More often than not, today's alliances are created to increase market penetration for a company's product or service. In fact, according to the Coopers and Lybrand survey, 54 percent of firms that formed alliances did so for joint marketing and promotional purposes.
For small companies, pairing up with a large company that has mass appeal and vast marketing resources opens up a world of possibilities. Clotee McAfee and Ruby Eddie, co-owners of Uniformity LLC, a Los Angeles manufacturer of fashionable high school uniforms, knew they had an innovative product--but they weren't too naive to realize they lacked the marketing clout to make a real impact.
"We knew we didn't have a Calvin Klein budget, but we needed to market [our uniforms] that way to accomplish what we wanted," says McAfee, 43. "We had to get our name in front of a lot of kids for [our product] to be accepted."
In October 1996, McAfee wrote to Macy's West, telling the department store chain about the product, how she and her partner wanted to market it, and why an alliance would benefit both companies. Macy's responded with strong interest, not yet having entered the clothing market for public school uniforms. A year later, Uniformity's clothing line debuted in Macy's Baldwin Hills, California, store, with plans to expand to another 10 locations on the West Coast. What's more, Macy's put its marketing clout to use for Uniformity by issuing a press release for the grand opening of the new in-store boutique. The two companies plan to participate in several more joint marketing campaigns later this year.
Alliances also make sense for high-tech firms such as Liquid Audio, a Redwood City, California, company that develops software for distributing music over the Internet. Since it was founded in January 1996, Liquid Audio has created more than 20 alliances with small and large companies, primarily for the purposes of joint marketing and product development.
"Alliances are important to us because we must stay focused on our core opportunity," says Robert Flynn, 43, co-founder of Liquid Audio with Gerry Kearby, 50, and Phil Wiser, 31. "We have limited resources, so if something isn't essential, we don't want to spend our time and money developing it," says Flynn.
Instead, Liquid Audio has turned to its many partners to expand its horizons. Alliances with record labels such as Capitol Records, BMG Entertainment and EMI Records Canada have given the company the necessary music content for consumers to download. Meanwhile, alliances with technology partners such as Microsoft, which brings its audio streaming technology to the table, have added value to Liquid Audio's offering.
Strategic alliances prove especially prudent in industries dominated by big players. One example: the Integrated Suppliers Alliance of Wisconsin (ISAW), co-founded in April 1997 by Wayne Riekkoff. Riekkoff, owner of KM Tools Supply Ltd., a distributor in Menomenee Falls, Wisconsin, saw that the decision made by many manufacturers to reduce the number of vendors they work with was squeezing out small companies lacking the more diverse offerings of larger distributors. As an alternative, the ISAW, which has 10 member companies, now offers a complete range of products to manufacturers by pooling all the members' resources.
"ISAW allows small distributors to compete with large, national distributors," says Riekkoff. "When they put all their resources together, they have much more to offer."
Alliances are also beneficial when companies want to expand beyond their current geographic boundaries. Partnering with an international company to enter unfamiliar territory can be a smart move--and is often much easier than going through the arduous process of building the expertise yourself. According to the Coopers & Lybrand study, 50 percent of firms involved in alliances market their goods and services internationally vs. 30 percent of nonallied participants.