Partnerships with other companies in or outside of one’s own sector are often frowned upon by companies, due to their complexity, risk, and time consumption. Yet, the right partnerships can provide significant benefits for companies, helping them gain a competitive advantage against their competitors. Companies need to follow a set of guidelines in ensuring they build relationships with the right partners…
Partnering with other companies is a practice that has been around for centuries. Driving the concept of partnerships is a simple fact – no one company can do it all. Companies need partners for a variety of reasons – to give them access to new potential clients, to offer certain products or services to their own customer base, to enhance their image – among others.
Some examples of the types of partnerships that are the focus of this article include:
- Bundling-Related Partnerships: This relatively underutilized type of partnership is one which results in the offering of a bundle of complementary products or services. An example of this is a partnership between Qwest (a telecommunications company that provides high speed internet and residential phone services) and DIRECTV (a satellite television services company). These two companies have an agreement whereby Qwest offers DIRECTV services to its residential customers. The integrated services are provided as a product bundle with discounts. Qwest maintains marketing efforts of the partnership and DIRECTV installs equipment and provides technical support to the customers.
- Alternative Sales Channel Partnerships: This method of partnering allows one company to utilize the sales channels of another company, in a complementary beneficial manner. An example of this is a partnership between 2degrees (a mobile operator in New Zealand) and RED Group Retail (a leading book and stationery retailer in Australia and New Zealand). Thanks to this partnership, customers can now buy 2degrees SIM cards and top-up vouchers from all of the RED Group stores. 2degrees thus expands its distribution footprint, and RED Group gains significant footfall to its retail locations.
- Loyalty Program Partnerships: This partnership model is one in which a company aligns itself with several other companies in its loyalty program, so as to offer a variety of benefits to its program members. An example of this is evident in the Qitaf loyalty program launched by Saudi Telecom Company in 2006, with dozens of partners (such as McDonalds and Panda Hypermarkets) from various sectors. Such partnerships allow Saudi Telecom to offer benefits beyond traditional free minutes and SMS’, and drive footfall to the participating retailers.
- Sponsorship Partnerships: In these types of partnerships, a company teams up with globally recognized / admirable brands to boost public perception and gain media attention. A very recent example of this type of partnership is one in which Turkish Airlines announced their sponsorship of football giants Barcelona and Manchester United, tying the matchup to their “globally yours” branding campaign. These sponsorships have brought significant attention to the carrier in its effort to become a European powerhouse in the airline sector.
- Campaign Partnerships: This type of partnership is promotion driven, made to support specific marketing initiatives. An example of this is mobile operator Orange UK’s tie up with Pizza Express restaurants in its “Orange Wednesdays” campaign, allowing its subscribers to get 2 entrees for the price of 1 along with complimentary appetizers at Pizza Express restaurants.
Not all partnerships are as fruitful or successful as the ones listed above. More often than not, partnerships end up yielding little to no benefits for the engaged parties, and result in significant waste of resources. Some examples of such failed partnerships include:
- Tivo & BSkyB – TiVo, a digital video recorder, was launched in the United Kingdom in 2001 with a partnership with BSkyB – only 35,000 units were sold over the next 18 months. The partnership was abandoned in early 2002 because BSkyB launched its own digital video recorder for subscribers of BSkyB’s satellite TV service.
- Starbucks & Hershey’s Chocolate – The two strong brands decided to team up in partnership to leverage each others’ success through launching a premium chocolate for sales through Starbucks coffee stores. The partnership ended in less than two years due to poor sales performance.
- GLG & Weider – These two companies teamed up to sell sweeteners. The partnership was intended to take advantage of Weider’s expertise in marketing and distribution of nutritional products, and GLG’s knowledge of stevia, a natural sweetener. Within one year, one entity was suing the other, claiming it was breaching contractual terms around sales activities. The partnership ended before any benefits were realized by either entity.
Before entering into any short or long term partnership, companies need to conduct a thorough vetting process regarding their potential partners. We recommend this process include the following key steps:
1. Fit Assessment – A fit assessment needs to be conducted initially to ensure that the potential partner is a proper fit in terms of culture, brand, customer perception, etc. Essentially, this means ensuring that there are no skeletons in the closet of the potential partner, that the perception of one’s own customers regarding the potential partner is positive, and that the corporate culture of the potential partner is aligned with one’s own corporate culture. Factors to examine include:
- Brand image in the marketplace
- Fit of the company and its culture to one’s own
- The maturation of the company relative to one’s own
- The past performance of the company in any partnerships it has had
- The overlap of customers / target customer groups
- Positive / negative coverage of the company in media
- The perception of one’s own customers regarding the company
2. Piloting – Once a potential partner has been thoroughly vetted, the next step should be to conduct pilots before entering into a full-blown partnership agreement. Piloting of the partnership will allow a company to ensure that the potential partner will deliver the benefits expected of the partnership – if the pilot is unsuccessful and does not generate the intended benefits (be it new customers, additional revenues, added press coverage, etc.), then a company can easily look for an alternative partner without having entered into a long-term undesirable relationship). In terms of the type of piloting to be conducted, the scenario will vary based on the type of partnership being entered into. As an example of how piloting would work in a product bundling scenario, the following activities would need to be conducted in the pilot engagement:
- Identify various retail locations to utilize for piloting purpose
- Design the product bundles to be tested in the pilot
- Quantify anticipated benefits
- Conduct product bundling activities, supported by localized marketing communications support
- Measure performance of pilot activities
- Quantify realized benefits & compare to control groups and past performance
- Extrapolate results to determine if anticipated benefits can be realized
- Make go / no-go decision around partnership
3. Contractual Stipulations – Now that a potential partner has been vetted and tested through piloting activities, the next step is to engage for the long-term. To ensure the partner lives up to the desired expectations, the partnership contract should address all factors which can influence the overall success of the partnership. Such factors include:
- Human resources to be allocated to the partnership
- Capital to be allocated to the partnership (particularly around communications and promotion of the partnership)
- Service level agreements
- Risk management processes
- Contractual breach alleviation process
- Exit strategy for contractual breach or other reasons
- Threshold benefits (tying financial benefits to be realized by the partner to the overall success of the partnership)
By using the above listed approach, a company can significantly increase the likelihood it teams up with the right partner for any given initiative. Failure to go through these steps in entering into a partnership can prove disastrous, resulting in little to no impact on the bottom line, wasting time and money, and possibly, most importantly, driving a company away from future partnerships that could generate positive results.
To learn more about making sure the right partners are onboarded for a planned initiative requiring partnerships, please contact email@example.com.