Monday, October 30, 2017

Strategic Partnerships in an Ecosystem Model (630-4)

A collection of strategic partnerships is an excellent addition to a company and indeed essential. A standard partnership model focuses on elements of customer need directly related to your product and finding partners that enhance product benefits and address those needs. Partnerships serve to further the impression that one's product provides benefit and successfully addresses the need you are targeting.

Example Product Focused Strategic Partnerships
Chapter 14 of It’s a Jungle in There discusses the value of the strategic partnerships. Schussler provides an example of a "jungle" retail experience that is enhanced by partnering with company skilled in a process by which the customer (children and their parents) "produce" the product they buy, in that case, a plush dinosaur.

Collaboration with a non-profit such as with fundraising 5K and similar event can also be a valuable strategic partnership. For a health-related product such as one focused on providing dietary advice, an active experience offers access to an energetic audience seeking a healthful lifestyle.

Need fulfillment often requires strategic partnerships. Even the behemoth Amazon has a dependency on others to fulfill a need. Until Amazon has its own delivery service for 100% of its products, it must engage shipping companies to bring the product purchased to the customer, or return it if it isn't acceptable. The financial success of the shipping companies (UPS and the USPS in this case) is essential to Amazon's success.

However, this is an inadequate way of seeing the customer need. Customers have more complicated needs outside of the requirements your product addresses. Thus, your product only fulfills a small proportion of the consumer's needs.

Meeting the Broader Needs of the Customer
In fact, the need associated with your product is a subset of related demands to accomplish a customer's larger goal. An alternative strategy requires a broader investigation of one's product as a component of a more extensive customer experience.

For example, one does need a "sponge" from Amazon. One needs to keep one's home clean. This makes the logic of Amazon's Prime Pantry, and it's push for users to have scheduled and automatic deliveries more clear. All those items in the Prime Pantry are solving the more substantial need to keep my home clean by making sure that I list everything I might need and Amazon provides it, potentially without my asking for it. The Amazon approach to meeting broader needs is to expand and consume other companies related to that need. As an example, Amazon created AWS, its own cloud-based IT system, is developing its private distribution network with individual drivers and airplanes, and recently purchased Whole Foods after buying a slew of other online providers.

Amazon's strategy isn't always possible. As an example, you don't "need" a video from Netflix. You need entertainment for a few hours on Saturday night. A chain of elements, including an Internet service provider, and a seller of a TV are essential to your being able to watch a movie. Netflix must consider those aspects if it is going to succeed and it cannot incorporate those elements into its product. So for Netflix, involving other organizations is critical.

A strategy must then identify an entire chain of needs and efforts/purchases that the customer deploys to accomplish the greater need. And then form relationships as a part of a broader ecosystem of customers and providers including values outside of one's immediate product value. For the company, the main difference, as compared to strategic partnerships, is that the overall goal is to ensure that the chain of needs is met.

The Ecosystem also Affects Your Success
Companies are used to battling competitors who aim to steal their market by offering more value or a lower cost or both. But in a broader chain, your competitive disadvantage may not be due to your competitor. If in the case of Netflix, the need to "find a movie I want to see" may be determined by some other participant in the ecosystem. There is a chance that the customer identifies a movie that isn't available on Netflix but is available at a nearby Redbox. The ecosystem has just redirected the "get a movie" need away from Netflix. Netflix lost a customer to Redbox, not because of Redbox but because of someone's else's search engine. This lost sale potential explains why a recommendation engine is vital to Netflix; it ensures that the movie the customer decides to watch is determined by Netflix, not by someone else in the ecosystem.

The success of the company thus depends on
  1. awareness of the complete customer experience including broader needs related to the specific product needs
  2. the ability of the provider elements to meet the overall requirement of the customers  
  3. your utility to satisfy a particular component need versus someone else in the ecosystem
  4. attention to the broader ecosystem, so you reinforce the value of their product to meet a specific requirement in the chain.
Final Thought: Who to Engage?
An ecosystem model also provides guidance regarding the need for and extent of strategic partners. The chain of providers must have enough alliances to meet the overall demand, yet partnerships outside of that greater need are potentially unnecessary and a distraction. With each coalition, you may be enhancing profitability, but you may also be providing a competitor with the information they need to undermine your product. The strategy of identifying the broader need helps you optimize strategic partnerships to achieve the highest benefit regarding cost reduction and improved pricing.

References
Photo CreditTwisted link chain.jpg. Author KDS444. 20 June 2012. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

2 comments:

  1. The Amazon and USPS relationship is a prime example (pun intended) of a strategic partnership. The ecosystem that has emerged since the explosion of Amazon, has meant that the USPS, formerly running in the red has been running in the black and providing Sunday delivery for prime customers, which never would have happened without the market need forcing their hand.

    Great Post- Nancy

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    1. Indeed. Amazon has given the USPS a life beyond stuffing our boxes with junk. Not only did Amazon give it money but we can now see that it provides value. The partnership has given the USPS a purpose and new meaning.

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