article

Marketing Through Partnerships

Posted: 08/1998

Marketing Through Partnerships
How Affinity Marketing Can Affect the Bottom Line

By Jennifer Knapp

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Walk into a bulk discount grocery store and buy a big can of tomato juice and, in the
same location, buy a new fence. Get a roof for the house while you’re picking up some
office supplies. Switch to another long distance company and get a free pint of Ben &
Jerry’s ice cream each month for a year.

If you’ve ever purchased something and received something else as a bonus, or was
provided a value-added service as a result of a purchase, then you’ve experienced affinity
marketing. And many companies, from discount department stores to long distance providers,
are using affinity marketing to attract new customers and help retain old ones.

The Nuts and Bolts

Affinity marketing, according to Brian Runnels, president of Seattle-based Affinity
Marketing Consultants, is a basic leveraging of an existing relationship.

"A lot of people think that there is some kind of mystery to the general term
‘affinity marketing,’" says Runnels. There is not so much a mystery, however, as
there is a range of definitions.

An affinity program builds a relationship between a provider and a customer, which is
mutually beneficial. For the customer, this program may offer a reduction in price for a
product or service as a membership reward. These particular programs are "typically
with organizations who will cross-sell, or cross- market into their membership," says
Paul Adams, a spokesman for MCI Communications Corp.

The Virginia Tech Alumni Association and the Telecom Consulting Group Inc., for
example, developed a program for Virginia Tech alumni in conjunction with WorldCom Inc.,
UniDial Corp., GridNet (a subsidiary of WorldCom) and ntr.net Corp. (an IXC Communications
Corp. company) to provide members with telecommunications and Internet services. As a
result of the program, the association receives royalties for telecom services purchased
by its members, and alumni have access to long distance rates as low as 9.9 cents per
minute, 24 hours a day, with no monthly fees.

Another benefit to a customer may come in the form of bonus points awarded each time a
product is purchased or service used. These points, in turn, can be redeemed for access to
a third-party vendor. 1-800-PRE-PAID rewards its customers in this manner by giving its
prepaid calling card customers United Airlines frequent flier miles each time they use its
Mileage Plus phone cards.

Still a third benefit for the customer can be access to multiple services, which are
billed on one invoice. The new Mobile GO Card from Mobil Corp. offers a loose
interpretation of this benefit, wherein customers with a prepaid GO Card can pay for gas,
food or repairs and make long distance calls from any phone in the United States courtesy
of MCI, all with one card.

While MCI’s Adams considers the GO Card more of a "prepaid goods and services
platform [which took] an existing card and added the capability of making a phone call to
it," there still exists a leveraging of a relationship in which a company is using
the brand name of its partner to access people who have affinity with that partner.

The benefits of an affinity program, however, are not for the end user alone. A service
provider, through its affiliates, gains access to all new customer bases; creates added
value for its products; and has a better chance of reducing churn. In the telecom
industry, churn can make or break you, says Casey Freymuth, president of Group IV Inc.,
"but affinity marketing can really impact your [customer] return rate."

The Tools for Success

A successful affinity program that will affect a company’s churn rate is not a
fly-by-night endeavor. To execute a successful program, says Runnels, a company should
know its customers; maintain communication with those customers; offer products that are
recognizable or have standing; and find partners that are reliable.

To benefit from their relationship with the Virginia Tech Alumni Association, WorldCom
and UniDial needed to understand the Virginia Tech alumni–their potential customers–and
market to them.

"Attached to that element," says Runnels, "is that you need some
mechanism to communicate to these people," such as an association newsletter or
website. Knowing whether prospective customers would have access to the Internet, for
instance, could affect a company’s decision to make subscription to the affinity program
Internet-based.

For multilevel-marketing company Big Planet, which has partnered with WorldCom for
resale of telecom services through Big Planet representatives, the Internet is the
centerpoint of its business. Representatives for the direct marketing company conduct
business online, thereby allowing WorldCom to communicate with members through the Big
Planet website.

Runnels warns that although a company may tap into its existing base of customers, that
base still will be discerning when it comes to new products and services. The affiliated
product offering needs to have some logical association to the customer and the primary
service provider.

As an example, Affinity Marketing Consultants has worked with utility companies to help
them expand their product offerings and offer value-added services such as Internet
access, long distance, local phone service and business services to their customers, with
each service either billed separately or integrated on one bill.

"We’ve been working with public utility companies that are struggling through
deregulation, and as a relationship builder or an asset leverage, they have addressed
parts of telecommunications–looking for other businesses to get involved with–to have
multiple points of contact with the traditional power customers," says Runnels,
adding he has seen public utility companies branch out into other areas of similarly
delivered commodities and telecom is one of those.

Central and South West Corp., an electric utility provider serving 152,000 square miles
of the south central United States, for example, has formed a division called CSW Energy
Services, which will "build on a growing portfolio of essential services related to
energy, telecommunications and utilities," according the CSW website. The Energy
Services division’s subsidiary, ChoiceCom, maintains partnerships with Austin-based C3
Communications Inc., operating long-haul fiber lines in Texas and Louisiana, and ICG
Communications Inc. of Englewood, Colo., a competitive local exchange company.

Although ChoiceCom spokespeople say the energy provider has no plans to offer telecom
and power services under one bill to its customers at this time, the company has the
ability to do so, should pending deregulation and the resulting competition force CSW to
compete for its own power customers.

Affecting the Bottom Line

Affinity Marketing Consultant’s paradigm for its energy customers looks to expand the
relationship between provider and consumer from a bipolar relationship–in which consumers
buy one service–to a multiple-points-of-contact relationship–in which the consumer
relies on the provider for several services. The premise behind this expansion is this:
The more product, the less the churn, says Frank Dinoia, director of solution partner
sales for MCI.

Availability of multiple services alone will not retain customers, though.

"You need partners who are at least as good at what they do as you are at doing
what you do," Runnel adds.

Affinity marketing is about relationships, building them and benefiting from them. This
is true now and will be in the future, and companies such as MCI are considering the
future today by redefining their affinity programs to side-step the loss of leverage that
their competitive low transport rates are experiencing.

MCI’s Dinoia outlines this paradigm shift as follows:

MCI focuses on the medium- to large-sized business sector, so if a company’s service is
going to drive revenue for MCI business customers, then MCI will entertain a partnership.

About three years ago, MCI had 250 to 300 affinity partners in the business market
sector. Those affinities were driven by price, and MCI would negotiate an agreement with
the affinity host member so its members could partake in the special negotiated rate.

However, with the current market driving core rates down, the appeal of negotiating
lower prices has disappeared. In fact, MCI’s published prices and its generic products
have been driven down to what the affinity pricing used to be.

Now, MCI has restructured its organization and affinity is part of a bigger
organization called Solution Partner Sales. The division looks for partners who can work
with MCI to provide solutions in which MCI services are a component and the overall
solution solves a business need. Subsequently, provision of the total solution becomes
more of a deciding factor than the price of telecom transport.

"So, whether you are doing systems integration, local area networks/wide area
networks or building intranets for customers, and transport becomes a part of that
solution, then you are much more apt to lock in a customer who is not going to change just
because somebody walks in a month later with a different rate per minute," says
Dinoia.

More information on how affinity marketing can benefit your company can be found at http://www.datacor.com/~affmark  (Affinity
Marketing Consultants) and http://www.bcstechnology.com
(BCS Technology).


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