ASAE Membership Marketing Symposium 1 ASAE Membership Marketing Symposium March 19, 2001 Kevin...

ASAE Membership Marketing Symposium

1

ASAE Membership Marketing SymposiumMarch 19, 2001

Kevin Whorton Director of Strategic Marketing

ChainDrugStore.net

National Association of Chain Drug Stores

Membership Perspectives on Industry Consolidation


2

Why Are We Here?

I. Consolidation Happens

II. Learn from Others

III. Observations from Survey Results

IV. Your Experiences


3

Before We Start A few key points to make ..

Contrary to the old saying, perception isn't reality--however it's more important than reality

In trade associations we often deal with small numbers and very one-on-one

We need "Spin" for outbound communications, to influence public opinion and generate sales

We need "Facts" to run our internal businesses, manage the expectations of our leadership

Lots of details in this presentation to get to a big picture that's hard to see without the data

Ignorance isn't bliss. This data is flawed, but it's the best we have to work with

We'll present some top-line results, then cross tabs to explain some fundamental principles


4

I: Consolidation Happens


5

Current Consolidation Waves

Consolidation is an ongoing phenomena in most industries Driven by many factors over which we have no control

Investors reward growth—internal or external! Real efficiencies are possible—eliminate redundancy Larger size = greater market influence/control Eliminate competition: if you can’t beat ‘em, join ‘em

Real effects on associations as a result Decreases in total membership and dues Fewer small-company or independent operator

members; more of a ‘big-company’ feel Often, more pressure to perform if dues, fees

have to rise to offset consolidation


6

Trade Association Structure

‘Typical’ trade association relies on a variety of revenue sources:

Direct DuesAssociate DuesExhibit FeesConference RegistrationsProducts/Services (research, publications)

Members are often ‘2D’ in what they expectGovernment relations—legislative and regulatoryForums and opportunities to work togetherPerhaps public awareness/broad industry

relationsSo the expense side reflects these priorities


7

My Association: Dealing with Challenges Big changes in the industry ….

Several acquisitions per year claiming members among drug chains and supermarkets

Character changes rapidly: from many 200 store chains to a few large: Wal-Mart, Safeway, CVS

Sharp change in development strategies: Recruiting supermarket based operators—50 top chains

belong Recruiting regional chains—many small,

previously not pursued Recruiting international chains And consciously not adding dot-coms, non-Rx retailers

Changes in services … Same government relations, similar revenue structure E-commerce initiative: ChainDrugStore.net

Net effect—sharp increase in total chains and stores represented (170 domestic and 32,000 stores)


8

A Need for Empirical Trend Data

Survey conducted among associations Quantitative survey conducted via emailA total of 70 trade associations participated

Included 48 CEOs and 22 individuals attending the Symposium

Looking for several key variables: actual cross section within many industries

Difficult to establish “best practices” because optimal strategy varies with each association’s:

Dependence on duesPrevailing market shareGeneral business model


9

II: Learn From Others

Survey results and comments


10

Association CEOs Comment

“A significant part of the focus on member services has moved toward servicing the significant players in the market to ensure that they remain satisfied with the association's products, services, and response to their issues.”

“(We’re) seeing increases in total associate/supplier members while regular membership is remaining even—increases (are being) offset by members lost to consolidation and going out of business, in addition to those choosing not to renew.”


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39%

20%

23%

31%

17%

12%

11%

29%

9%

8%

0% 10% 20% 30% 40% 50%

Over 70%

50-70%

33-49%

20-33%

under 20% Top 10Companies inthe Industry

Your TotalMembership

Proportion of Total Industry Volume Covered: 10 Largest Companies, And Your Total Membership


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And the Point Is?

If I'm VP Sales for a prospective associate member and … If I visit each of the top 10 companies' headquarters,

I reach 51% of the industry According to this, if I [use a list, visit the conference, sponsor

an event, advertise] I reach 61% of the industry

0

10

20

30

40

50

60

70

Assn pct of industry

Top 10 companies

Difference

Assn pct of industry 61 54 70 58 62 60

Top 10 companies 51 42 54 51 57 36

Difference 10 12 17 7 6 24

Overall Small Medium LargeLow

GrowHigh Grow

Median pct share (computed from ranges)


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Relating Size, Growth to Your Value Proposition Growth

High growth associations seem to operate in fragmented industries: top 10 only makes up 36% of total business

High growth associations offer huge premiums to primary members who want to interact with peers, and to associates who want more market exposure: 24% more of the business

Low growth associations (lower than 15% 5-year budget growth) operate in concentrated industries: 57% top 10

These associations represent 62% of the market Size

Large associations are in industries where top 10 is 1/2 the business and only offer an additional 7 share points

Medium sized are in far better shape, operating in concentrated industries but offer an additional 17 share points

Small associations are in less concentrated industries, but offer a decent premium: an additional 12 share points

However, working with them only gets me 54% of the market—I have to work with others as well

This may be why the association is small/lacks resources


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Key Questions Regarding Market Penetration

How do we clearly demonstrate the value proposition of the association: to associates, exhibitors, advertisers to reach a

higher proportion of members and price accordinglyand more importantly, to primary members to

consider joining this communityand perhaps the public to convince them that you’re

an articulate voice of the industry you serve How closely do we track our industry?

Do we know who our prospects are … with regard to increasing industry penetration

Are we taking steps to improve our shareDo we feature this kind of information in our

communications vehicles (when it befits us!)


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43%

69%

34%

16%

23%

16%

0% 20% 40% 60% 80%

Increased

Roughly the same

Decreased The Industry'sOverallConcentration

YourMembership'sMarket Share

Recent Trends in Concentration: In the Industry, and the Market Share of Members


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And the Point Is … More associations see eroding market share, while

industry concentration continues to increaseThe harm is indirect in the short term; half of

associations increased share past five years, half faced declines or stable share

However, most report that their industries were becoming increasingly consolidated

The impact of the association has to suffer over time--many comments in our survey underscores changes in character, influence and leverage, not financial impacts

Keeping consolidation and association market share on the Board's radar screen is critical

Ensure that you're being graded on a curve Ensure that they understand the motivation for dues

increases, increased membership marketing efforts from the association's perspective, not merely from

their own company's perspective!


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18%

24%

21%

37%

57%

60%

0% 20% 40% 60%

Other methods

Web site/outbound e-mailmarketing

Exhibits at otherassociations' trade shows

Personal sales visits

Response to incominginquiries

Proactive direct marketing(mail/telemarketing

campaigns)

Pct of chains

How Trade Associations Recruit New Members


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And the Point Is …

Comparing associations by their reliance on dues tells us: High dues-reliant associations* are more likely to use

personal sales—consistent with high concentration, and high dues revenue per “sale”

Low-reliance associations typically use more tactics— especially 'passive' ones: web site, inquiry responses

High usage of direct marketing among all associations

*Over 35% of total budget comes from general/primary membership dues

0%

10%

20%

30%

40%

50%

60%

70%

80%

Low High

Low 19% 73% 35% 73% 35% 19%

High 52% 58% 13% 52% 19% 10%

Personal sales

Proactive DMExhibits-

trade showsInquiry

responseWeb

site/emailOther

methods


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Key Questions Regarding Member Recruitment

Review your tactics How often do new members have to come to you, versus

you finding them How effective are these methods are are they collectively

enough All prospects were not created equal, how does your level

of effort relate to the value of the prospect you pursue What is the real value of the company--in terms of

increased exhibit, ad, and other revenue--not just in terms of their direct participation

Who is inquiring—and who else should you be contacting within a prospect company?

In terms of level, ability to to make a commitment, attend events personally, drive participation by employees

How well do the mailing/calling lists, circulations, and attendee profiles fit your needs vis a vis your direct marketing, advertising, and exhibit efforts?


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11%

13%

16%

22%

31%

36%

73%

0% 20% 40% 60% 80%

Other concern

None of these concern us

Lower profile/prestige of the association over time

Losing market share directly from consolidation

Losing market share due to lower willingness/abilityto pay by members that stay in business

Less interest/support from exhibitors/sponsors

Losing more operating revenue in the form ofgeneral member dues

Specificconcerns

Significant Concerns as a Result of Consolidation


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Concerns reflect current priorities Associations that rely heavily on dues are most

concerned with lost revenue Associations that reply less on dues are

concerned with exhibitor support Affordability (willingness/ability to pay) matters to all Loss of market share (the underlying problem) is

less of a concern

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Low rely

High rely

Low rely 31% 62% 38% 15% 50% 12%

High rely 24% 82% 45% 12% 24% 9%

Losing mkt share directly

Losing dues revenue

Losing share-lower ability

to pay

Lower industry profile

Less exhibitor support

Other concern


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Financial, Membership Characteristics of Associations

Profile of responding associations:Average size association Mean Median

Total general members 1,967 540Total associate members 309 108Budget size $4.91M $2.20M

Mean percent of total income: Today 5 yrs ago

General/primary member dues 42.0% 45.4%Associate/affiliate member dues 8.2% 8.7%Exhibit/sponsorship income 20.3% 19.9%All other sources of income 29.5% 26.0%

Average changes over five years: Mean Median

Total general members 9.6% 0.0%Total associate members 22.0% 2.8%Total budget 53.1% 18.8%


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What is the Estimated Cost of Consolidation?

Survey question: how many members companies have you lost over the past five years due to mergers and consolidation? (outside of 'normal' attrition) We multiplied average dues times lost members to measure the total

financial cost (in terms of money you don't have today from cumulative membership losses)

We look at this in terms of total revenue, as a percent of the association's total budget, and as a percent of total revenue from general/primary member dues

Results: Members lost to mergers and consolidation 73 companiesEstimated Dues Income Lost $206,190 As a percent of budget 5.4% As percent of membership revenue 10.8%


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Looking at lost revenue by association size and reliance on dues: Large associations are affected least as a percent of their

budget (only 2.8%) Medium to smaller are losing over 6% of total budget—and as

much as 15% of their membership revenue Obviously, associations that rely more heavily on dues are

losing a far higher proportion of their revenue

0

2

4

6

8

10

12

14

16

Pct budget

Pct dues

Pct budget 5.4 6.7 6.8 2.8 3 7.8

Pct dues 10.8 10 15.3 5.7 10.7 11.3

Overall Small Medium Large Low rely High rely


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13%12%

9%16%

22%29%29%

34%31%

50%53%53%

0% 20% 40% 60%

No response needed on our part

Recognizing sub-units of companies as members

Other changes

Adding new governance structures to be more responsive

Changed structure/dues of associate/affiliate members

Increased overall dues for current general members

Changed the dues structure to capture more revenue

Reduced expenses and/or staff to offset revenue loss

Moving aggressively into new markets or membershipsegments

Increased efforts to reduce member loss

Created new services to diversify the membership base

Increased efforts recruiting additional general members

Actions taken

Ways Associations Have Responded to Industry Consolidation


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Actions taken tend to reflect an association’s ability to mount efforts Small cut expenses, increase dues but don't change structure Medium add services, change their primary dues structure Large go into new markets In general, action (retention, recruitment) prevails over structural

changes (governance, charging subunits of merged companies) Changes occur primarily to general dues, not associate dues In 'other' some actually cut their dues to ensure affordability

0%

10%

20%

30%

40%

50%

60%

70%

Small

Medium

Large

Small 33% 13% 47% 47% 40% 47% 27% 20% 13% 27%

Medium 24% 48% 56% 48% 64% 36% 28% 20% 12% 24%

Large 18% 27% 55% 59% 50% 27% 45% 14% 14% 23%

Incr dues

Chg dues struct

Incr recruit

Incr retenti

on

New service

s

Reduced

expen

New Market

s

Add gov

structu

Recognizing subuni

Chg assoc dues


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Trade Association Respondent Profile

Sl i ce 1

0%

Sl i ce 2

0%

Sl i ce 3

0%

Flat rate33%

Sliding scale67%

Dues Structure

Strong competition

16%

One key competitor

20%

No direct competition

64%

Competitive Position in the Industry


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Loss of market share has a stronger effect on degree of Board concern than competitive position, industry concentration, budget growth, other variablesWe often worry about and focus on something after it's

occurred and shows up in our numbersAssociations with a constant market share are split

between considerable, some, or little/no concern

0%

10%

20%

30%

40%

50%

60%

70%

80%

Considerable concernSome concernLittle/no concern

Considerable concern 25% 73% 40%

Some concern 46% 27% 40%

Little/no concern 29% 0% 20%

Increased Decreased Constant


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“The most negative aspect is its impact on volunteers. With consolidation there are only a limited number of chairs available in a company. Good, talented people are let go, many with non-compete agreements—and the industry plus association are the losers.”

“We've had to cater more to the larger companies. They are on the leading edge of operations, and we can benefit from their influence and learning.”

“We now focus more on government/legislative efforts to protect the small businesses that make up the majority of our membership.”

Survey Comments from your Colleagues …


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“The association is the result of a merger of two competing associations. After previous unsuccessful attempts to merge, the single biggest driver at this point was consolidation within the membership base of both previous associations.”

“We are a global organization. Consolidations have resulted in an increase in internationalization of the organization.”

“Larger companies have less need for association services.”

“Forced us seek out merger opportunities with other associations to help us serve different but related market segments.”

More Comments from your Colleagues …


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“We've changed from being strictly a "trade association" to one that more closely represents the entire industry/channel. We've also eliminated a lot of peripheral service areas and concentrated on our core competency development.”

“It's had no real impact or required action on our part—what's occurred has been offset by the new niches that we have embraced.”

“There is the potential threat to our government relations efforts as companies develop more resources in-house to address that area. The Association was primarily founded upon a government relations need.”

And Yet Another Page of Comments …


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“Improved and more efficient member communications. Raise profile and thus value of association in the industry.”

“Perception that association is a "mouthpiece" for largest member, who is the most dominant player in our industry.”

“Some positive results since larger companies are more professionally managed.”

“The biggest change has been in the volunteer base and support—not always does the most active member remain after a merger (either due to retirement, sometimes from assignments).”

Ran out of Sub-Heads …


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“Lower attendance at meetings as conglomerates send fewer representatives, and there is less purchasing of product due to fewer attendees.”

“More industry share is in fewer member hands—smaller committees, less demand for social activities, meetings are shorter and at more convenient locations, on-line and e-services are expanding.”

“We're looking at businesses supplied by our membership—not an option 5 years ago.”


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III: Observations from the Survey Results


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I: Consolidation is a Concern

Many associations indicate real effects from consolidation

Often not a high profile concern—a strategic issue, just not high priority for many organizations

Those least concerned are often financially secure, and have a more diversified revenue base

Many of the associations most concerned are smaller associations, or companies with the greatest direct dependence on dues

Many associations are concerned now Often laying the goundwork to exploit future

opportunities later for diversification, new servicesEven governance, association mergers are an option to

maintain size, prestige, and adequate member value


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II: Consolidation Costs Association Far More Than Direct Dues Income

Associations may understate the actual costs of consolidation, beyond the short-term pain

The real monetary effect is greater than foregone dues

Associations deciding to tighten belts may also be cutting member acquisition budgets when they are most needed

Members often experience member loss both among direct members and associate members

Communications strategies need to change to convey ongoing size/strength of the associations


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III: Often, Limits to Aggressive Response

Proposals may be submitted to act to offset loss but less likely to be approved

Higher dues, fewer services not consideredMore revenue growth and more belt-tightening are not

seen as enticing by leadersDifficult to be decisive and to penetrate new markets

Organizational philosophy may rightly be to support the existing member—not the organization itself

Hence, rate decreases during times of lost membership With consolidation, member market concentration

may increase so fewer members = same industry sizeAssociations may get higher dues from larger

companies, but they lose community, volunteers and advocates


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IV: What are Your Experiences?

ASAE Membership Marketing Symposium 1 ASAE Membership Marketing Symposium March 19, 2001 Kevin...

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