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Alloy.Com Case

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Submitted By nyisrael14
Words 1277
Pages 6
Alloy.com: Marketing to Generation Y

Prepared by: Nahshon Yisrael, Andrea Zapata, Eric Salisbury, & James
Young

Table of Contents Introduction

2

Justification of Core Issues

2

Analysis of Core Issues Effects of AOL Partnership Justification of Alternative Solutions

3
4
5

1

Introduction
Alloy is a clothing and accessories company that targets Generation Y consumers as their primary audience. Alloy hosts a webpage (alloy.com) and a catalog that attracts teenagers, especially girls. The success of Alloy is contingent upon the following core issues that could either make or break the company: 1. The operating expenses are too high and need to be reduced
2. New leads to the website needs to be greatly increased

Justification of Core Issues
1. Their operating expenses are extremely high because they print and ship their too many catalogs, and pay too much for marketing and merchandising issues.
2. Traffic to their website would the increase the gross margin on an order and increase ad revenue Analysis of Core Issues
Alloy needs to generate new leads for their websites. They spend way too much money trying to attract new customers and they rely too heavily on mailing lists to attract new customers and it has proven to be ineffective. They would have to spend significantly more money on

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mailing lists that won’t produce new customers at a substantial enough rate (the response rate on new names is only 1.5%.) Printing and shipping the catalog at its current volume is highly expensive and unnecessary because their catalogs pass hands up to six times. Although shipping the catalog makes a great impression on their market, it has failed to engage them well enough to significantly increase sales. It seems that people use the site ONLY for the community chat rooms and features. In addition, Alloy puts a lot of money in the pockets of their competitors to advertise their online shopping platform and reach their target markets. They have to make reaching that demographic much simpler and effective, and find a way to mine the data much more efficiently to improve their marketing strategy. Increasing the traffic to their website would increase gross profits in comparison to the margins of the catalog sales and would decrease operating expenses because they could gradually fade catalog production out. It would increase greatly increase the already growing percentages of revenues generated from online sponsorship and advertising deals.
AOL has offered a deal with alloy. Matthew Diamond believes it will be good for Alloy.
He believes that it will bring increase Alloy’s visibility. AOL wants $2 million per year for the rights. However a headline deal with Aol would be worth 10% in stock price. No one paid more than $35 for web eyeballs in the past three years at alloy but to anchor the Aol teen shopping by site it would cost $45 of cost per thousand exposures (cpm). While Matt diamond may still not feel that making a deal with Alloy is a good choice there is opportunity in the echo boom of the baby boom made up of children and teenagers born from 1975­19891. With an estimated $56 million consumers in this category that would only grow as well from $56 million to $64 million by 2010. In addition, a study found that 81% of the students used the Internet.

3

What effect might a partnering with AOL have on Alloy’s
Initial Public Offering (IPO)?
One major contribution to Alloy.com’s decision to contract with AOL would certainly be the effect that the publicity such a deal would have on Alloys stock price at their IPO. An analyst to Alloy reported to Alloy executive Matt Diamond that if Diamond or Alloy announced it’s
AOL partnership in Generation Y marketing it would put Alloy on the map, affecting it’s IPO price— a “headline deal” with AOL today could make up as much as 10% on Alloy’s stock price which was now expected to be at $15 a share.
Alloy must carefully weigh is the possible threat and consequence of one of their competitors like iTurF or mXg taking the deal with AOL instead of them. If Alloy fumbles a significant chunk of their market to a competitor will that loss exceed the $2 million that they would have payed yo AOL every year to secure the spot. Diamond was undoubtedly asking himself the question “at which point might a $2 million dollar purchase with AOL at $45 cpm become a profitable one, if ever.”
AOL was asking a high price, and rumors were widely spread that AOL preyed on startups weeks before their public offerings to charge higher prices for their publicity services.
Diamond was in doubt that making the deal with AOL would be profitable and he was confident that Wall Street would see it the same way. “I won’t pay out” Diamond told his analyst. “We only do deals that produce value.”

4

Diamond might have been right but he wasn’t sure. Diamonds business partner Neil
Vogel reportedly had an insight that Wall Street wanted Alloy to make the deal with AOL. Neil reminded his partner that they didn’t want the quickly growing competitor iTurF to intercept the deal. Neil remarks “This is valuable real estate on a really important teen property.”

Justification for Alternative Solutions
1. Justify the alternative solutions in terms of appropriate theory, which means marketing principles 2. Implement feasible and complementary recommendations for implementing the best

solution s Alloy should stop taking phone orders to force consumers to buy online, this will increase profit margins by about 4%. They will also need a more efficient way to generate new leads from people that actually use the internet to make purchases. By purchasing the anchor tenantship with AOL, Ally will strategically block competitors like iTurF and mXg from potentially taking over a significant portion of the online market. In addition, the news of Alloy partnering with AOL to market Generation Y will appeal to Wall Street investors and thus sweeten the deal, that is Alloy’s initial public offering. More investors investing more money means more purchasing power for Alloy. The online market is a rapidly growing sector so securing a promotion on AOL’s teen shopping site is a strong statement and proactive step towards preparing the company for the rise of Generation Y in the online market.
AOL’s asking price to make Alloy it’s anchor tenant is a higher price the industry norm and it would likely be in the best interest of Alloy to negotiate a fairer deal with a lower price. When preparing

5

for a price negotiation with AOL, Alloy should develop a best alternative to a negotiated agreement
(BATNA). A BATNA in Alloy’s case would simply be to walk away. Alloy could present the argument that $45 cpm is $15 higher than anyone else pays for “Web eyeballs”. Alloy could easily reason that it would be hard to anticipate profit from such a deal and that Wall Street would notice the lack profitability just as Alloy has providing little to no additional value to the IPO. Alloy has an interest in purchasing the rights for the sake of their growing online market and could afford to do so after the launch of the IPO.
However, Alloy also recognises that making this deal would be a risk and if risks were to be taken than they should be smart ones. Essentially, Alloy could take it or leave it. If AOL does not want to offer a fair price to Alloy, Alloy can spend the same $2 million on advertising banners on other websites and portals that yeild $20 ­ $30 cpm.

Overview

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