Strategic Alliances
The number of strategic alliances in the U.S. is surging. More than 20,000 new alliances were formed in just the last 4 years, compared with 5100 between 1980 and 1987 and 750 during the 1970s according to Keeley, Kuenn & Reid (a Chicago based law firm with government relations affiliates in Washington, D.C.).
Nearly 6 percent of the revenue generated from the top 1000 U.S. firms now comes from alliances, a fourfold increase since 1987. Alliances generally achieve a higher return on investment (17%) than U.S. industry in general (11%). The higher return is a direct result of leveraging partners’ resources and assets, requiring lower investment to produce greater incremental returns. Alliances also showed a greater success rate (60%) than outright acquisitions (50% success) or venture capital arrangements (25% success).
Types of Alliances
There are many types of strategic alliances. Basic types include:
Licensing technology or intellectual property
Joint research and product development
Cross-purchase agreements
Manufacturing arrangements
Sales/marketing arrangements
I will primarily be dealing with the sales and marketing type of alliance in this presentation and how we can build complementary relationships that inspire collaboration, joint selling, host/beneficiary agreements, mutual marketing and endorsements.
Think Compliments
Let’s take a look at the type of alliances that you may be able to build for your small business and how they might be structured.
The best way to determine the type of organizations with which you should be building alliances is to evaluate where each partner may compliment the other. A compliment is one product or service that makes any other product or service more attractive.
The classic example of compliments are computer hardware and software. Faster hardware prompts people to upgrade. Powerful software motivates people to buy faster hardware. Just look at Windows and Pentium chips. Compliments is about finding a way to make the pie BIGGER rather than fighting over how to slice up a tiny Scooter Pie.
So how do we identify competitors and complimentors?
A player is a complimentor if customers value your product MORE when they have the other player’s product than when they have your product alone. Example: Oscar Meyer Hot Dogs and Guldens Mustard
A player is competitor if customers value your product LESS when they have the other player’s product than when they have your product alone. Example: Coca-Cola and Pepsi -Cola
As we mentioned above some of the classic examples are: Disney and McDonalds, Universal and Burger King, Sears and Allstate, Visa and Airlines, Perfume Makers and Department stores and do on.
How to Select an Alliance Partner
These collaborative strategies can transform your business, help you capture greater market share, improve your profitability, or even help you start a new business and reduce your financial risk in this difficult economy. They are just NICE IDEAS until we put them into action.
1. Develop a profile of potential partners.
2. Identify at least five non-competitive partners that you can collaborate with and create a pre-approach plan.
3. Pick only the very best people in each area.
4. Be very selective Do NOT compromise on values or philosophy.
5. Ensure that there is mutual benefit. A one sided relationship will only breed resentment and contempt.
How to Put Alliance and Affiliate Programs into Action
Some of the specific things that you can do to make alliances more effective:
- Informational Alliance Marketing
Write a newsletter that can be branded as coming from the partner. This allows each partner access to the other’s sphere of influence. It is important that valuable information is communicated in the newsletter. If this is merely a sales pitch it will not be nearly as effective. - Train Affiliates
Write a sales training manual- something that has the questions to ask prospects, and fact/benefit charts. This is a great way of preparing partners with the information necessary to endorse your product or service. The more prepared your partners are the more effective they will be positioning your product or service for the customer. I might even suggest holding some formal training sessions hosted by one partner for the others. Each partner could take turns being the trainer. This creates continuity and rapport as well as mutual education. - Create an Ideation Session
About 15 years ago I had the great fortune of working with the American Express Company as a consultant specifically retained to provide soft enhancements for their retail credit card services. We held what we called “ideation sessions.” These were brainstorming meetings where we came up with all kinds of wild ideas and discussed their merit. I traveled to N.Y. two or three times per month for nearly a year and we would hold up in what was once World Trade Tower One and kick around all kinds of programs. We finally stumbled upon the “Buyers Assurance Program” which became the “Big Daddy” of all credit card enhancements. It essentially doubled the warranty of any product purchased with an American Express Card. We thought, “let’s outsource EVERYTHING!” We found an insurance company to carry the risk, a national service provider to handle exchanges and repairs, a customer service company to handle the telephone calls and a mail center to handle the response. Everyone got a little piece of the pie and AMEX just skimmed the cream off the top. Sometimes it is the process of discovery which is most valuable in alliance and affiliate marketing. Great ideas often need the right environment and enough time to be born. How about getting your partners together and letting the sparks fly. Maybe you’ll create a hybrid solution, a revolutionary product or new service. - Mutual Marketing Affiliations
You can also provide ad designs that partners can brand as their own. In this way you will create an effective ad, then let any affiliate stamp their logo on it and run it in selected media. This is similar to the co-op advertising concept but broadens the appeal for both partners. It also helps both partners get a bigger bang for their advertising dollar. We often see this in automobile business. Auto manufacturers create fabulous advertising for dealers to use. Dealers then “tag” their name to these print ads, TV commercials and radio spots and they run them in their local area. The exceptional production quality adds credibility to the message and ad effectiveness soars. Think about how you could do this in your business. Could you benefit from tagging your affiliates to your ads? How about the reverse? - Seamless Strategies
Create exclusive offers that are smooth and seamless for your partner’s clients. These can be offered in a variety of forms. Take for example Quick Book’s resource site. If you want to order checks or envelopes you can do it seamlessly on the Quick Books web site. But you never even realize that you are actually purchasing from another company until the shipment arrives. This may be a bit misleading but I for one was happy to know that the checks and envelopes I purchased were compatible with Quick Books and it was fast, easy and cheap. I’ll probably do it again when I run out. How could you apply this to your business? - Web Alliances
This brings up another strategy which is applicable to what we like to call host/beneficiary relationships. This is particularly effective for Internet media. How about actually building websites for affiliates? This is a very powerful way to ensure that your host’s clients are locked into your solution. We can essentially build a captive audience on the web yet branded as the host’s site. Visitors are not at all aware that you are the beneficiary of their purchases. In fact they are not even aware that they are on another web site since it looks the same as the host site. This is similar to the Quickbooks example but as the beneficiary you make the investment in building a web site for the host. - Free Goods
Create a free introductory sample only for your partner’s clients. These can be marketed via brick and mortar as well as on the Internet. The free sample is a great way to introduce your product or service to what would otherwise be a lost prospect. This is made even more valuable by the fact that the person receiving the free goods has a predisposition to be interested in your product or service by the relationship with your affiliate. - Super Referrers
How about using the affiliate strategy to build a network of “Super Referrers?” I know a plastic surgeon that helped to recruit the most powerful potential influencers in her community into supper referrers. She asked the local day spa, massage therapist, nail solon, beauty center, cosmetics retailer and more to donate samples and discount coupons. Then she partnered with a gift basket company and created a beautiful gift basket including all kinds of free samples donated by her new partners. She then gave this basket to all of her new patients. Of course they were thrilled since the basket and it’s contents was massive and was valued at over $1000! The patients couldn’t wait to visit all of the partners and use their coupons. This obviously helped the doctor’s partner’s increase their business but it also helped the doctor to ensure that all of her partners exclusively refer to her. Everyone wins! - Targeted Discounts
Offer a discount coupon to a special subgroup of your partner’s clients in order to gain access to a highly targeted audience. HP and Staples office supplies has successfully run this type of program where Staple gives a $50 gift certificate to every customers but it can ONLY be used by Teachers. The hope of course is that these folks will give their coupons to teachers. - Symbiosis
Every kid has seen the movie Finding Nemo. Yet few realize the fantastic marketing message that it contains. You see, Nemo is a clown fish. Clown fish depend upon the sea anemone to protect them. While the anemone is deadly to all other sea life, the clown fish is resistant to it’s venom. On the other hand the beautiful colors of the clown fish attract sea life for anemone to sting and devour. The clown fish gets the leftovers. Many companies have adopted this type of symbiotic relationship. Have you walked into the grocery store lately and been surprised to see a Starbucks or a branch of the post office or your bank’s ATM machines sitting between the canned goods and the paper towel aisles? These are also symbiotic relationships. Who can you symbiotically partner with?
There are many other things that we can do to create powerful alliance programs. I hope this has at least inspired you to think creatively.