What is Affiliate Fraud?
by Matt Peck, on Jan 21, 2022 9:00:00 AM
Partnering with affiliates gives brands the ability to tap into established audiences that may be interested in their products or services. Because of this, it can be a very lucrative way to grow brand awareness and attract new customers.
But despite affiliate marketing’s potential benefits, it does not come without risks.
Because most of the digital advertising world is automated, there is a serious lack of human oversight that opens the door for affiliates to participate in fraudulent activity that harms your overall business, brand reputation, and revenue.
Below, we go through how affiliate marketing works, as well as the kind of shady tactics unscrupulous affiliates, can engage in to defraud your company and drain your resources and revenue.
What is Affiliate Marketing?
Affiliate marketing is when a business pays other websites, retailers, or individual influencers to promote its products and services with the goal of acquiring new customers and revenue. In exchange for this, the affiliate is then paid a commission based on the sales they were responsible for driving.
The relationship benefits both parties, with affiliates earning commissions on sales, and advertisers reaching larger audiences and selling more products.
But while this appears to be a symbiotic relationship, advertisers should be wary - there are a number of ways affiliates can overrepresent their performance, falsely attribute sales, and charge you commissions for sales they had no part in driving.
What is Affiliate Fraud?
Affiliate fraud occurs when an affiliate knowingly misrepresents their role in driving a sale in order to generate commissions they otherwise would not qualify for.
Digital affiliate marketing is largely managed via automated processes, allowing for an increase in efficiency for advertisers and their affiliate partners. But automation also allows bad actors to participate in fraudulent behavior with little to no direct oversight. There are a number of ways this is accomplished, but each works to manipulate automated functions behind the scenes.
This can make false attribution claims and fraudulent affiliate fees difficult to catch, but knowing what to look for can help brands identify potential fraud.
How Affiliates Commit Fraud
There are a number of covert strategies that affiliates can implement to falsely claim attribution for sales, each usually tied to Last Click Attribution. This means if your attribution model is set up to reward the affiliate associated with the last action that the user took before making a purchase, affiliates can manipulate your tracking methods to appear as though a user came from their site, even if he or she had never visited them before.
Here are a few examples of how they accomplish that.
- Cookie Stuffing
“Cookies” are lines of code that are currently the main tracking tool across most browsers. Each time a user visits a website, the page will drop a specific “cookie” into their browser marking them as visiting the site, essentially creating a trail of breadcrumbs that tracks a user's journey from website to website.
These cookies are what tell tracking tools which website a user came from before visiting your website and making a purchase, and to determine if an affiliate has earned a commission.
But it is also possible to drop cookies into browsers without the user ever visiting the affiliate’s webpage or to create cookies that override more recently acquired ones.
These “perpetual cookies” are designed to last long after a user first visits your website, meaning that if a user abandons an item in your checkout cart but returns later through an unrelated channel (such as a Facebook ad), the perpetual cookie is still able to claim attribution.
This is called “Cookie Stuffing”, and is a common tactic unscrupulous affiliates implement to falsely claim sales attribution.
- Domain Squatting
Somewhat similar to cookie stuffing, domain squatting occurs when an affiliate sets up a fake website imitating your brand under a similar domain (i.e. cnn.com and cnn1.com) with the goal of tricking users into visiting it so that they can claim credit. With domain squatting, when a user clicks a link on the fake page, they are redirected to your actual website with their affiliate cookie dropped in their browser.
If a user then becomes a customer, this cookie attributes the sale to the affiliate’s link, earning them a commission on the sale even though the customer did not actually come in through their channel.
- Discount Code Abuse
Providing affiliates with unique discount codes is a great way to track affiliate performance and payouts, but affiliates can abuse these codes to overrepresent their performance and artificially inflate their commissions.
Affiliates engage in coupon abuse by intentionally submitting their unique discount codes to coupon or discount sites, where they become accessible to anyone on the internet, and can also be shared via browser extensions like Honey and CapitalOne Shopping. When this happens, customers who discovered your site organically or from another marketing channel such as an ad or email campaign gain access to discounts intended for the affiliate’s audience, hurting your revenue while also forcing you to pay false commissions to your affiliate.
What You Need To Look Out For
Having a good sense of what typical traffic and sales look like, even during marketing and discount campaigns, should be your first step in defending yourself from fraudulent affiliate activity.
This way, you have a baseline metric to measure against, and will be able to pick out when something out of the ordinary is going on (such as unusually high affiliate fees, increased web traffic, sudden surges in the use of specific discount codes, or decreased average order values).
How This Hurts Your Business
When affiliate fraud goes on unchecked, it can end up hurting your business from a number of different angles that taken together can compile into huge losses.
Each below is harmful on their own but also interlink with each other in ways that rack up fees and expenses that needlessly drain your budgets and hurt your margins.
- Improper Discount Redemption
The 2% of customers that reach the end of your sales funnel are likely to convert on a product regardless of whether they find a discount or not.
Unfortunately, discounting sites and coupon extensions now offer shoppers the ability to discover and enter discount codes at the moment of checkout.
In these situations, discount codes are not driving traffic to your site (as they are typically used for), but are instead handing out unnecessary price cuts to customers already reaching for their wallets.
This lowers your revenue and attracts bargain-hunting customers that are less likely to return for a second purchase.
- False Affiliate Fees
On top of handing out unnecessary discounts, affiliates whose codes have been improperly shared with extensions and couponing sites will also earn a commission when their codes are entered by customers.
- Misspent Advertising Spending
Affiliate pixel stuffing ads drain your advertising budget without providing new customers or increased brand awareness through the ads they are meant to be displaying.
- Damaged Attribution Reporting
Each of the factors listed above will wreak havoc on your attribution reporting, leaving you at risk of spending on channels whose performance has been boosted by fraudulent behavior.
For example, if you are seeing an affiliate perform abnormally well, you may increase your investment in your relationship with them when in reality, the affiliate is sharing codes through discounting sites, or their codes have been scraped by coupon extensions
This means customers may be actually coming in from channels you are now neglecting as this affiliate falsely claims attribution.
Affiliate fraud is no joke, and once you become a victim your revenue will start taking hits on a number of fronts.
These harmful tactics cannot be separated from each other, and you will quickly find yourself overwhelmed by the work required to get things back on track (i.e. manually tracking down errant coupon codes, confronting affiliates with fraudulent behavior, reorganizing your marketing spends, etc.)
In these cases, it’s always best to have a preventative approach to these kinds of behaviors, instead of a reactionary one.
How To Protect Yourself From Fraud
There are a number of steps you can take to protect your brand from affiliate fraud and other forms of affiliate abuse.
Have Robust Terms and Conditions for Affiliates
The first step of maintaining tight control over your affiliate program is by creating Terms and Conditions that clearly outline what is acceptable and what is not.
Make sure to specifically outline how affiliates are able to share discount codes and prevent them from distributing codes through discount sites and coupon extensions. This will allow you to cancel commissions or terminate relationships if you discover the affiliate’s code on a discount site, or have a record of it being injected by an extension.
On top of this, you will want to have strict brand guidelines for your advertisers to follow and make it clear they are not allowed to represent themselves as your brand. Provide them with detailed messaging, banners, and other materials to make sure their campaign fits in with your brand story and doesn’t cloud or damage your reputation.
Also, stipulate that any content created where they are posing as your brand (whether through similar URLs or messaging) is not acceptable.
You will also want to require detailed ad performance data, and closely vet each affiliate before making a deal. This way, you can avoid pixel stuffing or catch it early on before it drains your advertising budget.
Lastly, make it clear what kind of traffic and referrals are allowed. Affiliates bidding on similar keywords may be negatively impacting your SEO, so you will want to establish whether paid advertising is allowed, and what kind of bidding they are allowed to participate in.
There are also a number of automated tools that can quickly spot a phony affiliate by monitoring affiliate behavior and site metrics.
Many affiliate platforms even have features that allow you to flag suspicious activity by setting custom criteria. Make sure to get in contact with your affiliate platform provider if you haven’t already taken advantage of these features.
If your platform does not provide these features, or you manage your affiliates yourself, you may consider a brand security group like Adthena or Brandverity to monitor your site behavior and flag suspicious activity from paid affiliates.
Solutions like cleanCART, which tracks coupon activity and prevents automatic injection from coupon extensions like Honey and Capital One Shopping, also give you the ability to manage your coupon strategy and prevent unnecessary losses and fees.
Not only will these tools help recover revenue lost to shady affiliates, but by automating and outsourcing your brand security, you will also win back time and resources to focus on growing your business.