Picture this – a world where anyone can become a successful micro-entrepreneur with just a smartphone, an internet connection and of course, a little bit of influence. It’s a world that harkens back to the nostalgia of the Meesho days, where the housewives thrived.
Well, this is exactly what is linking Fashion e-tailers (Meesho V1, Wishlink, HYPD) to fruits, veggies and staple e-tailers (Dealshare, Citymall) to insurance distributors (Turtlemint, Finhaat) to agri output sellers (FarMart, DeHaat) and even a Wifi/ broadband seller (Excitel). All of these businesses are powered by a strong foundation of affiliates/ resellers.
For decades, affiliates / resellers have played a crucial role in the distribution channels of scaled traditional offline businesses, such as pharmaceuticals (think of medical reps intermingling with doctor at conferences) and insurance (Star Health’s meteoric rise of $1.5B+ GWP mostly from 0.5M+ LIC affiliate agents) and beauty/ personal care (housewives recommending Olay / Amway products to their Kitty gang).
Today we’re seeing a deeper shade of this in our tech ecosystem, which has given rise to a new breed of micro-entrepreneurs who are leveraging technology to create monetary opportunities for themselves. As we go deeper into the hinterlands, the role of affiliates will only increase.
In this long-read, we will explore the affiliate/reseller model in India –
- What are affiliate/ reseller models and who are these affiliates?
- Where are we seeing these models and what common characteristics do these sectors hold?
- What can enable large outcomes to be created via affiliate-led models?
Let’s dive right in!
Affiliate / reseller models – an introduction
Affiliate/ reseller models come into life when companies rely on affiliates as a core part of their business model, be it in demand generation or order fulfilment or customer servicing. These models allow companies to tap into the power of word-of-mouth marketing, reach and service a wider audience without incurring significant marketing or fulfillment costs. They also provide an opportunity for individuals to earn extra income by leveraging their social networks and personal relationships. These models typically have the involvement of four stakeholders – product/ service manufacturer, affiliate, platform, and end customer. Most of the time, the platform acts as an enabler for the affiliates (B2B2C). However, not all B2B2C models qualify as affiliate/reseller models, and vice versa.
Affiliate/ reseller models are unique in the sense that they do not require full-time employment from those who promote a company’s products or services. Rather, these individuals are typically micro-entrepreneurs who earn a commission for their efforts. The key to success in this model is the influencer’s ability to tap into a network of customers that the company might not have reached otherwise (in an economical way). These influencers can be anyone, ranging from housewives to LIC agents to Instagram creators to doctors. Age or demographics or profession holds no bar, all one needs is time-rich individuals with the ability to influence.
It can be anyone, and each of the scaled players have leveraged a unique class of affiliates to support and promote their businesses.
Dealshare/ Citymall leverage insurance agents, Meesho worked with housewives, FarMart/ Dehaat leverage agri-input retailers and Excitel partners with local cable operators.
Where are these models emerging?
The affiliate/reseller model, popularized by Meesho in the tech ecosystem, has now become a prominent feature across various industries. Interestingly, these categories would share either of these characteristics for such a model to exist –
- Non-digital native customers (T3+ cities): with trust issues on online product/ service transaction
- High product or service complexity: Complicated products that require a strong human push or deeper explanation, such as insurance, wealth management, and healthcare (e.g., chronic disease management, skin treatments), or it can be categories requiring a deeper need for curation/ personalization, e.g., fashion, home decor, and beauty products.
- Weaker supply side economics: Traditional e-commerce/ fulfillment doesn’t justify logistics and service delivery costs, either driven by low AOV orders, limited demand density, or presence in T3+ cities.
Now, let’s have a look at specific sectors where we are seeing these models come up –
In India, the affiliate/reseller model has been a distinctive feature of the business landscape, particularly suited to a time-rich population and low labor costs, in a context where trust can be hard to come by. This model has been pioneered by traditional brick-and-mortar businesses such as LIC, NJ, Prudent, and pharma companies. However, with the rise of technology, affiliates have become a critical component of the digital economy as well. Yet, their full potential remains untapped, and we can expect to see more of them in the coming years, particularly as services and products continue to penetrate rural markets. However, scalability remains the biggest challenge here!
Creating a large outcome with affiliate economy
Creating large outcomes in the affiliate economy – depends on the right category selection, creating a compelling affiliate value prop and a path to non-linear scaling. All of these help you answer the question – can you see this platform yielding a large outcome (say $100M revenue) in the venture time frame?
(I) Right category selection – is there a large opportunity here to be influenced by affiliates?
- Criticality of affiliates: Categories, where these models have scaled, have had characteristics where the affiliates have been hard to replace. As mentioned above, it is either driven by product/ service complexity or a heavy need for curation, or just the affiliates’ ability to make the economics work.
- Depth of affiliates: There are 2M+ insurance agents, 150k+ content creators, 300k+ agri input dealers, 15M+ resellers on Meesho (back in late 2021), 150k+ local cable operators, and the list is never-ending. Think about who the affiliates in your business (anyone with time and influence!) are and how many of “truly engaged” affiliates would it take for you to get to a sizable outcome.
- Strength of manufacturer support: The category would have an additional tailwind if the manufacturer has a strong incentive to push for your platform. E.g., Brands (both traditional and D2C) are looking to reduce their reliance on marketplaces as well as reduce their cost of acquiring the user directly. This provides a strong opportunity for influencer affiliate platforms (e.g., Wishlink/ Zaamo/ Youshd) given their significantly better current Return on ad spend and CAC. Similarly imagine local/ regional grocery brands wanting to increase penetration in T2+ cities or an AMC/ General insurer looking to acquire T2+ customers without actual physical branches.
- Right margin and volume balance: Although affiliates are the core of these businesses, they still are an additional intermediate layer. That means they will form a large chunk of the platform take rate. It’s imperative to choose categories where there is a right mix of platform margins and order amount. As an example, although agri output (via input retailers acting as affiliates) ends up having a low contribution margin (<5%) it is very well compensated by large and frequent orders.
(II) Compelling affiliate value prop – How irreplaceable are you in the lives of affiliates?
- Degree of monetary incentive: In my experience, the most important success driver for any affiliate economy platform has been the income generation opportunity for the partners/ micro-entrepreneurs. This is what drives their retention and helps in incredible word of mouth. You would be surprised to know that Citymall partners make at least INR 20k pm, Meesho was INR 25k pm, Farmart/ Dehaat can be at least INR 30k pm. For most partners, this is a needle-moving amount and that is what drives their loyalty.
- Degree of productivity improvement: Although the monetary gain is the most critical lens while evaluating satisfaction for affiliates, but it’s not the only one. It’s also important to think about how you’re making their lives 10x better.
Are you providing them with communication tools (mostly Whatsapp based) to engage with their customers more regularly? Think of farmer-retailer communication tools for Farmart, automated query answering tools for doctors and their patients with Curelink
Are you giving them access to new products that they never had? Think of manufacturing / supplier tie ups for Meesho resellers providing them with infinite catalogue or one stop AMC/ insurance mfg solutions for wealth advisor or IFAs or insurance agents with Centricity and Turtlemint
(III) Path to non-linear affiliate growth – how quickly can you reach affiliates and onboard them?
- Low cost acquisition and self serve onboarding: If you ask me, this is the hardest and most lucrative puzzle to solve – how do you scale non-linearly? There have been some elegant role models here – Farmart creating a platform for input retailers to send weather updates/ sowing and harvesting best practices to the network of farmers via Whatsapp, as well as a directory to connect with local input distributors. Given the core needs Farmart platform solved for its retailers, it wasn’t shocking to know that it expanded to 50k+ retailers in a very short time span at a negligible CAC!
Similarly, setting up online Partner training academies by Meesho/ Citymall has been a great hack for self service onboarding (the number of video uploads and views on Youtube for resellers is plain shocking!)
In summary – make sure that your category of play “really” needs affiliates/ micro-entrepreneurs, and that you’re able to create a needle moving impact in their lives and have a way to reach them non-linearly!
Well – this is anything but a cakewalk! A lot of aspects end up breaking at scale, especially when it comes to hyper-scaling affiliates and ensuring strong satisfaction for the larger affiliate base. Some learnings from founders who have done this before, to founders who want to do it now –
- All affiliates are equal but some are more equal than others: In reality, some partners end up being more important primarily driven by their degree of influence and their extent of time commitment. The pareto is a reality of life and it’s of prime importance to understand who these are – their characteristics, demographics, aspirations. Only when we understand them, would we know how to retain them and acquire more like them.
- Focus more on strong affiliate retention at scale: Most successful players have focused on ensuring meaningful value addition for affiliates before acquiring more. As focusing on the latter, forces us to constantly be on a treadmill of infinite acquisition which often breaks things at scale.
- Owning the customers directly might get critical at scale: “what got you here, won’t get you there” – this has been an important and needle moving advice for me. I’ve seen this play out multiple times for this model as well, driven by a need for margin expansion and deriving extra value from your customer base. This doesn’t mean removing the affiliate but more about having a direct call line with the end customer – this can be via your own white labels (e.g., acting as MGA for insurance companies, being an AMC yourself, having your own brand private labels). All of this is ultimately in service of growing well and extracting more value that flows through you.
I believe that we’re going to see more of the affiliate economy spread across sectors, and penetrate deeper into India but challenges around scalability and affiliate NPS need to be taken head on. Happy to hear any counter opinions/ critiques and brainstorm around the theme. Please mail me at priyal@lsip.com
(Views are personal)
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