Marketing alliances for extra turnover - 6 archetypes

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Marketing alliances for extra turnover

Explaining how you can find partners and set up a deal structure

ALFRED GRIFFIOEN

PART I: Why and how of alliances


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Marketing alliances are an important way to boost turnover and to win large projects

One development has been dominant in the last decade in the way consumers and companies do business. It is the ever growing availability of information, facilitated by the internet. Consumers and purchasers of companies and governmental institutions have increasingly better knowledge of the market and can compare products from several companies.

To compete effectively in this market companies either have to offer unique products (so there is hardly any competition) or to become the most relevant supplier for their clients by offering a complete range of products and services as one solution. Forming an alliance with a complementary partner is a fast and low-risk way to do this.


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Examples of marketing alliances can be found both in business and consumer markets

BusinessBusinessBusinessBusiness----totototo----business marketsbusiness marketsbusiness marketsbusiness markets BusinessBusinessBusinessBusiness----totototo----consumer marketsconsumer marketsconsumer marketsconsumer markets

Printing products and services

Mobile phones

Business applications

Consumer electronics

Mobile platformSeamless air transportation

LNG terminal Search engine


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Key of a marketing alliance is to increase your relevancy for your customers

Why would a customer choose for you if you only have part of his solution? If you can offer a complete solution, several products to choose from or if you can service a returning customer with another need as well, you will have an advantage over your competitors. Partnering can help you with offering the complete width of solutions.

Every person has a number of generic needs: security, friendship, relaxation, efficiency and success. Depending on the context or situation you are in, these generic needs are translated to actual needs.

Market relevancy is created by combining the right products and services so that you can best service the actual needs and the generic needs behind. By combining more ‘matching’ products and services in your offering, your turnover and profit grow.

Genericneeds

Context /Situation

Actualcustomerneeds

Fulfillment ofyour brand promise

MarketMarketMarketMarketrelevancyrelevancyrelevancyrelevancy

Portfoliomanagement

Distribution andcommunications


Alliance expertsYour success is determined by the three chances: on finding a partner, getting the deal and on making the deal profitable

When you see a project in the market and it makes sense to bid with a partner, you potential for success will roughly depend on three aspects.

It takes two to tango, and if you have found the perfect partner for a project in the market, it may turn out that love comes not from both sides. Your partner can even be cheating on you and leave you with nothing.

Some partners give a better chance on winning the deal than others. Differences can exist in the relationship with the client, in technology and even in experience with selling a combined offer.

Last but not least your possibilities to make a profit can differ per partner. What are their project management capabilities? Do they have experience with working with a partner? And how strong to you have to negotiate for your share of the profit?

Chance on getting a specific partner

Chance on winningthe dealx x Chance on making

a profit


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The chance on getting a specific partners does not only depend on you…

Obviously there are multiple players in the market. The same way as you will evaluate your potential partners, they will evaluate you against the others.

The two things that you can influence in this process are:• your own attractiveness, for example by investing in innovative solutions

• your contacts in the market, to enhance your visibility for others and to get more information.

As soon as you have identified your ‘perfect’ partner you must aim for exclusivity. But often everybody waits to shoot his bolt up to the last possible moment.

You

partner

partner

partner

partner(out of sight

for you)


Alliance expertsWhen having found a partner, the type of agreement can best be based on each parties contribution and liabilities

There are multiple ways to formally arrange your partnership, from almost like a normal contract up to almost a complete merger. The main division can be made between contractual arrangements and share transactions. The optimal type of contract will depend on what each partner brings into the alliance and on the liabilities that partners want to bear.

MinorityMinorityMinorityMinorityshareshareshareshare

TraditionalTraditionalTraditionalTraditionalcontractcontractcontractcontract

JointJointJointJointVentureVentureVentureVenture

DissolveDissolveDissolveDissolvea companya companya companya company

• Superficial customer/ supplier relations

• Joint R&D, marketing, distribution

• One sided• Extension of shares

• 50% - 50%• Other proportions

• Merger• Takeover

PartnershipsPartnershipsPartnershipsPartnerships

• Licensing, franchising• Long term outsourcing

UnilateralUnilateralUnilateralUnilateralagreementagreementagreementagreement

BilateralBilateralBilateralBilateralagreementagreementagreementagreement

ContractualContractualContractualContractualagreementsagreementsagreementsagreements

ShareShareShareSharetransactionstransactionstransactionstransactions


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Chances on getting the project depends on having a breakthrough value proposition

The business case for starting a marketing alliance is primarily based on the synergy between the partners and their product or services portfolio. When in competition for a project or a large order the combined offering must score better than the offering of competitors –measured against the evaluation criteria of the client.

Eigenbedrijf

ScopeScopeScopeScopepartner partner partner partner too far too far too far too far awayawayawayaway

ScopeScopeScopeScopepartner partner partner partner too closetoo closetoo closetoo close

ScopeScopeScopeScoperightrightrightright

partnerpartnerpartnerpartnerScopeScopeScopeScopeownownownown

companycompanycompanycompany

Scope that can beScope that can beScope that can beScope that can bereached with some effortreached with some effortreached with some effortreached with some effort

Scope that the partnerScope that the partnerScope that the partnerScope that the partnercan reach with some effortcan reach with some effortcan reach with some effortcan reach with some effort

Scope that the partnerScope that the partnerScope that the partnerScope that the partnercan reach with some effortcan reach with some effortcan reach with some effortcan reach with some effort

The right partner in most cases has a scope that is not overlapping with your own scope to avoid competitive behavior within the alliance. On the other hand it might be difficult to work with a partner from a completely different branch: partners may have no experience on the interface between each others products. The right partner understands your business but does not compete in it.


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No

No

Get to the best possible bid with teamwork and a tight timeframe

Making a good offer is a complex process, especially when you want to combine the skills from two separate companies. Knowledge exchange works best with face-to-face contact, so try to make sure that the people involved meet frequently of work in the same office building.

Also on management level it is important to meet regularly during the process of composing the bid. What is the progress, does the original scope foreseen for both parties still fit, what margins are acceptable?

A tight timeframe with some slack is important, it wouldn’t be the first time that one of the parties draws back just before submitting the offer.To agree on exclusivity is one, but you can’t force the other party to sign the offer. So make sure you have time for a backup plan.

Findpartner

Prepareoffer

Exclusivity?

Go?

Submit

Findother partner

Backupplan


Alliance experts

Chances on getting a profit out of your cooperation also depends on ‘soft’ factors

After successfully having introduced your joint offering or having won a project the next challenge arises: running your cooperation in such a way that profit is maximised. This requires teamwork between employees from both sides, and teamwork primarily depends on trust, not on procedures. Therefore it is important to spend time on introducing all staff involved to each other and to discuss the expected behaviour.

4 cores of credibility and self trust4 cores of credibility and self trust4 cores of credibility and self trust4 cores of credibility and self trust Types of trustTypes of trustTypes of trustTypes of trust

IntegrityIntegrityIntegrityIntegrity Are you undiscussed?

IntentIntentIntentIntent What's your agenda?

CapabilitiesCapabilitiesCapabilitiesCapabilities Are you relevant?

ResultsResultsResultsResults What's your track record?

Blind trust Smart trust

DistrustNo trust

Low

High

High

Low

Level of proof and analysisB

asic

att

itu

de t

ow

ard

s t

rust


Alliance experts

Setting up a partnership also requires informing your organisation

An alliance only works if the majority of the people involved sees it as a benefit for both the company as themselves. This requires explaining that the cooperation aims to enlarge the workload and not to transfer work to another company.

Does the information

help a competitor?

Is information publicly available?

Yes

NoYes

NoFreely shareinformation

Share theinformationif it helps thecooperation

First consultother managersbefore sharinginformation

Do not sharethe information

When working with a company that has competing activities as well, communication with the partner must structured carefully. By cooperating with their American competitors, Japanese car makers were able to gain a large market share in the US.

The diagram shows in a simple way how to treat information on basis of the value for the competitor and whether the information is publicly available.


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Working in partnerships is a process of continuous learning

As practically any partnership is unique, you will encounter new problems and have new experiences. Partnerships are no ‘standard business’. When you recognise that and see your partnerships as a learning process, you’ll gain more out of it.

Formation, operation and evaluation are three stages with different learning points. A good controller will define measures to monitor the results of this learning process. This will eventually lead to better results and less risks.

Formation Operation Evaluation

Learning about the partner

Measuring the process to establish the alliance

Estimating risks

Learning from the partner

Measuring on achieving results

Mitigating risks

Learning about partnerships

Evaluating results

Improving the risk evaluation


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Evaluations, advice and training are the best means for enhancing your chances on success

Research of Draulans, De Man and Volbeda with 49 companies shows that the success measured in profits, achieving targets and the quality of the relationship increases with experience

The learning effect tends to flatten from the 6th alliance

More success can be achieved with:- Structured evaluation + 38 %- Hiring a specialist + 45 %- Training in the subject + 76 %

6Number of alliances

Successratio


Alliance experts

Marketing alliances for extra turnover

Explaining how you can find partners and set up a deal structure

ALFRED GRIFFIOEN

Part II: Types of collaboration


Alliance experts

Every partnership is unique, but archetypes can help to determine the best contract form

Two equal companies

Two companies, one with a unique offering, one with market relevancy (could be abroad)

Three (or more) equal companies

Two companies of very different size

Multiple small-sized companies

A private company and a public institution


Alliance expertsThe most basis form is two equal companies combining their offering or their capabilities

When would you say two companies are equal? For this purpose one can use the following characteristics:• The companies do not differ in turnover more than a factor 5• The alliance is more or less equally important to both companies• The goal of the alliance is to develop something that is new to both

companies: a new product, cost advantages or a new market.

It could be that the two companies are competitors that want to bid on a project that is too large for just one of them, or want to set up a joint distribution channel. It could also be two companies that complement each other and operate in different markets.

Creation of a new entity would be feasible if a high amount of knowledge exchange or if a new presence in the market is desirable. Whatever legal entity is chosen, the main characteristic is that no decision can be made without the consent of both parties. This requires a well defined goal for the cooperation and a basic level of trust.


Alliance expertsWhen a company has a unique offering and the other controls the market, the battle for the customers begins

It is a different situation when one of the partners already knows the market, or has a close relationship with the target customer, and the other partner has the product, technology or exclusive other means to fulfill the demand. The partners are more or less convicted to each other, and probably want to obtain the other’s assets as well.

Especially with custom made products or with services the contact between the ‘solution provider’ and customer can not be avoided. After making the deal with a specific customer, the ‘distribution partner’ has to sustain his added value, which in most cases is based on relatively easy to copy knowledge. This can be done in several ways:• By sustaining a broader relationship with the customer than for this

solution only. The added value of the distribution partner then lies in his product portfolio and his further arrangements with this customer

• By continuously bringing new one-off customers into the alliance• With a contractual arrangement, stating that all business of the

solution provider with the distributors customer base has to be done through the distributor.


Alliance expertsWorking with three or more partners creates the risk of being overruled by the majority of votes

Working with three or more parties is quite different from working with two partners, at least when parties choose to work from a new legal entity. When the shares of such an entity are divided among the partners, the possibility exist that the partners with the majority of votes will overrule the other partner(s). Two mechanisms can prevent this:• Arrangements what can be decided with a normal majority of votes

and what with consent of all partners• The equilibrium between partners: if one partner doesn’t gain from

the alliance, he will change to opportunistic behavior.

Working with three or more partners is like working in a network:• When all partners are competitors but have a joint objective, the

structure of the network should be as transparent as possible. Goals and means available should be well described.

• When all partners complement each other, one ‘central’ partner can become the coordinator of the network. Each partner then contributes with its own added value.


Alliance expertsFor two companies of very different size the outcome of the cooperation has different importance

Chances are high that when a smaller company is cooperating with a bigger company, the cooperation is much more important for the smaller company than for the bigger company. For the smaller company this gives the risk of being neglected or overshadowed.

The biggest risk for the smaller company is that the development or marketing of the solution in which they contribute is stopped or delayed, causing a lack of incoming cash flow. This can even be a deliberate act of the bigger company. This can best be avoided by incorporating a prepayment in the deal, since obtaining a compensation by means of a lawsuit requires deep pockets.

The main risk for the bigger company is that the knowledge or necessary customer contacts of the smaller company will disappear with changes in management. A prepayment will only be agreed upon when guarantees are given that all necessary knowledge and competences will remain available.


Alliance expertsFor a group of small-sized companies working together the transaction costs weight heavy

A considerable amount of knowledge workers is self-employed nowadays, or chooses to hire only one or two employees. For these small-sized business it is very attractive to cooperate, since it creates to possibility to do more complex or larger projects.

On the other hand the hassle to arrange these kind of partnerships seen in relative terms is bigger than for larger companies. In most case organisational and legal knowledge is not available in house and efforts to set up such a partnership are constantly threatened by everyday's business.

For small-sized companies it is important to adhere to a simple, standardised organisation form like a cooperation that covers important aspects such as representation, finance and liabilities. Other aspects like the division of activities, marketing and acquisition can be left to the dynamics in the group.


Alliance expertsIn public-private partnerships non-financial and financial targets have to be linked

Up to now we have described partnerships between private organisations. What about cooperating with governments, public bodies, schools, hospitals and research institutions? Companies can see them as self-oriented, bureaucratic and hard to work with, but they can see a partnership with a company as working with the devil.

On the other hand there is a lot of knowledge, influence and customer contact within public organisations. They have a market as well, but their targets are different. Their primary targets are non-financial, such as providing care, education, safety or organising public space. But despite the term ‘non-profit’, there are financial targets as well. Aligning the objectives of an alliance with these targets gives a common language.

The organisation form for a public-private partnership can be a joint venture, but in most cases the role of the public organisation is more facilitating, while the private company does the work. This can best be arranged in an agreement.


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Even if your alliance is different, you can use aspects of the six archetypes

We started with the statement: every partnership is unique. But in most cases a partnership can also be seen as the combination of several archetypes: e.g. a small company with a patented technology that would like to have a marketing alliance with a big company in another country.

On basis of these archetypes and some additional choices the best possible arrangement can be made for such a specific situation. Alliance experts is currently working on defining standards for each of these archetypes. This should enable not only large companies with their own lawyers, but also mid and small sized companies to improve their commercial success by cooperating with others.


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Alliance experts offers support in getting started and getting better with alliances

Alfred Griffioen (1972) has a background as strategic marketing manager and business development manager. After a period as manager at a strategy consultant he is now partner of Alliance experts, advising on strategic partnerships and matching companies that are looking for an alliance partner. He is the author of the book “Het Senseo-effect” which is a practical guide on alliances In 2009 he wrote “De Strategieversnelling”, which links the formation of alliances to competitive strategy.

Alfred Griffioen is available for giving lectures and workshops. He can be contacted on +31 6 24 77 68 65 or through [email protected].

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Marketing alliances for extra turnover - 6 archetypes