Risk, Information, and Incentives in Online Affiliate Marketing

32 Pages Posted: 23 Nov 2013 Last revised: 5 Aug 2014

Benjamin G. Edelman

Harvard University - HBS Negotiations, Organizations and Markets Unit

Wesley Brandi

ipensatori.com

Date Written: June 23, 2014

Abstract

We consider alternative methods of supervising staff who have significant discretion and whose efforts are subject to both incomplete information and skewed incentives. Specifically, we examine online affiliate marketing programs in which merchants oversee thousands of affiliates they have never met. Some merchants hire specialist outside advisors to set and enforce policies for affiliates, while other merchants ask their ordinary marketing staff to perform these functions. For clear violations of applicable rules, we find that outside advisors are most effective at excluding the responsible affiliates ― which we interpret as a benefit of specialization. However, in-house staff are more successful at identifying and excluding affiliates whose practices are viewed as “borderline” (albeit still contrary to merchants' interests), foregoing the efficiencies of specialization in favor of the better incentives of a company's staff. We consider implications for marketing of online affiliate programs and for online marketing more generally.

Suggested Citation

Edelman, Benjamin G. and Brandi, Wesley, Risk, Information, and Incentives in Online Affiliate Marketing (June 23, 2014). Journal of Marketing Research, Forthcoming; Harvard Business School, Harvard Business School Negotiation, Organizations and Markets Unit, Research Paper Series. Available at SSRN: https://ssrn.com/abstract=2358110 or http://dx.doi.org/10.2139/ssrn.2358110

Benjamin G. Edelman (Contact Author)

Harvard University - HBS Negotiations, Organizations and Markets Unit ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://people.hbs.edu/bedelman

Wesley Brandi

ipensatori.com ( email )

3101 Western Ave.
Seattle, WA 98121
United States

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