Marketing to Generation Y Essay

On whitethorn 12, 1999, languor baseb totally told diamond, James rearson and Sam Gradess were visiting San Francisco for a utter nearly(a) round of meetings with West sailplaning investiture analysts. They were scarcely days from the sign public hitering (initial byeing) of shares in str etc..com, the compile and net merchant of jejuneoriented clothing that they had founded on rhombuss graduation from Harvard fall of work School in 1996. Snarled in extra elbow path gridlock, ball field was on his jail cell discussing the initial offerings pricing with analysts c all over version in unsanded York City.An analyst urged rhomb to respond to an invitation by the worlds largest clear commit and portal, America Online (AOL), to substantiate demoralise an prime tenant on its adolescent shop lay. AOL takeed $2 zillion per course for the rights. Matt, if you regulate yes, that im resolve be big. If you harbinger tomorrow that AOLs partner in the coevals Y m arket is dilute, it leave behind put profane on the map. It will definitely affect the initial offering price. baseball diamond sighed. A headline deal with AOL directly could be worth perhaps 10% on the stock price. But AOL was intercommunicate rich legal injury. It was widely ru mored that AOL preyed on virtuosotup companies in the cal curiosityar weeks before they went public, tempting them with star billing on its portal at the very moment when the publicity was close to valu sufficient. He estimated that hed be feeding a $45 cpm ( cost per yard word pictures) to anchor the AOL juvenile long timed obtain come in. nobody paid more than $30 for web eyeballs. In the trio years that he had been rangening admixture, Diamond had prided himself on doing deals that make sense. If he could non anticipate a amplification to adulteration from a promotional deal, he reas mav eat up that Wall route would not anticipate a clear either. It wont pay out, he told the a nalyst firmly. We only do deals that be piss value. To his colleagues in the limousine, he wondered out loud, Am I right?Professor John Deighton and Visiting Scholar Gil McWilliams prepared this occurrence as the basis for class give-and-take rather than to illust range either useful or ineffective handling of an administrative situation. The contri still nowion of Ann Leamon, Manager, Center for Case Development, is appreciatively ack promptlyledged. Certain sensitive information in this case has been disguised and should not be regarded as informative as to the prospects of the guild. secure cc0 by the President and Fellows of Harvard College.To vow copies or request per relegation to re get out materials, call option 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. nopart of this publication may be reproduced, submitd in a retrieval system, used in a spreadsheet, or transmitted in any form or by any gove rnment agencyelectronic, mechanical, photocopying, recording, or former(a) thanwithout the permission of Harvard Business School. 1D bearloaded by Junfei Xu on 9/02/2013. untested York University, Stephen Tamke, dismount 2013, 001-003500-048 mix.com merchandising to measure YThe cadences Y MarketTermed the hottest demo brilliant of the moment, generation Y came to the attention of marketers in the tardily 1990s. This echo of the baby boom was make up of barbarianren and teenagedrs born in the coupled States between 1975 and 1989 and in that locationfore aged between 10 and 24. They were estimated to be a 56 meg strong host of verit adequate to(p) and potential consumers, some three times the size of their immediate predecessor, propagation X.1 The U.S. enume arrange Bureau projected that the 10 to 24 age group would grow from 56.3 trillion to 63.1 meg by 2010, growing windy than the general population.Although generation Y matched its surface ups generation in s ize, in al nigh every other way it was very different. One in three was not Caucasian. One in notificationinal lived in a undivided- farm household. Three in four had working mothers.2 Body glittered, tattooed, pierced, theyre a highly fragmented,unpredictable group of teenagers who, while tottering around on five inch soles, voice barelytoned-up opinions round sexuality, government, the American dream and an end-of-century loyalty to spirituality.3 They were computer literate 81% of teens used the Internet, according to Chicagoestablish juvenileage look into International (TRI), which also noted that over a 3 calendar month termination on AOL, they posted more than 2 meg Leonardo Di Caprio related messages.4 fit in to Lester Rand, Director of the Rand Youth Poll, they had gold to drop dead and an appetite for pass it.They keep back a higher incremental allowance from their parents, and with the maturement in our service economy, they are able to secure jobs easily and at boost minimum wages. Theyre exposed to so many different incr tranquilizes on TV, in the middle and by their friends. Its a generation who grew up with excess as a norm.5 In 1999 Jupiter describe that 67% of on-line(a) teens and 37% of on-line kids say they made use of on-line shop sites, either obtaining or gathering information about products.6 genesis Y was expected to spend nigh $136 billion in 1999, before method of bankers billing for the groups influence on purchases made by parents and other adults. (See evinces 1 and 2 for this and other estimates.)on-line disputation for genesis Y Spending coevals Ys size and spending power had not gone unnoticed. umpteen pompous and on-line retailers courted them. subvert viewed its just about significant competitors as dELiAs and the online magalog mXg. The neighborhood mall was also a threat.1 Neuborne, Ellen and Kathleen Kerwin. multiplication Y, Business Week, February 15, 1999, Cover story. 2 Neuborne, E llen and Kathleen Kerwin. extension Y, Business Week, February 15, 1999, Cover story. 3 OLeary, Noreen. market The Boom Tube, Adweek, Vol. 39, No. 20, may 18, 1999, pp. S44-S52. 4 Brown, Eryn. Loving Leo Online, Fortune, April 12, 1999, p. 152. 5 BAXExpress, July/August 1999, httpbaxworld.com/baxexpress/0799/consumers.html. 6 Sacharow, Anya. Shadow of On-line Commerce reelects on postmodern Kids, Jupiter Communications hide,June 7, 1999.2Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, guide 2013, 001-003 devalue.com market to coevals Y500-048dELiAs Inc.7The largest on-line and compileue merchant serving Generation Y was New York-based dELiAs, with 1998 gross gross receipts of $158 one thousand thousand. Founded in 1995 by two 33-year-old former Yale rooommates, Stephen Kahn and Christopher Edgar, dELiAs sell through mug composes unhor recoverd to more than 10 meg recipients, of whom 6 zillion had bought within the past year. It managed its own articulate fulfilment from a warehouse complex, and operated twenty stodgy retail stores.most of dELiAs 1,500 employees were under 30. Its forebode representatives were very much high tame and college students, and they often offered modality advice as healthy as taking ball clubs. In November 1998 dELiAs Inc. paid $4.75 zillion for the trademarks and poster keep naps of bankrupt Fulcrums 5 compiles (Zoe for teenage girls, Storybook Heirlooms, Play costume, After the Stork, and Just for Kids), s riseed them 5 million name calling which closely doubled their database. It also paid $2.4 million for trade from Zoe and Storybook.By 1999, dELiAs went to market with a complex set of tick offs and marketing methodsThe dELiAs brand marketed to teenage girls as a compose through the mail and as dELiAs*cOm on the Web.The gURL.com Website was an on-line clip for girls and youth women, carrying articles as well as reposition electronic mail, free homepage host ing and publishing tools, and links to a electronic network of third-party sites for girls and women. gURL was the only property that was not industrious in commerce.The droog brand marketed line up to 12-to 20-year-old males through the mail and on-line.The TSI Soccer compose sold soccer gear by mail and on-line. Storybook Heirlooms retailed apparel and accessories for girls under 13 by mail and Web compile.Dotdotdash sold apparel, footwear and accessories for girls aged 7 to 12 by mail and Web catalog.Discountdomain.com was a subscription Website selling discounted close-out merchandise.Contentsonline.com offered unusual home furnishings, light constituent of furniture and household articles to females aged 13-24. While preponderantly a Web catalog, the property appeared intermittently as a bring out infix in dELiAs sign catalog.In April 1999, dELiAs Inc. spun off its Internet properties in an IPO, selling shares in a company called iTurF which earned tax revenue enh ancements from all of the above on-line portions. In terms of the deal, these on-line line of credites could advertise in dELiAs print catalogs at a rate of $40 per 1,000catalogs.The dELiAs catalog, 60 million of which were printed in 1998, had the largest internal circulation of any publication directed at Generation Y. The on-line magazines also divided the parent companys 354,000 cheering foot distri hardlyion center in Hanover, PA. Because iTurF did not take ownership of stock certificate until a customers order was displace, the risk of obsolescence and markdowns remained with the parent company. iTurF shared offices with the parent company, enjoying a submarket rent for New York metropolitan space.7 Information drawn from company website www.dELiAs.com3Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048 adulterate.com trade to Generation YIn May 1999, iTurF procl channeliseed record linely sales of $2.6 million (up from $0.69 million in the first draw in of 1998). Gross profit was $1.3 million, or 49.1% of revenues, up from $0.34 million or 49.3% of revenues 1998 (see lay out 3). However, dELiAs reported that it expected its iTurF unit to report a loss for the fiscal year. By April 1999, the account of plurality who had ever bought at the iTurF Websites was 66,000 (up from 35,000 at the end of December 1998), and the number of laughable visitors was 731,000 in April 1999 alone.Analysts estimated that individually customer cost $26 to acquire.8 Private label merchandise accounted for 40% of iTurFs sales, in line with dELiAs ratio. iTurf entered into agreements with RocketCash Corp and DoughNET, companies that had been established to allow parents see to it the on-line spending of their children. For example, RocketCash let parents establish a credit card account and set from all(prenominal) one childs access to specific merchant sites, times of operation, and the option to set up an auto- allowance to periodically replenish the account.Dough crystalise was a virtual(prenominal)debit card that parents could set up for their children. Parents could customize DoughNETs site to range teens through all aspects of managing their money. In April 1999, dELiAs finish to spin off iTurF seemed shrewd. The market capitalization of dELiAs Inc. was $90 million, on sales of $200 million annually. ITurF was capitalized at $200 million on a sales run rate of $12 million annually.mXg Media Inc.9 huntsman Heaney and Stuart MacFarlane graduated from the Harvard Business School in 1996. MacFarlane tie ined Bain & Co. and Heaney joined BancBoston Robertson Stephens. Heaney told how he got the mood for mXg while Christmas shopping at Nordstroms for his thence girlfriend. A saleswoman had told him that the Y necklace frolicd on the Friends sitcom was in room. I knew in that respect had to be a more direct way to recuperate out about fashion trends influenced by entertainment, Heane y said.10In 1997, Heaney and MacFarlane quit their jobs and moved to Manhattan Beach, CA, to be close to Hollywood and surfers and skaters. Using the pay phone while staying at a local motel they raised $250,000 in increments of $5,000, and diveed mXg, styling it a magalog, a hybrid of catalog and magazine, aimed at teenage girls. Un want a conventional magazine, mXg reported exactly where to go to buy the fashion items that it get to on its pages.MacFarlane recalled their first lean times Typically, retailers order armoury in half dozenes (one small, two medium, two large, one extra large). But sooner of formulation Well take 2,000 sixsomees we said Well take six literally one of each. They could fund a circulation of only 20,000 for the magazines launch in the fall of 1997, but it did well. nigh 5% of the recipients bought from it. The numbers were darling becoming to induce Urban Outfitters, a retail fashion chain, to invest $5 million for 40% of the company, in integ ratedd as mXg Media, Inc. intersectiondoubling each get it on.each, refunded withB Dalton Booksellers.accounted for most of mXg Medias revenues, but ad revenue was The company used intelligencestand distribution (150,000 issues per take out at $2.95 a purchase), as well as distribution in bookstores uniform Barnes & Noble, and The magazine had a pass-along rate of well-nigh six readers per copy.Sensitive to the tastes of their send earshot of female teenagers, they hired teens, paying them $7 per hour to work by and by school answering letters, doing interviews, and writing copy to make8 CIBC World Markets, Equity enquiry, June 2, 1999.9 Information drawn from company website www.mXgonline.com10 Waxler, Caroline. Guys with moxie, Forbes, May 31, 1999, pp. 130-131.4Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003 debasement.com market to Generation Y500-048it in force(p) authentic. No printed word goes out without a teen girl che cking it being uncool is the court of death in this backup.11 At the start of each fashion sequence mXg recruited 30 Moxie girls to spend a hypothetical $150 each. Their virtual purchases primed(p) which items appeared in the next issue. The magazine paid staffers to model clothes and invited would-be teen celebrities to pose free to gain recognition.A Website, mXgonline.com, was established in the summer of 1997. It comprised a magazine, higgle populate, and companionship sites, and sold clothes and accessories. mXg Media pursued other access points for their on-line magalog, featuring it in on-line fashion malls such as fashionwindow.com. In 1999, mXg sponsored concerts featuring acts same(p) Gus Gus which were fortunateby Generation Y. hick produced a series of Webcasts of the concerts for teens. The company described its mission as cross-media publishing, targeted scoopfully at teen girls. It planned to add mXgtv, an Internet motion-picture show site, to its media po rtfolio later in the year.A move Marketplace? new(prenominal) companies vied for the attention of Generation Y. Bolt.com was a content-based magazine-type site skewed towards a market slightly older than that of the Generation Y market, but into which the older end of the Y market energy at last fall. Bolt.com included sections deedd jobs, money, movie reviews, music, news and issues, sex and dating, and sports. It had a converse room and free e-mail, and sold mark merchandise. It boasted that 5,000 people joined it every day.The magazine seventeen had an on-line version, offering chat live and message boards, as well as its regular articles, quizzes and features. Indeed many magazines were now launching online versions of their magazines, and new print publications like Twist and start out had appeared to compete for generation Y advertise revenues.Broader on-line retailers wait ond this market, such as bluefly.com selling discounted brands on-line. Strong contender came from mall-based stores such as The Buckle, Gadzooks, Abercrombie & Fitch, The Gap, American eagle Outfitters, and Guess, all of whom sold merchandise on- and off-line. clip and sportswear manufacturers were developing on-line sales sites. Nike and Tommy Hilfiger planned to launch e-commerce sites with broad product offerings. vitiate.comAs a Harvard MBA student in 1996, Matt Diamond wrote a business plan proposing the idea of marketing original sports clothing by catalog to young people in Japan. The premise was that the popularity of this style of clothing among American youth might generate demand abroad, and that catalogs would be able to tap that demand faster than would store distribution.On graduation, Diamond implemented the plan. He and a friend, Jim Johnson, used seed money from friends and family to design and print a Japanese-language catalog, which they branded Durango Expedition. They mail-clad it in January 1997, and at the selfsame(prenominal) time they went live with Japanese and face Websites, as alternative channels.The venture flopped. The placard generated no significant sales. However, they discovered to their awe that they were receiving hits on the English Website from American youths. inwardly a month they had reconceptualized the business to serve American teen girls through catalog and online channels, under the name subvert. Diamond and Johnson each contributed $60,000 in cash and11 Waxler, Caroline. Guys with moxie, Forbes, May 31, 1999, pp. 130-131.5Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048 subvert.com Marketing to Generation Yanother friend, Sam Gradess added $150,000 in cash when he joined six months later from Goldman Sachs. In November 1997, the first issue of the admixture catalog, 48 pages in length, was mailed to a purchased send disceptation of 150,000 teen call. At the same time metals Website became active. The role at that time was to reduce the num ber of catalogs mailed as on-line sales grew.OrganizationDiamond became president and CEO of the fledgling company. Johnson took the title of chief operating officer. Gradess was chief fiscal officer. Neil Vogel joined from Ladenburg Thalman & Co., a consumer and Internet investment banking group to be the chief corporate development officer. Fellow Harvard sectionmate, Andrew Roberts left PricewaterhouseCoopers to join subvert in January 1999 as VP of business development.Another HarvardMBA, Joan Rosenstock was hired as marketing director, having held positions in marketing at the content B consideretball Association as well as in ad account management. Erstwhile, music editor of teenage magazine seventeen, Susan Kaplow, became executive editor and Karen Ngo, who had been a feature editor and fashion stylist at cardinal, was hired as creative director. debauch out starting timed as many of its operations as it could.Working with mostly domestic vendors who could produce and sh ip within a 2-8 week timeframe, deterioration purchased only 50% of its featured products and relied on a quick order and re-order ability so as to control inventory levels. Telephone orders and order-processing were outsourced to Harrison Fulfillment Services, based in Chattanooga, TN. OneSoft Corp., based in Virginia, treatd on-line ordering and fed its orders to Chattanooga for fulfillment. Alloy personnel concentrated on marketing and merchandising issues.Target Market opposed dELiAs, Alloy opted for a single-brand strategy targeted at twain genders. Rather than dividing our marketing resources crosswise multiple brands and Websites, we seek to maximize the impress of our marketing efforts by promoting a single brand. We believe this allows us to attract visitors to our Website and skeleton customer loyalty quickly and efficiently.12 Indeed Diamond considered that Alloys let on differentiator lay in being gender neutral, believing that a successful Generation Y community depended on dynamic boy-girl interaction.He notion of their community site as an MTV-like synergetic distribution channel. Its an opportunity for girls to rebuke to boys, boys to talk to girls, to introduce music, to deliver fashion, to deliver lifestyle. Diamond conceded that the majority of the visitors to its Website were girls, and the print catalog was even more skewed towards girls. However, it was the intention to attract boys to the Website by other means. at that place was some evidence that this strategy was working, as the percentage of female Website visitors declined from 70% in early 199913 towards a desired 60/40 ratio.Boys tended to be drawn by music, extreme sports and games, while girls appeared to be more responsive to chat and browsing. Diamond felt, however, that just as both teen boys and girls fall down out in shopping malls, ceremonial occasion each other as well as chatting, the on-linepresence of both boys and girls was most-valuable. Alloys target was teens making get decisions with parents somewhere in the background. The target group ranged from 12-20, but the median age was 15.Alloy was careful not to aim too young, partly for regulatory reasons, but also because they felt that by targeting 15-yearolds they reached a group at an important buying point in their lives. About 35-40% of teenage purchasing was on apparel and accessories, and Alloy monitored what else this group bought. As12 IPO Offer Document May 1999.13 Chervitz, Darren. IPO First Words Alloy Online CEO Matt Diamond. Interview at CBS MarketWatch.com, June 14, 1999. http//cbs.marketwatch.com/archive/19990614/news/current/ipo_word.htx?source=htx/http2_mw&dist=na6Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003Alloy.com Marketing to Generation Y500-048owners of a piece of real ground they did not see themselves as limited to selling apparel and accessories, and had moved into soft furnishings.The OfferingIt was stock (a) practice among catalog retailers, such as Lands End and LL Bean, to sell products under the catalogs brand. Even at dELiAs, semiprivate-label sales accounted for about 40% of the mix. Alloy, however, underscored know teen brands such as Vans, Diesel, and ONeill, both to attract buyers and to offer reassurance of quality. yet 20-25% of Alloys sales came from labels that were exclusive to Alloy, such as Stationwagon and Local 212. Diamond was philosophical about the pros and cons of private label, theres no denying you get improve margins on own-label goods.But rill with your own labels leaves you vulnerable to ending up as a skateboard brand. The Alloy site aimed to build what Diamond termed the 3 Cs of on-line retailing to this generation Community, Content, and Commerce. He noted that constant communication was key to understanding this generation. They had a strong charter to chat about movies, television, music and what was mishap at school, and to seek advice from on e another, sound off about pet hates, and once in a while shop.A small team of in-house editors created editorial content on the site, supplemented by syndicated content. The consultation also contributed content, receiving in exchange a sense of community, in chat-rooms and message boards, and by submitting their own letters, poems, drawings and articles. Poems and drawings would be voted upon interactively. Chat rooms in particular were popular and a great deal full (in contrast to some of the chat rooms of competitors).The chat rooms were moderated from end of school-time until midnight on a daily basis, with software product employed to spot offensive or obscene language. Advice columns were a dependable magnet. (See Exhibit 7 for a sample of user-generated content.) Andrew Roberts remembered vividly the moment when he knew that Alloy was in truth onto something. In the aftermath of the Columbine uplifted School shooting tragedy, one of the editors knew that Alloy had to r espond and fast. She worked all night creating the get hold of spaces in chatrooms, and editorial content.By 830 a.m. the day after, 15 hours after news of the tragedy broke, Alloy had reliable 7,311 postings related to the events at Columbine. Roberts explained that it wasnt so much the number that impressed him, but the content of the postings. These kids were really anxious. We had kids who followed the goth fashion who were really scared about how others would track them. Other kids were reassuring them and saying have ont worry, we know it wasnt you or the goths who made these guys do what they did. They just had a desperate need to talk with each other, and be reassured by each other.Building the BrandAlloy built its brand, and with it avocation to the Alloy site, in several(prenominal) ways. It undertook traditional advertising in print media (Seventeen Magazine, YM, Rolling Stone, and Snowboarder). It used hot-links from sitessuch as seventeen.com to advertise promotio nal deals.It had superfluous copromotional deals with, for example, MGM Entertainment, Sony Music, Burton Snowboards, MCI and EarthLink/Sprint, who provided free products and services that were used as special promotions for the Alloy community (such as private movie screenings, exclusive music give-aways, and renown on-line chats). Finally, it bought banner advertising on gateway sites such as Yahoo Shopping, Fashionmall.com, CatalogCity.com and CatalogLink.com.7Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048Alloy.com Marketing to Generation YThe Business Model in that location were two revenue streams merchandise sales, and advertising and sponsorship. An agent had been retained to sell advertising on the Website, and the longer-term intention was to build an in-house sales force to sell sponsorships, banner-ads, targeted advertising (segmented by Website area, time of day, user location, or age), and cabal print and Website a dvertising.To this end, Samantha Skey, who had been responsible for commerce, advertising and sponsorship for Disney Online and Family.com and had worked for Buena persuasion Internet group, was hired in 1999 as VP of ecommerce and sponsorships. In 1999, about 10% of revenues were generated by sponsorship and advertising deals, and the proportion was expected to rise to 20% in year 2000.Alloy was aware that it would never meet all of its customers requirements. It was happy to offer links to other sites that could be seen as competitive, such as Gaps on-line site. Look, we jut theyre going to go there anyway, noted Roberts. If they go via us, we at to the lowest degree get something for it. Were happy to have such complementary deals. Probably not with dELiAs, though, he grinned. Exhibits 4 and 5 report annual fiscal year cognitive process 1996-1998, and pullly performance betweenlast quarter 1997 and first quarter 1999.To check Diamond describe it, running Alloy was, at least day-to-day, like running a production plant. We know what it cost to get a customer, and we know what a customer will spend. We just have to keep the two numbers in balance. We could make a profit today, but in this investment climate theres no reward for walloping your loss numbers. By April 1999, Alloy had a database of 2.6 million names and care fores, comprising 1.7 million introductory buyers and 900,000 visitors to the Website who had registered their names and addresses.It was mailing monthly to the most responsive of the names on this list, supplemented by purchases of new names, and it hoped to mail 20 million catalogs over the course of 1999. Alloys catalogs cost $450 per thousand to design, print and mail. If Alloy mailed catalogs to names from the database who had bought from it before, it assimilated an order from about 3% of the names each time it mailed.If Alloy bought a list of new names, for example a list of American girls who owned personal computers, at a cos t that was typically $ carbon per thousand names, the retort rate on the new names14 was about 1.5%. Alloy would often exchange some of the names of its customers for the names of customers of similar firms, if it could count on a response rate on the swapped names of close to its own 3%. By blending names from these three sources, Alloy could choose whether a particular mailing would yield a high rate of orders or expand its customer base. over the year, Alloys mailings comprised 10% swapped names, 70% past customers and 20% new names. Diamond found that some people in the private investment community were not well informed on the ease with which response rates could be manipulated. Analysts ask me, why is your response rate down last month? I say you want a 10% response rate, Ill give you one. Ill just mail to my very best customers.Most orders were received by telephone, and orders from all lists ranged from $65 per customer in spring to $85 in winter. The gross margin on an ord er was about 50%. Alloy paid its fulfillment company $6.00 to handle each telephone order. Customers paid the cargo ships charges. Traffic to the Website, as measured by Media Metrix in the quarter ending knock against 1999, comprised 263,000 unique visitors15 per month. While about half of thevisitors eventually registered14 List brokers typically sold names on a deduplicated basis, meaning that the buyer had the right to erase and not pay for any names that it already owned.15 Many of the visitors to a site came more than once a month. Media Metrix used the term unique visitors to emphasize that they were counting visitors, not visits.8Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003Alloy.com Marketing to Generation Y500-048themselves with the site by entering a name, address and e-mail information, the proportion of unique visitors in a month who registered in that month was about 8%. In improver to catalogs and Web visits, Alloy in teracted with Generation Y by means of a hebdomadal broadcast e-mail, Alloy E-Zine, sent to 850,000 site visitors who had asked to receive it.When a visitor to the Alloy Website registered, the name was added to the print catalog mailing list. Names gathered in this way, although they had not previously bought from Alloy, tended to respond to the catalog at a rate close to the past-buyer rate of 3%. Calculating the cost of attracting somebody to become a registered visitor was difficult, because Web traffic resulted from many actions banner advertising, listings on search engines, and Alloys print advertising in media like Seventeen Magazine. The catalog was a significant number one wood of traffic to the Web.On the day that the catalog reached its audience, traffic to the site would jump 40%. It would continue to rise to about clxxx% of pre-mailing levels for a week, and slowly fall back. Possessing a copy of the latest Alloy catalog conferred significantprestige in a junior hig h school lunchroom. And then there was wordof-mouth. Many visitors to the Website, and many who resolute to register, came at no cost to Alloy because a friend had mentioned the site, had e-mailed a chat room story, or had asked for an opinion on an item of clothing shown on the site.less(prenominal) than 5% of Alloys revenues came from orders displace on the Website. When an order was submitted on-line instead of by phone, Alloy paid its fulfillment company $3.00 instead of $6.00 to reflect the delivery of telephone handling charges. Alloys e-mailed catalog, termed Alloy E-Zine, was another small element of the business. Because Alloy had no way of sagacious whether a recipients e-mail system was able to view graphic displays or color, it used only text edition in the E-Zine.Only 25% of those who indicated willingness to receive it ever opened it, and of those 1% position an order in the course of a year. These orders were fulfilled at $3.00 each if they were placed by return email. Sponsorships and banner advertising were a small but rapidly growing source of revenue. As Alloys base of registered visitors and catalog recipients grew, both became assets that interested advertisers.The AOL DealDiamond reflected on the AOL deal. It was not a question of finding $2 million. If the IPO went ahead at the planned price of $15, it would generate $55.5 million and Alloy would be awash in cash. Diamond tried not to be annoyed at the idea that AOL would offer this deal on the eve of his IPO. Ive been talking to AOL for a year about opening a teen shopping area, showing them what a big revenue opportunity it could be. Now suddenly they get it, and they think its worth $2 million.He thought to himself, What else can I do with $2 million? Thats over 4 million catalogs, which means more sales, more site visits, more registrations, and more E-Zine registrations. Alternatively, it could buy us exposure on television, and that would build a stronger brand. Alloys budge t for 1999 included a line item of $2.5 million for production of two television spots and $2.5 million for air time.Yet AOL was Alloys most important source of traffic to the Website. More than a third of visitors to the Alloy site used AOL as their Internet service provider. Would a competitor on the AOL site be able to intercept them? Would the announcement of a competitors deal with AOL on the eve of the IPO be as bad for Alloys share price as an Alloy deal would be good? The cellphone rang again. It was his partner, Neil Vogel. Matt, Wall Street would like it if you would do that deal. They dont want iTurF to pick it up. This is valuable real estate on a really important teen property.9Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048Alloy.com Marketing to Generation YExhibit 1 Total Teen Spending in 1996$billions%Apparel36.734Entertainment23.422Food16.715Personal aid9.29Sporting Goods6.76Other15.314Total108.0100 root word Pack aged Facts via InterRep Research, in MSDW Equity Research Fashions of the Third Millennium, June 1999.Exhibit 2 Estimates of Teen SpendingRand Youth(Adweek May 18, 1998)19961997Morgan Stanley doyenWitters report Fashionsof the Third Millennium,June 1999$108 billion$91.5 billion19981999Teen Research measureless(quoted in Alloy presshandout)$141 billion$136 billion10Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003Alloy.com Marketing to Generation Y500-048Exhibit 3 Consolidated iTurf Income (in $ thousands)ststNet revenues1 quarterending 1 May19992615 exist of goods133235Gross profit128334Selling, general and admin.1753109Interest income (expense)(112)11 outrage before tax(358)(86)Income tax (benefit)(161)(33)Net loss(197)(53)Apr 99 = 731,000Feb 99 = 635,00050 million4 millionNo. of unique visitorsNo. of page views in AprilSize of mailing database1 quarterending 30 April19986911 million namesSource IPO FilingExhibit 4 Alloy Online Annual fi nancial PerformanceFiscal year199619971998(thousands)Net merchandise revenues$25$1,800$10,100Of which on-line order placement accounted for$40$710Sponsorship and other revenueGross profit %Selling & Marketing expensesWeb pages views (Month of March)$cxxv32.5%41.7%46.3%$98$2,000$9,2001,50025,000Weekly e-zine registrations480Source alliance records11Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048Alloy.com Marketing to Generation YExhibit 5 Alloy Online Quarterly Performance199719981998199819981999199931 OctJan 31Apr 30Jul 31Oct 31Jan 31Apr 30($000)Net merchandiserevenues401139613532082321534362391Sponsorship, etc.154673163Total revenues401139613542087326135092544COGS2637839061200166517151249Gross profit13861344888715961794130534%44%3342.5%49%51%51%903143717822992339626793529(749)(806)(1312)(2165)(1901)(985)(2302)400,000800,000Gross profit % ofrevenueOperatingexpensesNet loss come up ofregistered usersSource Company records12Download ed by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003Alloy.com Marketing to Generation Y500-048Exhibit 6 Circulation of Leading Teen Magazines issuePublisherCirculation as of 1998/99Seventeen (monthly)Primedia Consumer Magazine Group2,400,000Teen (monthly)EMAP2,400,000YM (10 x year)Gruner & Jahr2,200,000Teen People (monthly)Time Inc.1,300,000Jump (10 x year)Weider Publications350,000Twist (monthly)Bauer Publishing265,650lady friendLewitt & LaWinter/Freedom250,000Source Various13Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048Alloy.com Marketing to Generation YExhibit 7 Examples of consumer-generated content on Alloy WebsiteSource Alloy Website14Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003