents the best time for affiliate managers to launch program growth strategies.

The affiliate channel mirrors the overall trends of ecommerce and is a good reflection of consumer interests and buying behavior. Seen in this light, the CJ Network Benchmarks report covering the first half of 2013 reveals some interesting data points related to consumer activity and the degree of success affiliate marketers are having with meeting consumers’ needs. Order sizes are growing, again. For two consecutive years, consumers have signaled a willingness to spend more per shopping trip when shopping advertisers’ sites. Overall, the network’s advertisers saw their AOV grow by 4% year over year and some categories realized even greater gains, most notably Automotive (11%), Computer & Electronics (8%) and Accessories (6%). Consumer purchasing power improved in the first half of the year, rising by 3.2%, and consumers funneled those gains into durable goods.2 If this trend holds, the first half of the year presents the best time for affiliate managers to launch program growth strategies, striking while consumers are willing to spend more freely than during the high-volume holiday shopping season when discounting (and deal hunting) is at its peak. Additionally, throughout the year advertisers and publishers should consider how they can merchandise goods and offers in ways that introduce shoppers to higher value items when considering a purchase. Offering coupons has been shown to deliver incremental growth in AOV—75% of shoppers report that finding a coupon for their purchase influenced them to “buy even more because it was such a great deal.” 3 Canada growth outpacing US. Canadian retailers in the affiliate channel are realizing gains on their investment that exceed the growth of US programs. Canadian retailers in the highly competitive Department Stores & Malls category, for example, increased clicks an average 52% (versus the 33% average growth of their US-focused competitors) and also grew their AOV by 5% (US competitors declined). In a “build it and they will come” approach, Canadian retailers created Canada-specific affiliate programs, creating the momentum for publishers to also cultivate consumers North of the border. The affiliate channel in the past year has seen a number of publishers venture into the Canadian market, simultaneously tapping into and generating interest in online shopping. Canadians have been online for years (47% of the country’s internet users have been online for 10 or more years)4 and 63% of internet users shop online.5 But they have had limited online buying options, frequently shopping US-retailers who ship to Canada, and would likely prefer more home grown options. The combined effect of broader publisher reach in Canada and an active shopper base point to this: advertisers should view the affiliate channel as a low-cost and low-risk way to build their brands in Canada and increase their exposure to Canadian shoppers.

2 3

US Department of Commerce, Aug. 2013 CJ Insights, Coupon User Survey, Sept. 2013

4 5

Statistics Canada, Oct. 2011 eMarketer, July 2012

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ACCESSORIES “Millennial” shoppers, those that fall into a group aged 18 – 34, are leading buyers of shoes and jewelry online—when surveyed, 81% report making a recent shoe and or jewelry purchase online. 6 This group is also inclined to shop with coupons (23% of Millennials identify as “extreme couponers”). 7 In light of this and the fact 43% of shoe shoppers consult 2- 4 sites before converting,8 it is significant that the network’s shoe and jewelry retailers achieved gains in conversion (8%), average order size (6%) and ROAS (8%). The growth in costs (10%) appears tied to the overall growth in the average order size and was balanced by the increase in ROAS.

Growth Clicks

8%

CR

8%

AOV

6%

CPA

10%

EPC

4%

ROAS

8%

AUTOMOTIVE The average age of US cars and trucks is now 11.4 years, a new record (a decade ago the average age was 9.7 years) 9 and when consumers choose to drive their existing vehicles longer, auto parts stores reap the benefits. Automotive retailers registered growth in most categories, achieving the highest retailer growth in conversion (15%), EPC (16%) and average order size (11%). The decline in clicks was sizeable for some automotive advertisers in this category and the metric should be monitored by advertisers to gauge competitive weakness or strength.

6 7

Compete “Summer 2012 Online Shopper Intelligence Survey,” Aug. 2012 DDB Worldwide, “DDB Life Style Study, Jan. 2013

Growth

8 9

Clicks

-4%

CR

15%

AOV

11%

CPA

14%

EPC

16%

ROAS

4%

Compete/Google Footwear Study, Q4 2010 Polk Automotive Forecast, Aug. 2013

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BUSINESS Advertisers in the Business category (encompassing our Business, Careers and Online Services advertisers) on average saw declines in clicks (-12%) and conversion (-5%), likely due to the increased competition for these products/services from new entrants in the field and (specific to office supplies) the migration of sales to discount stores and warehouse clubs. Online sales of office supplies is forecasted to grow 13% in 2014 and reach $8BB,10 but the real opportunity may lie with converting more B2B buyers, because advertisers in the network with services tailored to businesses fared better in the first half of 2013.

Growth Clicks

-12%

CR

-5%

AOV

1%

CPA

5%

EPC

-2%

ROAS

7%

COMPUTERS & ELECTRONICS After a sluggish 2011 in which US online sales of computer and electronics only grew by 11%, sales perked up in 2012, growing 17% YoY. 11 An ongoing rebound for the sector was reflected in the network, where Computer & Electronics category realized an increase in average order value (5%) and EPC (2%). These were offset, though, by an increase in costs per action (4%) and a decrease in return on ad spend (-3%). Assuming the US online sales growth continues this year, the chance at hand is to identify ways to grow conversion rate, possibly by adopting new tools or promotion methods emerging in the CJ Network.

10 11

Barclays Capital, “Internet & Media 101”, Nov. 2011 eMarketer ecommerce sales forecast, Sept. 2013

Growth Clicks

10%

CR

-7%

AOV

5%

CPA

4%

EPC

2%

ROAS

-3%

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CLOTHING Growth in all metrics reflects the success clothing retailers are having connecting with and converting apparel shoppers via the affiliate channel. Online apparel sales in the US will grow 15%12 next year and apparel (along with accessories) remain the country’s second largest ecommerce category (by revenue).13 But in the network, the category’s return on ad spend has not kept pace with the category’s other metrics, possibly due to strong competition for customers and commoditization. Advertisers need to balance growing their return while taking care to avoid impacting the growth of other metrics.

Growth Clicks

24%

CR

6%

AOV

5%

CPA

6%

EPC

10%

ROAS

1%

DEPARTMENT STORES & MALLS In the network, the advertisers in the Department Stores & Malls category on average grew their clicks (22%) and conversions (6%), but also saw increased costs (3%) and a declining return on ad spend (-1%). Competition is likely pressing down the average order values, down 2%. Department store sales, especially of big ticket appliances, depend heavily on the financial health of the consumer sector. Thus, if the US jobless rate continues to decrease and consumer confidence rises, this category can anticipate growth in the year ahead.

12, 13

Growth Clicks

22%

CR

6%

AOV

-2%

CPA

3%

EPC

7%

ROAS

-1%

eMarketer ecommerce sales forecast, Sept. 2013

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FINANCIAL SERVICES Banking, credit card and tax advertisers in the network experienced declines in clicks (-38), mostly due to program changes, and reaped gains in conversion (9%). The category’s increase in costs (16%) is related to changes in the products being promoted and sold in the channel, namely products targeting specific, qualified consumers and which pay a higher bounty to the publisher. For the Financial Services category, developing mobile promotion strategies for the affiliate channel should be key—mobile banking customers are generally younger (39% are 18 – 29 year olds) and affluent (29% are earning above $100K annually)14 and thus recruiting them where they handle many daily financial tasks is critical.

Growth Clicks

-38%

CR

9%

CPA

16%

EPC

-1%

Methodology note specific to Financial Services: The metrics AOS and ROAS are not widely used by this category’s advertisers and thus, were not included in this report.

GIFTS & FLOWERS The first half of the year is critical for this category (Valentine’s Day, Mother’s Day, Father’s Day, etc.) and on nearly all benchmarks measures the category performed well. Gifts & Flowers retailers increased their conversion rate (7%) while lowering costs (-5%). Across all categories in the benchmarks report, Gifts & Flowers had the highest growth in return on ad spend (12%). To maintain growth, advertisers should evolve how they connect with consumers for the gifting holidays and have a mobile strategy for the affiliate channel, as 37% of male shoppers report they are inclined to purchase flowers and candy on a smartphone or tablet.15

14

Federal Reserve Board, “Consumers and Mobile Financial Services 2013”, Mar. 2013 “Valentine’s Day: In Love with Mobile,” Jan. 2013

15 Mojiva,

Growth Clicks

-8%

CR

7%

AOV

-1%

CPA

-5%

EPC

10%

ROAS

12%

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HEALTH & BEAUTY In the US, health and personal care ecommerce sales will reach $15BB in 201316 and that number will grow 13% annually through 2017.17 In the network, the category gained ground in average order size (3%), but advertisers overall were able to maintain costs, which remained flat, and also grow their return on ad spend (5%). The category’s increase in conversion and EPC are closely tied to the category’s average decrease in clicks. Additional growth opportunities for retailers in this category may lie abroad—global online spending of health & beauty products by “cross border” shoppers reached $8BB in the past 12 months.18

Growth

Clicks

-9%

CR

7%

AOV

3%

CPA

0%

EPC

18%

ROAS

5%

HOME & GARDEN The vast majority of furniture, home and garden purchases still occur offline, but consumers are increasingly comfortable with ordering these items online—US online sales are expected to increase 14% next year and total $20BB.19 The high average order value of these purchases make them highly considered (shoppers typically consult 2 – 4 sites before making a furniture or appliance purchase).20 Thus even modest 1% growth in conversion for this category is notable, as well as the growth in return on ad spend (3%).

eMarketer ecommerce forecast, Sept. 2013 PayPal, “Modern Spice Routes” report, July 2013

16, 17 18

Growth

19 eMarketer

Clicks

9%

CR

1%

AOV

2%

CPA

1%

EPC

8%

ROAS

3%

ecommerce forecast, Sept. 2013 “The Role of Digital in the Furniture Shopper Path to Purchase,” Nov. 2012

20 Google/Compete

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MEDIA & ENTERTAINMENT This benchmarks report category is diverse, spanning movie and concert ticket, music, daily deals, dating and outdoor recreation retailers (to name a few). The category continues to be robust, realizing for two consecutive years, gains in conversion (2%) and ROAS (5%). Many retailers in this category did grow their average order size in the first six months of 2013, but significant declines dragged down this metric’s category average. In past quarters, clicks have seen modest declines, and that would have been the case here if not for a sizeable increase in clicks, in anticipation of changes to US gun control laws, occurring on retailers which sell ammunition and gun equipment.

Growth Clicks

7%

CR

2%

AOV

-1%

CPA

6%

EPC

7%

ROAS

5%

SPORTS & FITNESS Consumers show a strong interest for completing their sporting apparel and equipment purchases online—33% of shoppers of sporting goods report they have purchased online after viewing items in store.21 This strong intent to buy online may be contributing to this category’s growth in conversion (9%). The decline in clicks here is not necessarily a sign that shoppers lack interest, but more so an opportunity that sports and fitness advertisers can improve the quality and quantity of promotion on publisher sites. Knowing that shoppers frequently go in store to research items, for instance, recommends the potential to close the deal with a site to store coupon promotion.

21 AlixPartners,

Growth Clicks

-13%

CR

9%

AOV

3%

CPA

3%

EPC

6%

ROAS

6%

“September 2012 Viewpoint on Retail Performance,” Sept. 2012

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TRAVEL Within the CJ network, the Travel category saw gains in many metrics, including conversion (14%) which for most of last year this category struggled to show growth in conversion rate. Continued pricing pressures and competition for exposure on publisher sites is increasing costs (1%) and dampening any gains in return on ad spend (-2%), but the category saw overall growth in average order size (3%). The category’s clicks declined for a second consecutive year, which can likely be attributed to a few factors: travel bookers are conducting more focused research before booking and a growing confidence on the part of consumers in best price guarantee policies.

Growth Clicks

-4%

CR

14%

AOV

3%

CPA

1%

EPC

9%

ROAS

-2%

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