by Tiffani Bova
While some of these deals are merely brand-building exercises, others, such as an exclusive partnership with Reliance Digital, India’s largest consumer electronics retailer, will provide GoPro access to India’s young consumer market. Tony Bates, former president of GoPro, said, “We view this as a strategic partnership that brings much more than just shelves for our products but a true partner to help with GoPro’s success in India.” My guess is Red Bull is hoping to create a similar partnership with Reliance, as it was able to do with Best Buy in the United States.
Will GoPro’s partnerships continue to help it penetrate new markets, develop new products, and reach new customers? That remains to be seen, but I wouldn’t bet against these results. In its second quarter of 2017, its revenue was up 34 percent year over year, with over 50 percent of GoPro’s revenue now being generated from markets outside the United States—which may not be a coincidence since Red Bull is such a strong brand outside the United States and now is seeing a total of 42 percent of its revenue generated from distribution partners.
For now, the choice to pursue partnerships as part of an effort to reignite growth, especially as it pushes into international markets and markets new products to its existing community, appears to be paying off. It won’t solve all of its growth issues, but it’s sure to help it move the brand, its product awareness, consumer adoption, and customer experience forward.
GOPRO
KEY TAKEAWAYS
Many companies make the mistake of thinking that because they are “small” companies, bigger companies won’t want to partner with them. GoPro, despite being a ten-person team, was able to fill a need that Best Buy had with a perfect product for both market context and the new Customer Experience orientation it was pursuing.
You can obviously look for category partnerships that extend your reach and services into a similar customer or market segment. However, less conventional partnerships can be equally lucrative. GoPro worked with car companies, technology companies, sporting franchises, event organizers, and beverage companies in tightly integrated “brand-to-brand” partnerships. GoPro continues to stay ahead of the curve as it aligns itself across sports, technology, and entertainment to further develop meaningful relationships with its customers.
GoPro uses partnerships to extend its brand and tap into new target markets. When it wanted to reach the customer demographic of cyclists, it struck a partnership with Tour de France.
STORY
2
AIRLINES
THE FRIENDLY SKIES
It is literally true that you can succeed best and quickest by helping others to succeed.
—NAPOLEON HILL, Author of Think and Grow Rich
BEFORE THE PASSAGE OF THE Airline Deregulation Act of 1978, air transportation was tightly controlled under post–World War II regulations, and ten big carriers held 90 percent of the American market. At the time, airlines competed on service alone, as fares and where they could fly were controlled by the government.
As a matter of fact, the Civil Aeronautics Board (CAB) set fares that guaranteed a 12 percent return on flights that were 55 percent full. Many might remember these times as the “golden age of aviation,” when stewardesses carved prime rib on rolling carts and passengers could relax (and smoke) in piano lounges in the upper decks of Boeing 747s.
It was a time when there was a dress code in first class, Pam Am and TWA were major airlines, and the entire travel experience was glamorous and exciting. Leisure travel was a luxury back then, and not affordable for everyone—so the market context was: low volume, high cost, limited (customer) penetration.
The 1978 deregulation, which dissolved the CAB, led to the emergence of low-cost, low-frills airlines, looking for high-volume, mass-market penetration, which could now compete against the larger, national airlines. Travel had been democratized overnight and, as anyone who has flown recently knows—good or bad—the level of comfort and “glamour” bears no resemblance to that of the regulated days.
In 1978, no one would have guessed that Southwest Airlines, which was originally a small regional airline forbidden by CAB rules to fly outside Texas, would just a few decades later become the largest domestic U.S. carrier in terms of passenger traffic.
Let’s put this in context. When Frank Sinatra’s “Come Fly with Me” was number one on the music charts in 1958, more than 80 percent of the United States had never been on an airplane. In 1965, it was about the same. By 2000, 50 percent of the country took at least one round-trip flight a year. The number of air passengers tripled between the 1970s and 2011. The IATA expects 7.2 billion passengers to travel in 2035, a near doubling of the 3.8 billion air travelers in 2016.
The International Air Transport Association (IATA) announced industry performance statistics for 2016 showing that system-wide, airlines carried 3.8 billion passengers on scheduled services last year, an increase of 7 percent over 2015, representing an additional 242 million air trips. U.S. and foreign airlines in the United States carried 932 million domestic and international passengers, a record number in 2016.
Less expensive fares have increased the level of travel both domestically and internationally. Airline ticket prices have fallen 50 percent over the past thirty years, even though the cost of fuel, which accounts for more than a third of airfare costs, has gone up 260 percent between 2000 and 2013. Because of this, international airlines cannot survive with operational reach within just a few countries, especially with current cost structures in place. They must be able to extend their service and tap into more destinations than they can on their own. Unlike other industries, airlines cannot merge or acquire other carriers easily—the barrier of entry is high, but so is the cost associated with running an airline.
THE WAY THE WORLD CONNECTS
When the Open Skies agreements began to take shape in the 1970s, further allowing airlines the right to operate services from any point in the United States to any point in another country, multi-airline alliances were born. The United States began pursing Open Sky agreements back in 1972, and by 1982 it had signed twenty-three bilateral air service agreements worldwide. Now a global industry, commercial aviation was connected more than it had ever been in its history. In addition, the market context officially shifted.
While deregulations were supposed to fulfill two main goals—spur competition and reduce airfares—I would argue that it also forced airlines to find innovative ways to connect with, and provide more services to, its now global passengers. The result? Frequent flyer programs and airline alliances.
As the Customer Experience path outlined, customers now view “service and experience” as the product itself. They are voting with loyalty—and are willing to pay more, even sometimes to be inconvenienced, to stay with a brand, based purely on the loyalty points alone.
Just a few short years after deregulations, American Airlines launched AAdvantage, the first airline mileage loyalty program, in May 1981. In a recent American Airlines (AA) media and investor day, AA president Robert Isom said that 1.5 billion AAdvantage miles are earned or redeemed each day or over 500 billion miles earned or redeemed per year.
The program generated $2.1 billion in revenue last year and accounted for much of the 3.9 percent growth in “other revenue” not derived from carrying passengers and cargo. American Airlines looks at the combination of its flight services and its loyalty programs as a key component of its growth.
This quote sums it up, in American Airlines’ words: “To ensure our best customers have the best access and experience that American and AAdvantage have to offer. All of our (program) changes are structured around that.”
Most people think of miles as a clever way for airlines to reward their best customers, a marketing technique designed to keep passengers coming back. But what many don’t realize is that thanks to the ever-increasing popularity of credit cards with travel rewards, frequent flyer
programs have become so profitable that some airlines may be making more money selling miles than they are from selling airfare.
Because of this, airlines have begun to leverage the partnership between airlines and credit card companies en masse. Initially for co-branding and cross-selling, it has been a game changer for both. Delta Airlines has a partnership with American Express (as do many other airlines), which hands out reward miles to cardholders for spending on flights or other expenses.
Yet another consequence of deregulations and other international arrangements was the need to better service international, multi-country travelers. There was no way to accomplish this without a strong partner network. Many years after the loyalty program was created, multinational airline alliances were conceived in the late 1990s and have become an important factor for the strategic growth of dozens of airlines. These alliances are a way for carriers to efficiently and profitably extend their networks through jointly operated flights.
Our partnership with American Express produced $70 million of incremental value this quarter, and we are on pace to deliver $300 million of incremental value in 2017, another record year for card acquisitions.
—GLEN W. HAUENSTEIN, president of Delta Airlines
The coordinated effort and global partnerships changed an entire industry. Founded in 1997, with the slogan “The Way the Earth Connects,” Star Alliance is the world’s largest global airline alliance, with a market share of 38 percent. It was named the Best Airline Alliance by air travelers in 2017, followed by SkyTeam Alliance (33 percent) and OneWorld Alliance (29 percent).
Star Alliance has twenty-seven member airlines, including Turkish Airlines, Singapore Airlines, Air China, Air Canada, and United Airlines, that operate a fleet of approximately four thousand aircraft, serve more than one thousand airports in 194 countries, carry 637.6 million passengers per year on more than eighteen thousand daily departures, and generate $181 billion collectively.
Originally conceived as a small-scale partnership agreement between two airlines, there is no question air travel would be vastly different without these multinational alliances. Furthermore, the fact that airlines may compete and partner for the same set of customers (Co-opetition) highlights the fact that the benefits far outweigh the risks, even in the highly competitive and thin-margin business of air travel.
Why? The improved Customer Experience is undeniable and the value for Customer Base Penetration is priceless. These alliance programs offer passengers an extended network by which they can travel through code-sharing agreements, where two or more airlines share the same flight, listing it in both of their reservation systems. This makes booking easier and moving between connections more efficient. Flight times are reduced, operational costs are streamlined, ticket prices may be lowered, and the “passenger experience” is greatly improved. In an industry hampered by bad publicity for flight delays, lost bags, and occasionally rude staff—loyalty and alliance programs are bright spots.
AIRLINES
KEY TAKEAWAYS
In this example of Partnerships, there were two major forces coming into play: (1) the context of the market shifted and airlines were in no way prepared for or able to respond on their own, and (2) the airline industry is highly regulated and it is cost-prohibitive to capitalize on this opportunity using Product Expansion alone, that is, buying more planes and routes. If passengers were going to have a good experience with international travel, the airlines had to come up with a feasible solution: a coordinated effort across competing airlines was the answer.
There can be situations where a Partnership is with someone who you compete with in some way (Co-opetition). Don’t let that cloud your judgment, especially if a differentiated Customer Experience is what you are aiming for. Customers aren’t concerned with your internal hesitation; they care about the value they get for the money they pay you.
The airline alliances have been copied by almost every industry, especially those that are service- and loyalty-based: hotels, car rental companies, and retailers. Giving your customers a reason to stick with you (deter Churn), spend more with you (Customer Base Penetration), and choose you over lower-cost providers (Customer Experience) will always work to your advantage if you take Partnerships seriously and make them part of your value proposition.
STORY
3
APPLE
KILLING ME SWIFTLY
It doesn’t matter how many times you fail, just have to be right once.
—MARK CUBAN
APPLE, ONE OF THE WORLD’S best-known brands, is known for many things: its innovative products, its focus on design, and its unwavering focus on The Apple Store experience. One area it is much less known for is Partnerships.
It was a 2015 open letter from Taylor Swift, one of the biggest pop stars on the planet, to Tim Cook, Apple CEO, that shined a light on how relationships—Partnerships, more specifically—can go woefully wrong. Apple was no stranger to working with partners, which is why I found this misstep to be such a surprise. They had worked with VARs (similar to Dell and Gateway) and brick-and-mortar retailers to sell and service their hardware products for decades before the Apple Stores opened, and it has recruited tens of thousands of app developers on its iTunes App Store.
In 2003, Apple launched iTunes, which changed the way consumers could purchase and listen to music. The service signed up ten million subscribers in just six months and thirty million since launch, who had collectively downloaded twenty-five billion songs by 2013. With the launch of iTunes, Steve Jobs, Apple CEO at the time, was focused on making the Napster experience better, more streamlined, and more user friendly. He rightfully understood the importance of getting the record labels on board, because without a strong Partnership with them, iTunes would have found itself without much content. Jobs was able to win over the major record labels, which controlled the largest music catalogs on the planet. He allowed some digital rights management; in turn, they allowed Apple to price every song for $0.99. It was, at least in concept, a win-win partnership for both sides.
Another critical Partnership happened in 2008: the App Store launched, with only five hundred applications available for download. Apple knew it needed to woo developers to create apps for the iPhone, iPod Touch, iPad, and, further down the road, Apple Watch and Apple TV. As of January 2017, the App Store features 2.2 million apps. Those examples alone should show that Apple was no stranger to partnering. As a matter of fact, you could argue that much of its success has been because of its partners, who have made the usage of its products more desirable and valuable to a larger segment of the global market they were going after.
Back to Taylor Swift: in the note to Apple’s CEO Tim Cook, she took the company to task for its decision not to pay artists during an initial three-month free trial of Apple Music, the new streaming service Apple was about to launch. Swift wrote: “I’m sure you are aware that Apple Music will be offering a free 3 month trial to anyone who signs up for the service. I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company.”
Remember, the tenets of an effective partnership are trust, fairness, and mutual benefit to both parties. Swift clearly was calling Apple out on their lack of “partnership” with all artists—not just megastars like her but all artists who had their music up on iTunes. Keep in mind that her post was seen by her hundreds of millions social media fans. It’s estimated that Swift is the seventh-most-followed user on Instagram, the fourth-most-followed on Twitter (just under former president Barack Obama), the second-most-streamed female artist on Spotify—just to name a few.
How did this happen, especially from a company that clearly understands the value of “Partnerships”? Well, it ignored its musical artists (the actual product) in its Apple Music pr
oduct launch. It was clearly focusing on “landing” (signing up) as many people as it could during the three-month free trial and then up-selling them to the subscription service—similar to what Spotify and Netflix have perfected: a good strategy, but unfortunately, in its aggressive push, poorly executed.
Apple CEO Tim Cook immediately responded and announced it would pay artists (albeit at a reduced rate) for their music during the free period. Swift’s response: “I am elated and relieved. Thank you for your words of support today. They listened to us.” (@taylorswift13) June 22, 2015.
This story would not have been so glowing if Apple had not already established strong partnerships with record labels, artists, and other component manufacturers in previous business ventures. It had a track record of the right intentions. Couple that with its “Swift” response—and Apple was able to stay on the right side of streaming music history this time around.
APPLE MUSIC
KEY TAKEAWAYS
Defining the role partners play in any business is, of course, important. But if you have a product or service that is reliant on Partnerships to be successful, you better get that right. In this case, Apple Music, like Spotify, relies heavily on content partners to provide music that it can use to populate its “service”—otherwise it has a nicely designed but empty box. If Partnerships are a must-have for your business, everyone better understand how the decisions they make about pricing, features, and availability will impact your partner ecosystem.