Alloy.com: Marketing to Generation Y Table of Contents Introduction_____________________________________ Page 1 ÃÂ· Corporate Level____________________________ Page 1 ÃÂ· Divisional Level____________________________ Page 2 ÃÂ· Functional Level____________________________ Page 2 The Five-Forces Model ____________________________ Page 3 Recommendations________________________________ Page 5 Conclusion______________________________________ Page 8 Bibliography_____________________________________ Page 9 Introduction Alloy is a catalog and Internet merchant of teen-oriented clothing. It directly markets to Generation Y youths who were born in the United States between 1975 and 1989. Top management is currently faced with the difficult decision of whether or not to accept AOL?s steep terms implicated in its partnership offer to become an anchor tenant on its teen shopping site.
Corporate Level Alloy.com operates under a hybrid e-business model; including advertising, distribution channel member, affiliation and community characteristics. The advertising and distribution components are what generate revenues for the company. Advertising space is sold on the web site for sponsors who wish to reach the Generation Y market that Alloy.com
has successfully attracted and retained. The other revenue stream for the company is the retail of clothing and accessories to the target market. Alloy also possesses affiliation e-business model characteristics because it offers links to other sites that could be seen as competitive. This strategy is employed as the sites are not in direct competition and it is believed that these sites would be visited anyway. The affiliation link increases the value of the host site and allows Alloy to collect a profit. Lastly, a major part of the strategy that Alloy uses to attract its market and maintain interest is the community aspect that it offers. This is a major strength as it is highly valued by youths and accounts for the high amount of traffic to the site.
The overall objective of the Alloy site is to deliver community, content and commerce to the Generation Y market. The recognition and subsequent application of measures to deliver this value to its market has met with tremendous success. The site definitely creates a sense of community among its members by including chatrooms, message boards, submissions of letters and articles and submissions of poems and drawings that could be voted upon interactively. In particular, the chatrooms are popular and attract many users to the site.
Divisional Level Alloy employs a focus strategy in combination with differentiation strategy in creating a unique value for Generation Y. This targeted market is a very profitable and large segment estimated at 56 million people and projected to grow. Their incremental allowances are rising and they are also securing jobs. This target market is extremely attractive as they are projected to directly spend about $136 billion dollars in 1999 alone.
A major strength of Alloy is that it attracts visitors to its site according to its superior content and community setting. Alloy differentiates its offering by offering a single, unisex brand. This propels a dynamic boy-girl interaction that accounts for the remarkable success of the Generation Y community offering.
Functional Level Alloy has enjoyed its success by creating superior efficiencies, quality, innovation and customer responsiveness. The user would otherwise visit more than one site, s/he benefits from interactive capabilities, superior content catered to their interests and online shopping all in one web site. This creates a strength for the company in that the more value customers perceive the site to offer, the more loyal they become and the less likely they are to visit a competitor?s web site.
The quality services that Alloy offers is perceived as so by its target market as a result of the successful integration of both male and female teens on the site. By attracting members of both sexes, Alloy has satisfied the desire for communicating with the opposite sex.
A major strength that Alloy benefits from is superior customer responsiveness. By identifying the desire for social interactions with the opposite sex and subsequently satisfying the need, Alloy has secured a loyal user database. These customers visit the Alloy.com web site, enjoy the content and communicate with each other.
A weakness of Alloy?s operations is the lack of online orders. This results in product-processing inefficiencies and lost potential sales for the company.
Another weakness is that only 20-25% of sales are private brands. This results in undifferentiated product quality and undifferentiated product innovations. In addition, it results in an over-dependence on suppliers of the much-desired brands.
The Five-Forces Model 1. The risk of entry by new competitors The technological barriers to entry are low as a result of the Internet and anybody can start up a web site like Alloy.com. In particular, because of the relatively small fees for hosting firms and e-business software, it is easier than ever to offer products for sale over the Internet. There is also a plethora of bricks-and-mortar companies that are developing online sales sites. Alloy has however successfully secured the interests and loyalties of a segment of the target market through superior value offerings. This is not to say that what is successful today will be successful tomorrow. Without continual increases in customer value, business will surely be conducted elsewhere.
2. The level of rivalry among established competitors There is a high level of rivalry among dELiAs, mXg and Alloy for the share of the Generation Y market. Other competitive retailers with online capabilities include The Buckle, Gadzooks, Abercrombie & Fitch, The Gap, American Eagle Outfitters, and Guess. Other competitive entertainment-oriented offerings include the online versions of magazines Seventeen, Twist, Jump and Bolt.com. It is obvious that there is an abundance of competitive offerings for a share of the Generation Y market. Alloy occupies a large share of the market because of its successful integration of content, community and commerce.
There is a risk that in the future, the competitive sites will, in an attempt to attract customers, increase their value and offer services similar to those of Alloy. This is a threat to the future success of Alloy in this increasingly fragmented marketplace.
3. The bargaining power of buyers The Generation Y buyers maintain the power in the transaction. With so many competitive offerings available online, this market could just as easily choose to purchase elsewhere. Comparison-shopping can easily be done using the Internet and the shopper can effortlessly find the best value. Offering added value further differentiates their offering and thus, puts more power in the hands of Alloy. This should be achieved so as to retain customers.
With regards to the sponsors who purchase space on the web site, Alloy has considerable power. The base of registered visitors and catalog recipients is growing, which allows Alloy to remain a desirable advertising space and also maintain selling power.
4. The bargaining power of suppliers Alloy outsources as many operations as it can with the exclusion of marketing and merchandising. It relies heavily on quick order and re-order ability so as to control inventory levels. Alloy maintains control over the content of the site by maintaining in-house staff and the users also have the opportunity to submit poems, letters, drawings and articles of their choice.
Alloy offers both private-label brands and recognized teen brands as part of its sales mix to attract buyers. This strategy is employed so as to ensure market retention and survival. This also allows Alloy to retain market power as it influences a desirable asset: Generation Y.
There is one caveat, however, selling non-unique brands allows for the existence of a variety of other places teens could visit to purchase the same items. It also not only costs Alloy more money to purchase, but also makes Alloy dependent on the supplies of other companies to satisfy its customers.
5. The threat of substitute products or services Currently, the most significant substitute products and services identified are dELiAs and the online magazine mXg. More generally, online retailers and the neighborhood mall are also considered to be threats. This narrow identification of competitors only reflects Alloy?s commerce objective; the distribution of merchandise. The omission of the community and content aspects of the web site can have negative repercussions. Alloy currently operates in an extremely fragmented marketplace with copious vendors of clothing and accessories, as well as other offerings to this lucrative market niche.
A major reason for Alloy?s staggering success and large user database is the value-added community aspect as well as the content of the site. The target market is attracted to the site not only to purchase the merchandise offered, but also to participate in an online community consisting of other teens. Also, the content of the site endears teens that are seeking entertainment. Because these are essentials to the success of Alloy, other web sites offering P2P software, chatrooms and other interactive software should be included as substitutes as well as web sites that feature entertainment. If the target market is lured to the Alloy web site for these reasons, they could just as easily be lured to any web site that provides entertainment and interactive capabilities.
Recommendations 1. Since less than 5% of Alloy?s revenues come from orders placed online, more awareness must be created regarding the advantages of purchasing online to initiate change. Incentives should be offered to its online customers such as discounts, coupons and special promotions. This would result in cost savings for the company as it costs double the amount to process orders over the telephone. This cost saving could also be transferred to the customer. Research should be conducted to uncover the reason(s) that the majority of orders are placed over the telephone instead of online and measures should be taken to remedy this inefficiency. The specific customer expectations regarding their visits to the site should be uncovered and the necessary measures should be taken to ensure that these expectations relate to what they value. Customers should first be made more aware of the increased value of shopping online and then it is vital that Alloy meets and surpasses these expectations.
ÃÂ· Alloy should add value and create competitive advantage online by creating a better online shopping environment that induces online sales and facilitates the selection and evaluation of alternative product choices. This provides that foundation for a positive attitude towards shopping online, which is the first step toward generating the motivation to purchase something. One suggestion is the use of an agent that makes intelligent suggestions to the buyer according to their past buying preferences. This would increase customer loyalty and aid in the need recognition stage of the consumer buying process.
ÃÂ· Alloy should evaluate the costs and benefits of establishing a partnership with a company that allows parents to control the online spending of their children. This could increase the online sales by having parents establish a credit card account and/or an online allowance account so that their children could make purchases.
ÃÂ· Another suggestion is to make an area on the web site where teens can comment on their purchases or what they like that Alloy offers. Having a voice makes the client feel as though his/her opinions and business are valued. This would not only allow Alloy to collect useful feedback about customers? post-purchase evaluations, but allow induce other potential buyers to make purchases as well. Testimonials of satisfied shoppers would be useful sources of social influence for the potential buyer to transform behavior intentions into actual behavior.
ÃÂ· Alloy could even have virtual models available on the web site for users that wish to input their measurements to the system and then virtually try on the clothes. This would not only provide added value to the customer, but also provide Alloy with useful information about the target market.
ÃÂ· Alloy could take advantage of its large user database and create chatrooms that discuss certain articles of clothing to uncover what the target market wants. The chatrooms could focus on specific clothing that is offered or potential clothing that could be offered. This would combine the community aspect that is so attractive to the market while simultaneously promoting products and their purchases.
2. The option of establishing a partnership with one of its major competitors should be reviewed. Since dELiAs is primarily a commerce site, partnering with Alloy would be mutually beneficial. Alloy would benefit from dELiAs myriad brands and marketing methods and dELiAs would surely benefit from Alloy?s loyal database of teens that enjoy the superior content and communication capacity. These two competitors could actually provide complementary services to the target market.
3. To continuously enlarge its user database, Alloy should offer incentives to its members for ?telling-a-friend? such as discounts or coupons. This would allow Alloy to maintain market power and enlarge its market share in the rapidly flooding environment.
4. To create added value, Alloy could invest in software that offers design-it-yourself capabilities to its members and then users could interactively vote on the items and according to pre-established conditions, the clothing could be sold to clients. This creates a value to the users as they can purchase a unique item that has been rated by their reference groups. This creates tremendous value, as there is a large degree of social risk involved in clothing purchases. Also, users could enjoy designing clothes and then enjoying recognition and social approval from their peers.
5. Alloy should investigate the benefits of establishing a partnership with a clothing designer to try to further differentiate their offerings. Having a desirable private-label brand would decrease competition, as its offerings would be significantly distinguished. This would provide a better selection of products provided that adequate market research is conducted to ensure style acceptance. In addition, Alloy would retain more power as it would rely less on the supply of established brands and more clothing would be designed in-house.
6. In an effort to succeed in the increasingly fragmented industry, Alloy should consider the option of consolidating into an online organizational structure such as a mall with indirect competitors such as Gap to take advantage of economies of scale and cost savings. There can be strategic alliances with other clothing retailers that offer similar, but not directly competitive offerings. Other alliances that should be made include a bookstore, magazine web sites, music store/download area, movie store/download area, travel services, concert tickets and other offerings that cater to Generation Y. The market would visit the online mall and get all their matters done in one area widely populated with other teens. Perhaps interactive shopping could be carried out where teens shop together through group instant messaging capabilities. This would increase the value for shoppers, as there is a large degree of social risk inherent in clothing purchases and with the help of the opinions of others, the degree of social risk could be lessened. This would also create tremendous profits from advertisers who would most definitely be interested in reaching this market. The mall could also include a virtual ?food court? where teens could browse through the different restaurant sponsors and receive coupons for their next purchases.
Conclusion Of major importance is to uncover and understand what goals users have in their action environment on the Alloy web site. Determining what would convert intended purchases into completed purchases is of vital importance as well. Providing the foundation for a positive attitude towards shopping online is a major step that Alloy must undertake, as it is the first step toward generating the motivation to purchase something. Whether this purchase is completed online or over the telephone is also important, but the purchase is primary. A decision must be made whether a strategic alliance should be created with dELiAs, or if Alloy should consolidate into a mall with several other companies. Alloy has a tremendous opportunity being a successful provider of community and content, the commerce aspect just needs a little enhancement.
Alloy?s top management has many options to consider in its decision whether or not to accept AOL?s offer. One major factor to consider is how much control they want to maintain and how much risk they are willing to tolerate in the future. Partnering with AOL would surely create a more stable environment in the rapidly changing marketplace, but would not yield nearly as much profit as is possible with the proper employment of the recommendations outlined above. Declining AOL?s ostentatious offer would allow Alloy to continue on its surge of growth and, with the proper actions taken, become the leading provider of teen content, community and commerce.
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Harvard Business School. (2000). Alloy.com: Marketing to Generation Y. Harvard Business School Publishing: Boston MA.
Kotler, P., Armstrong, G. & Cunningham, P.H. (1999). Principles of Marketing: Fourth Canadian Edition. Prentice Hall Canada Inc: Scarborough, Ontario.