Associationpower.Com

Associationpower.Com

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PROBLEM STATEMENT
Due to environmental changes, AssociationPower.Com (APC) must decide on new product-market and marketing-mix plans to raise its market share and hedge against competitive risks.
Strategic Issues & Marketing Mix
Pricing: Web site sales provide “annuity-type” revenue with annual cash flows of ~$3000 per
contract. Vendor-partner relationships allow APC to receive 1% of all sales revenue purchased by the client associations or their members. APC has a $50/hour ‘set-up’ fee for helping client associations migrate content from their current site to the APC site. Roland’s proposed web site would sell for $250 per contract; Matheson’s proposed web site would sell for $500 per contract.
Product line: APC core product is a branded, leading-edge, template-driven Web site that
could be customized to meet customer requirements. Included is membership to a group purchasing organization (GPO) that provides clients with discounted rates for products and services such as: discount long-distance conference calling, selected software packages, discounted auto rental services, and the like. The new products proposed in the case were “AssociationPowerLite”, “MicroAssociations” and a “stripped-down” web site.
Promotion: One thousand association executives are contacted via email each week. This
accounts for two-to-three new licensing agreements (per week). The 48 association conferences attended by APC, per year, generate between 336-384 new leads that result, on average, in 180 new contracts.
Place: Due to the nature of the business, APC can operate anywhere the World Wide Web
exists. Their offices are located south of San Francisco, just north of Silicon Valley. Their customers are disproportionately located in the Northwest (principally Washington State) and California. Case discussion included the prospects of entering the English speaking markets of Australia, Canada and England.
Goals & Objectives
1. Geographic diversification and possibly enter new markets (Australia, Canada, England).
2. Identify and expand revenue streams through new product offerings.
3. Assess both the new opportunities available and identify threats (i.e. low barriers to entry).
4. Identify and pursue untapped market segments.
5. Develop the strategic control (“doing the right things”) and operational control (“doing things right”) necessary to facilitate objectives 1-4.
Concerns & Constraints
1) Concern1: As addressed by Forrester, previous ‘big ideas’ have failed. As a result, APC cultural environment may be resistant to change.
2) Concern2: The venture capitalists that funded APC are expecting either the sale or an IPO of APC within the next 5 years. This may further exacerbate the resistance to adopting new strategies due to egocentric concerns (i.e. job loss).
3) Concern3: The barriers to entry for new competitors are low.

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A large player, for example Microsoft, could enter and dominate the market. This could effectively put APC out of business quickly.
4) Concern4: Salespeople have not penetrated the largest markets –Washington, DC and New York City, NY.
5) Concern5: The tendency for large national professional associations to require standardized Web sites for their state and local chapters.
6) Constraint1: Limited working capital. The proposed projects in the case would require a level of working capital that may not be plausible given that APC was only profitable as of 2005.
7) Constraint2: According to Eva Collins, HR Director, APC is woefully understaffed –service representatives are unable to spend the recommended phone time with current client associations.
SITUATIONAL ANALYSIS
Organizational Background
History: APC was founded by five diverse entrepreneurs in May 2000: 2 computer
programmers (1 web designer, 1 database manager), a teacher, a retired executive, and Forrester. For the first two years of operation, Jeffery Forrester was the lone salesperson for the organization. APC had been funded through a venture capitalist group. The first 10 months of operation was used to develop their product. Subsequently, APC has shown a net loss until 2005, with net profit of only $237,900.
Products: Previously discussed in Product Line.
Size: The organization consists of 62 employees.
Organization: Roland Lawrie is the CEO and sits on the board of directors. Three other seats are held by representatives of the venture capital firms; and, the remaining seat is held by an independent director. Eva Collins is the HR Director. Jeffery Forrester was previously on the board (replaced by Lawrie).
Strategic organization: Roland Lawrie, Jeff Forrester and Rob Matheson are the principals
assigned to create the strategic vision at APC.
Strengths: A “fresh” CEO with internet management experience; recognition of viable threats; understanding the critical need for strategic adjustment.
Weaknesses: Financial performance as indicated in by the P&L statement (Exhibit 1); lack of customer service representatives; ability to match marketing plans with strategic goals (as demonstrated by previous marketing failures); only a 7 person sales force to cover the entire US; and, resistance to change (as indicated by Forrester’s closing comments).
Market Characteristics
Demand: Implicitly stated as elastic, with multiple opportunities for competitors to fluidly enter and steal market share. The largest areas of demand are Washington, DC with 2,500 associations, New York City, NY with 1,900 associations and Chicago, IL with 1,500 associations.
Customer: APC serves small (state, regional and local) trade and professional associations
and their member chapters. It is projected that 8 out of 10 adult Americans belong to at least one organization. Also, as many as 1000 new organizations form each year. Therefore, the customers are highly diverse in nature and in needs. Despite, targeting appropriate customers is relatively easy and inexpensive for APC. Key requirements for product performance vary as the nature of each association and therefore unique to them.
Competition: Among its current competitors, Affiniscape, MemberClicks, and
IdeasforMembership are among the most viable and offer relatively comparable Web site packages. Additionally, a large firm could enter the association market through acquisition or a well-funded start-up and quickly change the competitive environment.
Strategy: Competitors offer one time pricing for Web site development, ranging from $10,000 to over $100,000.
Competitor’s strengths: Relative financial strength (implied in the case); ability to penetrate large, and new, markets due to the lack of APC presence (implied in the case); a one-time Web site fee, as opposed to a licensing agreement paid annually, allows clients to write-off the expense in one year –hence, the ease of accounting; and possibly a large sales force.
Competitor’s weaknesses: None stated.
Supply Chain: APC supply chain consists of the World Wide Web and its sales staff delivering
services (i.e. training and set-up) to client associations.
Policies/Practices: Customer service representative are to spend a recommended one hour
every week communicating with a client association in order to properly manage the company-client relationship.
Strengths: Ease and cost of delivering products to customers via the internet.
Weaknesses: Prone to security attacks by hackers over the internet.
External environment: Opportunities include penetrating large markets that have
remained untapped by APC; entering new English-speaking markets overseas; and the ease of subtly changing product characteristics to provide unique product offerings.
Threats: New competitors entering the market; competitors offering annuity-type services –thereby directly competing with APC business model; larger firms entering the market and dominating market share.
INDENTIFYING VIABLE ALTERNATIVES
Alternative 1 – Do nothing. Do not change the product-market or marketing mix plans. Since
2005 was profitable, APC may choose to ‘stay the course’ as suggested by Forrester.
Alternative 2 –Offer new product-market and marketing mix plans. With this alternative, APC
can choose Lawrie’s suggestion of AssocationPowerLite and MicroAssociations (“stripped-down” sites).
Alternative 3 –Hybrid of Matheson & Lawrie’s big idea: Enter overseas markets and offer new
product-market and marketing mix plans as proposed by Lawrie.
EVALUATION OF VIABLE ALTERNATIVES
Table 1: Possibility Matrix
OBJECTIVES
STRATEGY Increase Market Share Hedge Against Competitive Risks Develop New Revenue Streams
Do nothing Uncertain Uncertain No
AssociatePowerLite & MicroAssociations (stripped down product) Yes Uncertain Yes
"Export" and offer new product-market and marketing mix plans Yes Uncertain Yes
Alternative 1 – It is clear that a do nothing strategy would not develop new revenue streams
since the product offering would remain unchanged. However, it is still possible for APC to increase its market share by increasing its sales staff and migrating to dense areas of business (Washington, DC; NYC, NY; Chicago, IL) and thereby increasing its revenue through geographic diversification. By doing such, APC may slightly hedge against competitive risks. Regardless, new market entrants cannot be eliminated due to the ease of entering the market.
Alternative 2 –By offering stripped-down versions of APC current product as
AssocationPowerLite and MicroAssociations, APC would effectively develop new revenue streams and could increase their market share. And through concentrating on current clients and their affiliates, APC has a base which it could easily “mine”. Based on the success of the current referral rates (50%) and the number of current clients (1850), it can be shown that revenue would increase $346,875 (.5*1850*[250+500]/2) in 2006 –doubling APCs profit. However, to institute such a program would mean hiring more salespeople –which is currently APCs greatest expense. A work-around might be to hire salespeople from varying geographic areas of the US with an adjusted pay scale for cost-of-living expenses (generally less than it would be in California). Even with this suggestion, control of the employee’s productivity would be a great concern. Through product diversification, APC better hedges against competitive risks. Regardless, new market entrants cannot be eliminated due to the ease of entering the market.
Alternative 3 – This choice amplifies all the advantages and disadvantages of alternative 2 by
entering into overseas markets (Matheson’s suggestion). Hence, it is likely that revenue would exceed $346,875; however, the magnitude cannot be enumerated with the information provided. Also, cultural and governmental risks exist. Hence, a thorough analysis of each market should be undertaken prior to any foreign direct investment (FDI). Due to the high expense associated with FDI, this option may not be viable due to APC limited working capital. Through both product and geographic diversification, APC better hedges against competitive risks. Regardless, new market entrants cannot be eliminated due to the ease of entering the market.
RECOMMENDATIONS
The possibility matrix (Table 1) on page 4 clearly defines the divisions of strategy and objectives.
Based on thorough evaluation of the alternatives, as well as APC previous experience with new marketing plans, the ‘do nothing’ strategy is recommended.
Currently, APCs biggest concern is the size of their sales force and lack of geographic diversity.
APC should hire more sales staff and a commensurate amount of customer sales representatives to handle client relationships. Additionally, APC could open small satellite locations in the largest market areas. Thus, employees are encouraged to “pound the pavement” in the most dense association locations. By allowing the top three sales people to train new hires in these new locations, APC would be effectively growing its business. Also, APC can increase the amount of offerings available to their clients by increasing their vendor-partner relationships (which contribute a 1% profit margin to APC). Later, APC could renegotiate with their vendor partners for a higher profit percentage once they acquire a larger market share.
JUSTIFICATION FOR RECOMMENDATION
APC cannot eliminate competitive risks –even hedging against competitive risk may be implausible. And even though alternatives 2 and 3 provide increased market share and viable revenue streams, they do not come without additional costs (and therefore financial risk). Without the necessary working capital and with the previous failed attempts at ‘big ideas’, it would be ill-advised for APC to choose anything other than alternative one.
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