Copyright 2005 Michael Lever

If you're an online merchant like me you'll know how hard it is to attract more customers. You'll probably agree that customer acquisition is the number one challenge for any online merchant.

Word of mouth is generally the cheapest and most effective customer acquisition vehicle. Additional advertising is often risky and can prove futile when calculating your ROI.

So it comes as no surprise that affiliate programs have proven popular for Internet businesses everywhere. We now see thousands of online merchants successfully incorporating affiliate marketing as a viable business model for acquiring customers.

Affiliate marketing, however, does have its drawbacks. As a merchant you are left with less profit as any affiliate commission you pay out obviously eats into your profit margin. So to stay competitive and maintain attractive prices, most merchants have opted to absorb this cost of customer acquisition rather than raise prices.

A new dilemma arises from this. Merchants who want to improve product appeal by lowering prices risk losing their affiliate marketers unless they maintain their remuneration dollar value per sale.

Many merchants respond to this dilemma by offering value added services to improve product appeal. These may include bonuses with product sales such as e-books and other low cost digital offerings, credit vouchers, and competition entries.

In general, however, customers tend to compare product prices before looking into value added package deals.

So what options are left for you as a merchant?

To remain competitive in the price arena you must be able to offer the same quality product at a cheaper cost to the customer. Without lowering your ROI after customer acquisition costs, you can really only try to acquire or produce your product at less cost.

This is the thinking of most merchants, and this is why staying competitive with continuous customer acquisition growth is very difficult.

What if you could subsidize your customer's purchases? Would you improve sales if your customers were paid a considerable cash subsidy for shopping with you? What if you were not the one paying the subsidy?

Merchants can leverage their affiliate marketers much further than just benefiting from their promotional efforts. Affiliate marketers are not just sellers who profit from providing customers to merchants. They are also buyers.

In fact, it is much easier to convert affiliate marketers into customers as they are already comfortable spending money on the Internet and trust in the security measures in place.

As a merchant, the critical point is not to market your products to your own affiliates. It is to stress to your affiliates that when they are shopping elsewhere, they are more than likely generating commission remuneration for other affiliates.

These commission payments can be used as a subsidy to reimburse the costs of your products to that other affiliate.

In effect, the two affiliates could purchase at each other's merchants, their purchase costs being subsidized by the commission payment earned from the other's purchase.

This process is called "Customer Reciprocation". Any merchant with an affiliate program can super-leverage their affiliate marketers by encouraging Customer Reciprocation to occur.

To facilitate the matching of affiliates based on purchase intention and merchant partner, is not an easy feat.

A service known as a 'Customer Acquisition Exchange' will facilitate this match-making service for affiliates. This takes the effort out of finding an affiliate willing to shop with you when you or one of your affiliates are willing to shop with one of their affiliated merchants.

A Customer Acquisition Exchange is the key ingredient that merchants must adopt before they can super-leverage their affiliate program. Many merchants already adopt this model unknowingly as their affiliate marketers are using Customer Reciprocation to subsidize their online purchases.

What merchants need to understand is the magnitude of their potential sales increase if all their affiliates used Customer Reciprocation.

A simple calculation will demonstrate the potential power of super-leveraging your own affiliates.

Lets assume an affiliate marketer makes 6 purchases from a variety of online stores per year. YourCompany.com has an affiliate program with 1,000 members. Members earn $50 per sale YourCompany.com makes $40 after costs.

Using a Customer Acquisition Exchange to facilitate Customer Reciprocation, YourCompany.com could make an additional 6,000 sales worth $240,000 extra income per annum.

Each affiliate marketer of YourCompany.com would have made $300 - effectively reimbursing them for the costs of their product purchases with other merchants.

This is a demonstrable Win-Win scenario for both you as the merchant (in terms of extra sales and income) and your affiliate (in terms of subsidized shopping purchases).

Even if a conservative 10% of YourCompany.com affiliates use Customer Reciprocation to their advantage, this would still result in an additional 600 sales worth $24,000 extra income per annum.

In summary, merchants who run an affiliate program are positioned to super-leverage their affiliates to drive additional sales. By educating their affiliates about Customer Reciprocation and Customer Acquisition Exchanges, merchants can increase product appeal through price subsidies at no cost to themselves or their affiliates. This can be the key element for merchants trying to survive the fiercely competitive world of online retail.