Should Amazon cut its affiliate rates?

1. Clarifying Questions
What is Amazon’s affiliate program? Allows website owners, bloggers, YouTubers, Social media influencers, Developers (publishers) to earn money from Amazon, by recommending products. These publishers earn a percentage of the sale
What is the business objective? You choose
Would we kill the program completely? You choose

2. Setting the case

The purpose of the Amazon affiliate program is for publishers (external to Amazon) to drive traffic (referral) to Amazon and increase sales (monetization). There are two sides to this program.
1. Amazon
    1. Benefits by getting hotter leads driven to Amazon who are (generally) more likely to purchase a product. This means that Amazon gets more traffic and drives more sales
2. Publisher
    1. The publisher refers their traffic from their content to Amazon, if a sale occurs, then they are paid out a percentage of the sale (the % varies by category)

The business objective here is to reduce expenses, while maintaining revenue. This can potentially be accomplished by cutting affiliate rates, given Amazon pays out a percentage of sales. We likely should not kill the program, given it likely drives a decent amount of traffic that are more likely to convert on Amazon (but we could look into that data for that)

3. PROS/CONS of cutting affiliate rates
PROS
* Reduces expenses
* May transition starting shopping search from Google to Amazon (assuming users start product search on Google to find content who refer to Amazon)
CONS
* May reduce revenue (and therefore profit) more than it reduces expenses
* May turn away high-quality affiliate content publishers, and therefore create an opportunity for click-bait based content
* Turn publishers to other affiliate programs (given pub space is limited, they want to generate more for their money)

4. Solutions

There are many different ways we could change the program to solve the business objective of reducing expenses, while maintaining revenue. I will begin to list solutions below:
* Killing the affiliate program
* Reducing payout rate across all categories
* Reducing payout rate for specific categories (could drop more for specific categories)
* Changing payout to tiers rather than %
* Changing payout to flat fees rather than %
* Work directly with publishers rather than using a flat fee program
* Keep rates the same
* Validate every affiliate before allowing them to participate in the program

5. Discussing Solutions

Based on how widely used the Amazon affiliate program is, and without data, it is very difficult to make a decision. The best solutions would be:

* Reducing payout rate across all categories
    * PROS: Minor change, single variable, easy to analyze
    * CONS: May just cut revenue/expenses linearly (not all products are created equal)
* Reducing payout rate for specific categories (could drop more for specific categories)
    * PROS: easy to analyze. Reduces expenses, find high shipping cost items (like furniture) and reduce those affiliate % heavily
    * CONS: discussed above
* Keep rates the same
    * No changes, may hurt Amazon’s profitability overall

Hypothesis: If Amazon reduces payout rate for specific categories, then Amazon will reduce expenses without the huge payouts (i.e. furniture)

I believe that it is very difficult to make a decision here without measuring certain metrics.

6. Data/Experiments/Metrics to look into
* Affiliate driven revenue by category
* Affiliate competition by category
* A/B test pricing structures (tiers, flat fees, etc)
* A/B test rate of affiliate signups with cut rates
* A/B test rate of new affiliate product links with cut rates
* Affiliates that churn from the program
* Conversion rate comparing affiliate driven traffic vs organic

7. Next steps
Do an estimation of affiliate driven revenue and determine how much could potentially be saved

Time to Complete: 25 minutes
* Spent a little too long just thinking and stopping