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Referrals, Strategic Alliances & Other Schemes – Why Asking the Right Question Matters!

Group of business people working together in the office.In August, I will have been a practising attorney for twenty years, and for the last seven of those years I have been a business coach as well.

One of the things I’ve discovered in all that time is that clients almost never ask the questions they should be asking.

Instead, and I guess not surprisingly, they ask what they know about. Which of course leaves us as service professionals giving answers that aren’t necessarily the best fit for our client, or doing lots of digging trying to figure out the what the real question might be.

Digging has become a habit for me.

The Wrong Question Refrain

One day, I was reading an email from a highly respected marketer where he was answering a question from one of his readers. And as I was reading, I began to wonder – given the reader’s situation  – why in the world she was asking THAT question.

Now, this marketer is really good and he answered her question thoroughly. But all I could think was – wrong question, great answer, wrong question, wrong question, wrong question, great answer, wrong question . . . It was playing a sad refrain in my head like a bad medley that gets stuck and won’t go away.

The question was (and I’m paraphrasing here): how to affordably use paid referral/affiliate marketing strategies to promote and sell a new product and still be profitable. The business was in the start-up stage with a lot of high upfront costs for both start-up and product production. The reader asked a very intelligent question based on what she knew.

Getting To The Right Question

Affiliate and referral marketing (and to a lesser extent JV partnerships) are a really big deal on the internet. So much so, that it is often the very first tactic business owners and new marketers turn to when trying to drive traffic and sales to their business. And in some cases, it’s actually the best way to go. In others – not so much.

So what if our erstwhile reader had asked a different question? What if the question was, “Can you offer some suggestions about cost-effective marketing strategies I can look into to for my new business?”

I bet there would have been a different answer. Because there *was* a much better strategy available. One where the reader would get to promote her business, drive new traffic and sales to it and not have to worry about commissions and percentage payouts at all.

It’s called “Strategic Alliances,” and I bet it would have been included as one of the go-to strategies in the answer she received.

What The Heck Is A Strategic Alliance?

A strategic alliance is an alliance between two or more business owners who each serve the same target market but are not in competition with each other. The alliance businesses each offer something that will deliver added value to the customer. It is a win, win, win situation.

Let me give you an example. Back in NYC, one of my favorite movie theaters offered a special. It was called “Dinner and a Movie for Two.” If you saw a movie there, you could take your tickets afterwards to the new restaurant down the block and you could get a meal for half price or two for one.

Lots of people who didn’t know anything about that restaurant ended up eating there for the first time after watching a movie at that theater. And, since the food was good, many became repeat customers.

On the other hand, people who went to dinner at that restaurant first received the deal in reverse: eat there and you got a voucher for a pair of free movie tickets to –  you guessed it – the movie theater down the street!

And it was a great strategic alliance, because there were a few movie theaters on that street – like three, right within a few feet of each other. They all charged roughly the same price and showed pretty much the same movies with only minor differences. But the dinner and a movie for two alliance gave my favorite movie theater an edge in a pretty competitive market place.

The strategic alliance cost the restaurant, the newer business in the partnership, less than the price of a meal, either in actual food or the movie tickets which they received at a steep discount. In exchange they were able to attract a loyal following and build their new business fast on a block full of other restaurants. The movie theater, who was the established business, was able to provide added value to its customer base and an incentive for them to keep coming back.

Plus, the movie theater attracted new customers who, for whatever reason, had never tried their theater before. And people came more often because because the alliance gave the perception that going out was more affordable and could be done more often. And all it cost them was a discount on some movie tickets.

Both business spent far less than they would have using traditional marketing methods. And, because they were targeting customers who had already self-identified as being interested in what they were selling, they also got much greater results. Plus because their customers felt like they were getting a greater value from these business than the surrounding eateries and theaters had to offer, they became repeat customers. Can you say ca-ching!

And the customer? Well, they got a really sweet deal and kept coming back for more.

Win, win, win . . . now that’s a refrain worth singing.

And Any Business Can Do This!

The best thing about this strategy is that almost any business can implement it effectively by following just a few simple steps, generally with little or no out of pocket costs.

So let’s talk about the steps.

The first step is to determine who your target market is. This is something that every business needs to do to be successful. Determining who your audience is, is critical for cost-effective, result getting marketing campaigns, no matter what strategy you decide to use. Of course, if you’re reading this blog, you’ve probably already done that.

Now, you may also already know who your competitors are, but in step two – you’re going to look at non-competitors who are targeting the same market you are. And you really want to get as close a match as possible.

For example, in the alliance scenario between the movie theater and restaurant, they were both targeting young adults in their mid-twenties to earlier thirties, who liked to go out on the town for entertainment a couple of times a week, but were budget-conscious.

Finding a close match is very important to make the strategy work effectively. For instance: a restaurant that offers fine dining, requires reservations two weeks in advance and demands a jacket and tie for entrance would be way less likely to appeal to the budget and tastes of this young, spur of the moment, limited funds, movie going crowd.  But, the restaurant could be just perfect for Broadway theater or opera enthusiasts looking for a well planned evening of elegance.

For the most success, use this strategy to find the businesses that are most closely aligned with your target audience and business philosophy and make a list of these potential alliance partners.

In this next step it’s time to look a little deeper at your own business. What can you offer to each of these potential partner’s customers that would be perceived as an added value and attract them to your business?

This step requires you to look at what you have to offer, how much it would cost you to deliver it, and  what the lifetime value of the customer you gain would be. Most importantly, you’ll look at whether delivering on your offer is something your business can profitability sustain over the long haul.

It’s Perceptions, Not The Cost, That Matters

This is part of why the concept of perceived value is so important. It doesn’t matter how much or little your actual costs are. Value, like beauty, is in the eye of the beholder. It’s not based on your actual cost.

For example, again using the theater-restaurant alliance from above: the restaurant offered a two for one or half priced meal to the alliance. It was perceived as a real added value to the theater’s customers. It made them continue to go to that theater over other theaters in the area.

On the other hand, if the people came to the restaurant first, they were offered a pair of movie tickets – a bonus that was perceived as a great value to the restaurant’s customer’s and kept them coming back for more.

But what did it cost the restaurant to deliver?

A typical meal at the restaurant ranged between $12- $16 and it cost them roughly $4-$6 to deliver it. That means offering a two for one meal cost them nothing, and in fact netted a small profit. The movie tickets cost them even less. Their alliance partner provided the tickets at $2 bucks apiece. And, since the restaurant provided a voucher for the customer to redeem at the theater they didn’t even have to pay the $4 bucks until they had already received the money for it from their customer.

Either way, the restaurant got a new customer that generally became a regular customer coming to the restaurant 2-3 times a week, usually at full price. Plus, they brought friends to the restaurant who also became regulars and brought friends of their own. This made the life-time value of the new customer easily worth the cost of the two for one deal.

It is also an offer that was completely sustainable. No matter how many people came to take advantage of either offer, they could deliver at a profit while still offering a high perceived value that netted them tons of targeted new leads. And more importantly they got a high conversion of those leads into paying customers.

Is a Strategic Alliance Right for Your Business?

Look at what you have to offer and ask yourself these questions. Which of your services or products have the highest profit margin? Is it something one or more of the potential alliance partners on your list could offer as an added value bonus to their customers? Would their customers consider it valuable? Can you deliver it in a way that promotes your business and adds to your bottom line in the process? What product or service can the businesses on your list offer to your customers to provide added value and generate more sales for you?

Answering these questions will help you narrow down the list of potential alliance partners to a few that would be a really good fit.

A note of caution here. If you determine that whatever you offer will require some out of pocket costs to you, you’ll also need to figure out the actual lifetime value of that customer and what kind of conversion rate you’re working with in terms of leads to customers on the back end.

This is important because you’ll need to determine how much you can spend and still have your marketing at least pay for itself, if not turn a profit, in order for this strategy to be effective as a long-term marketing tool.

Then comes the final step. Approach each potential alliance partner in order of preference and pitch your proposal, negotiate the fine deals with those who accept and get the ball rolling.

That’s the whole process in a nutshell. It’s not necessarily easy, but it is dead simple and can produce amazing results.

Using this strategy, even as a brand new business, you could quickly dominate your market and experience phenomenal word of mouth referrals and continuous growth.

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