Reason #3 of 8 - Why Most Association Affinity Programs Fail - Bad Fit – Why Should Anyone Care That You Recommend This Solution?

Association executives spend an inordinate amount of time making sure that their focus is on what is most important and relevant to members.  It’s not just about delivering value for dues, it’s about identifying those issues on which they have the most credibility, and on which efforts will have the most impact because they are core to the mission.

The other value associations bring is a reputation as a trusted source of information and analysis, a brand built through years of hard work. 

Both should also be true of affinity relationships - solutions should be relevant and core to the mission, and also be worthy of the trust vested by members in the organization.

In this post we’ll look at the first component, and how affinity solutions should also reflect the association’s core mission.  In the next blog post (‘Reason #4 - Bad company – have a pulse, write a check, be a partner’) we’ll address how to select great partners and vest trust in affinity solutions.

Let’s start by defining the three main types of affinity solutions - horizontal, vertical, and direct: 

  1. Horizontal solutions are those that cut across many different types of industries. For example, conference call services, shipping, office supplies, general office software, prescription drug savings, travel discounts, buying cooperatives, expense reduction consultants, etc.  While these may well be helpful to members, none of them would be called unique and core to a given industry’s success.  Horizontal solutions tend to be price-sensitive commodities, and the value the association bring lies in negotiating discounts greater than those available either on the open market, or which can be negotiated by a large purchaser.
  2.  Vertical solutions are those that are very specific to members and their needs, and are defined by their essential and unique nature. For example, core processors for financial services, title services for mortgage lenders, vehicle diagnostic services for auto repair shops, etc.  It would be hard to visualize a member operating their business without a vertical solution, and as such they are typically differentiated, higher value and less commoditized.  The value provided by the association lies in identifying quality providers of those solutions. 
  1. Direct solutions are those developed in-house, branded and offered directly to members by the association, as though they were a for-profit enterprise and (like vertical solutions) very specific to members and their needs. For example, the Illinois Credit Union League offers a turnkey ATM program for smaller credit unions and a point-of-sale debit card program, among others –the Independent Community Bankers Association also offers a range of direct solutions.  Direct solutions are usually readily available in the marketplace, but offered directly to capture greater margin – sometimes even sourced from third-party vendors but private-labeled.  Direct solutions can generate significant sources of revenue, in some cases dwarfing all other sources of revenue, including dues. But they are fundamentally different in nature, and deserving of their own discussion, so I’ll just mention them here for now – look for a deep dive in a future post. 

The nature of the affinity program and the potential total revenue yield will vary based on the relative proportion of horizontal and vertical solutions –

  1. In addition to crossing over many industry segments, horizontal solutions tend to have slim margins, a function of their commodity-type nature. As a result, horizontal providers don’t typically devote significant resources to marketing within any specific association channel, at least not compared to vertical providers.  Horizontal business models are based on high volume paired with low marketing and customer acquisition costs.  More often than not they will be full revenue-share deals, i.e., no guaranteed minimum, and having no skin in the game reduces risk considerably for the vendor.  On the association side, if all you do is put their information on a website or in a brochure, there isn’t much at risk either in terms of resources expended.  But there is a risk-reward ratio, and low-risk also means that horizontal deals are not likely to yield as much in the way of total revenue.  Total revenue is defined as whatever yield comes from the direct affinity relationship, plus booth fees at trade shows, registrations at conferences, sponsorships, and other ancillary revenue streams. 
  1. Because they are commodities, horizontal solutions are constantly under dynamic pricing pressure driven by competitors. Nothing will kill the credibility of a program faster than offering a solution whose primary value driver is a discounted rate when a member can find it cheaper online with a quick Google search. Horizontal affinity relationships should include ’most-favored-nation’ discount or pricing clauses.  Another key point – make sure the list of members eligible to receive discounts is current, and that the affinity partner changes eligibility based on it, so that what is intended to be a benefit of membership to reinforce the association’s broader value proposition truly is linked to membership status. 
  1. Vertical solutions lend themselves better to thought leadership and content marketing programs, which are the most effective way to build successful affinity programs. We’ll cover this topic in greater detail in future blog posts, but helping educate members on how to address their challenges is lead generation 101 in a digital environment.  Content marketing and thought leadership options can be limited when the primary value driver is based on discount and price. 
  1. Providers of vertical solutions will generally focus more on the association channel and its marketing assets and opportunities, because of the more specific overlap between common target markets. Verticals will better understand the value and see the opportunity, which means potential for higher total revenue (direct affinity dollars plus ancillary revenue).   
  1. Building quality vertical solution relationships into your channel also makes the association more valuable for members. Members need mission critical third party solutions to operate, and understanding latest trends and identifying potential providers is a part of the job. 

It sounds like I’m being harsh on horizontal solutions, but they have their place in affinity programs, especially if the membership has a large component of small businesses who don’t have the market presence to negotiate discounts on their own.  If enough horizontal solutions are bundled together, the relatively smaller revenue contributions from any one can eventually add up to something meaningful.

Horizontal solutions also are somewhat unique in that there are middleman aggregators that act as distributors for solutions from multiple vendors.  Aggregator relationships can be productive if they can bring several programs at once to gain critical mass, are proactive with structured marketing campaigns, and provide analytics on progress towards goals.  Another advantage is the ability to deal with one point of contact instead of multiple, which reduces transaction and opportunity costs, critical given the low margins and yield.  One I am familiar with is Meridian One - no relationship, other than we worked with their team as a provider when at NAFCU Services.

An affinity program heavy on vertical solutions also tells members that the association is focused specifically on their needs beyond any advocacy, standard-setting or other policy activities. 

But focus is just one part of the credibility equation – the next blog post will address the issue of trust, or more specifically, how to ensure quality solutions.  This is not just a quality issue, it goes to the heart of how your program is positioned and branded. 

Lessons

  1. Be consistent in focus on your mission and look for vertical solutions to maximize total revenue
  2. Be judicious in building horizontal solutions into a program, to ensure a proper balance
  3. Identify ‘name-brand’ partners whose success will attract other top-tier providers
  4. Be mindful of the risk-reward equation when considering revenue share deals
  5. If you want to build horizontal solutions into your program, consider working with an aggregator to minimize transaction and opportunity costs

 Next up – Reason #4 - Bad Company – Have a Pulse, Write a Check, Be a Partner

 About David Frankil

Wharton MBA, proven leader, entrepreneur and strategic thinker with extensive experience in for-profit and non-profit management growing clients, revenue and market presence at companies and trade associations.  Former President of NAFCU Services Corporation, where he instilled a for-profit mindset in a non-profit environment, developing an industry-leading and highly profitable affinity program for the National Association of Federal Credit Unions.  David has also helped entities of all sizes that find their strategy, human capital, marketing, business development, sales, and client service processes haven't kept pace with their client and revenue growth.

Mark Schiavone

Founder MSP - we assist Associations provide Quantifiable Value through our comprehensive turnkey affinity program.

8y

Excellent Article David - a great primer for Membership Group Executives and other in the Affinity Marketing space.

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I support the views expressed in this article. The typical affinity group discount models we have seen in the marketplace are now at risk. The products and services they offer are becoming commodities, traded on price and low feature differentiation. Members utilize these services less and less via their professional memberships. Identifying those vertical solution providers who will appreciate the association space is the new frontier.

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