Marketing to Generation Y Essay

On May 12, 1999, Matt baseball diamond, James Johnson and surface-to-air missile Gradess were visiting San Francisco for a end round of meetings with West seashore enthronization analysts. They were equitable days from the initial public offering (IPO) of shares in profane.com, the catalog and Internet merchant of teenoriented clothing that they had founded on Diamonds showtime from Harvard Business give instruction in 1996. Snarled in freeway gridlock, Diamond was on his cellphone discussing the IPOs pricing with analysts back in wise York City.An analyst urged Diamond to respond to an invitation by the worlds largest Web come in and portal, America Online (AOL), to make Alloy an vertebral column tenant on its teen obtain site. AOL cute $2 trillion per year for the unspoilts. Matt, if you say yes, that bequeath be big. If you announce tomorrow that AOLs partner in the Generation Y market is Alloy, it will put Alloy on the map. It will definitely affect the IPO price.D iamond sighed. A headline deal with AOL today could be worth mayhap 10% on the stock price. But AOL was asking rich terms. It was widely ruto a greater extentd that AOL preyed on startup companies in the weeks before they went public, tempting them with star billing on its portal at the very aftermath when the publicity was most valuable. He estimated that hed be give ining a $45 cpm (cost per thousand exposures) to anchor the AOL teen shopping site.Nobody paid to a greater extent than $30 for Web eyeballs. In the three years that he had been running Alloy, Diamond had prided himself on doing deals that make sense. If he could not anticipate a net to Alloy from a promotional deal, he reasoned that Wall Street would not anticipate a profit either. It wont pay out, he told the analyst firmly. We exclusively do deals that produce value. To his colleagues in the limousine, he wondered out loud, Am I right?Professor John Deighton and Visiting Scholar Gil McWilliams prepared thiscase as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The contribution of Ann Leamon, Manager, Center for Case Development, is gratefully acknowledged. Certain sensitive information in this case has been disguised and should not be regarded as informative as to the prospects of the party. Copyright 2000 by the President and Fellows of Harvard College.To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photo doubleing, recording, or otherwisewithout the permission of Harvard Business School. 1Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, thole 2013, 001-003500-048Alloy.com merchandising to Generation YThe Generation Y MarketTermed the hottest demographic of the moment, Generation Y came to the attention of marketers in the youthful 1990s. This echo of the baby boom was made up of children and teenagers born in the United States between 1975 and 1989 and therefore aged between 10 and 24. They were estimated to be a 56 gazillion strong group of actual and potential consumers, some three times the size of their immediate predecessor, Generation X.1 The U.S. Census Bureau communicate that the 10 to 24 age group would grow from 56.3 million to 63.1 million by 2010, growing blistering than the general population.Although Generation Y matched its parents generation in size, in almost every other way it was very different. One in three was not Caucasian. One in quadruple lived in a single-parent household. Three in four had working mothers.2 Body glittered, tattooed, pierced, theyre a highly fragmented,unpredictable group of teenagers who, while tottering well-nigh on five inch soles, voice conservative opinions about sexuality, government, the American dream and an end-of-century commitment to spirituality.3 They were computer literate 81% of teens used the Internet, concord to Chicagobased puerileage Research International (TRI), which also noted that over a 3 month period on AOL, they posted more than 2 million Leonardo Di Caprio related messages.4 According to Lester Rand, Director of the Rand Youth Poll, they had money to spend and an appetite for spending it.They have a higher incremental allowance from their parents, and with the process in our service economy, they are able to secure jobs easily and at rising minimum wages. Theyre exposed to so many different products on TV, in the mall and through their friends. Its a generation who grew up with excess as a norm.5 In 1999 Jupiter reported that 67% of on-line teens and 37% of on-line kids said they made use of on-line shopping sites, either buying or gathering information about produc ts.6 Generation Y was evaluate to spend approximately $136 billion in 1999, before accounting for the groups influence on purchases made by parents and other adults. (See evidences 1 and 2 for this and other estimates.)On-line Competition for Generation Y SpendingGeneration Ys size and spending power had not gone(p) unnoticed. Many conventional and on-line sellers courted them. Alloy viewed its most significant adversarys as dELiAs and the online magalog mXg. The neighborhood mall was also a threat.1 Neuborne, Ellen and Kathleen Kerwin. Generation Y, Business Week, February 15, 1999, stay on story. 2 Neuborne, Ellen and Kathleen Kerwin. Generation Y, Business Week, February 15, 1999, Cover story. 3 OLeary, Noreen. merchandise 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/ fantastic 1999, httpbaxworld.com/baxexpress/0799/consumers.html. 6 Sacharow, Anya. Shadow of On-line Commerce Falls on Postmodern Kids, Jupiter Communications report,June 7, 1999.2Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003Alloy.com Marketing to Generation Y500-048dELiAs Inc.7The largest on-line and catalog merchant serving Generation Y was New York-based dELiAs, with 1998 sales of $158 million. Founded in 1995 by 2 33-year-old former Yale rooommates, Stephen Kahn and Christopher Edgar, dELiAs interchange through marker catalogs mailed to more than 10 million recipients, of whom 6 million had bought within the past year. It managed its own order fulfillment from a store complex, and operated twenty conventional retail stores. or so of dELiAs 1,500 employees were under 30. Its phone representatives were often high school and college students, and they frequently offered fashion advice as well as pickings orders. In November 1998 dELiAs Inc. paid $4.75 million for the trademarks and mail lists of bankrupt Fulcrums 5 catalogs (Zo e for teenage girls, Storybook Heirlooms, Playclothes, After the Stork, and Just for Kids), giving them 5 million names which more or less doubled their database. It also paid $2.4 million for merchandise from Zoe and Storybook.By 1999, dELiAs went to market with a complex set of brands and marketing methodsThe dELiAs brand marketed to teenage girls as a catalog through the mail and as dELiAs*cOm on the Web.The gURL.com Website was an on-line magazine for girls and fresh women, carrying articles as well as free e-mail, free homepage hosting and publishing tools, and link to a ne cardinalrk of third-party sites for girls and women. gURL was the only proportion that was not engaged in commerce.The droog brand marketed apparel to 12-to 20-year-old males through the mail and on-line.The TSI Soccer catalog sold soccer gear by mail and on-line. Storybook Heirlooms retailed apparel and accessories for girls under 13 by mail and Web catalog.Dotdotdash sold apparel, footwear and accessor ies 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 furniture and household articles to females aged 13-24. While predominantly a Web catalog, the property appeared intermittently as a home run insert in dELiAs print catalog.In April 1999, dELiAs Inc. spun off its Internet properties in an IPO, selling shares in a company called iTurF which earned revenues from all of the above on-line elements. In terms of the deal, these on-line businesses 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 domestic circulation of any publication directed at Generation Y. The on-line magazines also divided up the parent companys 354,000 feather foot distribution center in Hanover, PA. Because iTurF did not take ownership of inventory until a guests ord er was placed, 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, 001-003500-048Alloy.com Marketing to Generation YIn May 1999, iTurF announced record after partly sales of $2.6 million (up from $0.69 million in the first quarter of 1998). pull in profit was $1.3 million, or 49.1% of revenues, up from $0.34 million or 49.3% of revenues 1998 (see Exhibit 3). However, dELiAs reported that it expected its iTurF unit to report a want for the fiscal year. By April 1999, the consequence of people 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 unique visitors was 731,000 in April 1999 alone.Analysts estimated that distributively customer cost $26 to acqu ire.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 schematic to let parents control the on-line spending of their children. For example, RocketCash let parents establish a credit card account and set each childs access to specific merchant sites, times of operation, and the option to set up an auto-allowance to sporadically replenish the account.DoughNet was a virtualdebit card that parents could set up for their children. Parents could customize DoughNETs site to guide teens through all aspects of managing their money. In April 1999, dELiAs closing 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.9Hunter Heaney and Stuart MacFarlane graduated from the Harvard Business School in 1996. MacFarlane joined Bain & Co. and Heaney joined BancBoston Robertson Stephens. Heaney told how he got the idea for mXg while Christmas shopping at Nordstroms for his then girlfriend. A saleswoman had told him that the Y necklace feature on the Friends sitcom was in style. I knew there had to be a more direct way to find out about fashion trends influenced by entertainment, Heaney 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 launched mXg, styling it a magalog, a hybrid of catalog and magazine, aimed at teenage girls. Un homogeneous a conventional magazine, mXg reported exactly where to go to buy the fashion items that it featured on its pages.MacFarlane recalled their first lean times Typically, retailers order inventory in sixes (one small, two medium, two large, one extra large). But sort of of saying Well take 2,000 sixes 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. Some 5% of the recipients bought from it. The numbers were good enough to induce Urban Outfitters, a retail fashion chain, to invest $5 million for 40% of the company, incorporated as mXg Media, Inc.Merchandisedoubling each issue.each, refunded withB Dalton Booksellers.accounted for most of mXg Medias revenues, but advertising revenue was The company used newsstand distribution (cl,000 issues per quarter at $2.95 a purchase), as well as distribution in bookstores like Barnes & Noble, and The magazine had a pass-along rate of almost six readers per copy.Sensitive to the tastes of their tar captivate audience of female teenagers, they hired teens, paying them $7 per hour to work after school respondent letters, doing interviews, and writing copy to make8 CIBC World Markets, Equity Research, 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, 001-003Alloy.com Marketing to Generation Y500-048it sound authentic. No printed word goes out without a teen girl checking it being bad is the kiss of death in this business.11 At the start of each fashion season mXg recruited 30 Moxie girls to spend a hypothetical $150 each. Their virtual purchases determined 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, twaddle rooms, and community sites, and sold clothes and accessories. mXg Media pursued other access plosive consonants for their on-line magalog, featuring it in on-line fashion malls such as fashionwindow .com. In 1999, mXg sponsored concerts featuring acts like Gus Gus which were favoredby Generation Y. Yahoo produced a series of Webcasts of the concerts for teens. The company described its mission as cross-media publishing, tar grasped exclusively at teen girls. It planned to add mXgtv, an Internet video site, to its media portfolio later in the year.A Crowded Marketplace?Other 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 might eventually fall. Bolt.com include sections titled jobs, money, movie reviews, music, news and issues, sex and dating, and sports. It had a chat room and free e-mail, and sold branded merchandise. It boasted that 5,000 people joined it every day.The magazine 17 had an on-line version, offering chat rooms and message boards, as well as its regular articles, quizzes and features. Indeed m any magazines were now launching online versions of their magazines, and new print publications like wreathe and Jump had appeared to compete for generation Y advertising revenues.Broader on-line retailers served this market, such as bluefly.com selling discounted brands on-line. Strong competition 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. Apparel and sportswear manufacturers were developing on-line sales sites. Nike and Tommy Hilfiger planned to launch e-commerce sites with broad product offerings.Alloy.comAs a Harvard MBA student in 1996, Matt Diamond wrote a business plan proposing the idea of marketing extreme 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 di stribution.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. Theymailed it in January 1997, and at the same time they went live with Japanese and English Websites, as alternative channels.The venture flopped. The mailing generated no significant sales. However, they discovered to their surprise that they were receiving hits on the English Website from American youths. Within a month they had reconceptualized the business to serve American teen girls through catalog and online channels, under the name Alloy. 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, 001-003500-048Alloy.com Marketing to Generation Yanother friend, Sam Gradess added $150,000 in cash when he joined si x months later from Goldman Sachs. In November 1997, the first issue of the Alloy catalog, 48 pages in length, was mailed to a purchased mailing list of 150,000 teen names. At the same time Alloys Website became active. The intention at that time was to reduce the number 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 financial officer. Neil Vogel joined from Ladenburg Thalman & Co., a consumer and Internet investing banking group to be the chief corporate development officer. Fellow Harvard sectionmate, Andrew Roberts left PricewaterhouseCoopers to join Alloy in January 1999 as VP of business development.Another HarvardMBA, Joan Rosenstock was hired as marketing director, having held positions in marketing at the National Basketball Association as well as in advertising account management. Erstwhile, music editor program of teenage magazine Seventeen , Susan Kaplow, became executive editor and Karen Ngo, who had been a feature editor and fashion stylist at Seventeen, was hired as creative director. Alloy outsourced as many of its operations as it could.Working with mostly domestic vendors who could produce and ship within a 2-8 week timeframe, Alloy 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 confabulatetanooga, TN. OneSoft Corp., based in Virginia, handled on-line ordering and fed its orders to Chattanooga for fulfillment. Alloy personnel concentrated on marketing and merchandising issues.Target MarketUnlike dELiAs, Alloy opted for a single-brand strategy targeted at both genders. Rather than dividing our marketing resources across multiple brands and Websites, we seek to maximize the impact of our marketing efforts by promoting a single brand. We intrust this allows us to attract visitors to our Website and build customer loyalty rapidly and efficiently.12 Indeed Diamond considered that Alloys key differentiator lay in being gender neutral, believing that a successful Generation Y community depended on dynamic boy-girl interaction.He thought of their community site as an MTV-like interactive distribution channel. Its an opportunity for girls to talk to boys, boys to talk to girls, to deliver 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. There 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 b rowsing. Diamond felt, however, that just as both teen boys and girls hang out in shopping malls, watching each other as well as chatting, the on-line front end of both boys and girls was important. Alloys target was teens making buying decisions with parents somewhere in the background. The target group ranged from 12-20, but the median age was 15.Alloy was mensural 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, 00 1-003Alloy.com Marketing to Generation Y500-048owners of a piece of real estate they did not see themselves as especial(a) to selling apparel and accessories, and had moved into soft furnishings.The OfferingIt was standard practice among catalog retailers, such as Lands End and LL Bean, to sell products under the catalogs brand. Even at dELiAs, private-label sales accounted for about 40% of the mix. Alloy, however, emphasized recognized teen brands such as Vans, Diesel, and ONeill, both to attract buyers and to offer reassurance of quality. notwithstanding 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 better margins on own-label goods.Butrunning 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 need to chat about movies, television, music and what was happening at school, and to seek advice from one another, sound off about pet hates, and occasionally shop.A small team of in-house editors created pillar content on the site, supplemented by syndicated content. The audience also contributed content, receiving in transfer 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 frequently 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 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 really onto something. In the aftermath of the Columbine High School shooting tragedy, one of the editors knew that Alloy had to respond and fast. She worked all night creating the beguile spaces in chatrooms, and editorial content.By 830 a.m. the day after, 15 hours after news of the tragedy broke, Alloy had certain 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 treat them. Other kids were reassure them and saying Dont 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 traffic to the Alloy site, in several 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 promotional deals.It had special 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 celebrity on-line chats). Finally, it bought criterion 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 ModelThere were two revenue streams merchandise sales, and advertising and sponsorship. An performer 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, monetary standard-ads, targeted advertising (segmented by Website area, time of day, user location, or age), and compounding print and Website advertising.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 Vista 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 figure theyre going to go there anyway, noted Roberts. If they go via us, we at least 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 quarterly performance betweenlast quarter 1997 and first quarter 1999.To hear Diamond describe it, running Alloy was, at least day-to-day, like running a production plant. We know what it costs 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 beating your loss numbers. By April 1999, Alloy had a database of 2.6 million names and addresses, comprising 1.7 million previous 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 developd 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 possess personal computers, at a cost that was typically $100 per thousand names, the response 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.M ost orders were fatherd by telephone, and orders from all lists ranged from $65 per customer in spring to $85 in winter. The gross margin on an order was about 50%. Alloy paid its fulfillment company $6.00 to handle each telephone order. Customers paid the shipping charges. Traffic to the Website, as measured by Media Metrix in the quarter ending March 1999, comprised 263,000 unique visitors15 per month. While about half of thevisitors eventually registered14 List brokers typically sold names on a deduplicated basis, importation that the buyer had the right to delete 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 informatio n, the proportion of unique visitors in a month who registered in that month was about 8%. In addition to catalogs and Web visits, Alloy interacted with Generation Y by means of a weekly 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 someone 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 driver 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 180% of pre-mailing levels for a week, and slowly fall back. Possessing a copy of the latest Alloy catalog conferred significantprestige in a junior high school lunchroom. And then there was wordof-mouth. Many visitors to the Website, and many who distinguishable 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 than 5% of Alloys revenues came from orders placed 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 saving 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 knowing whether a recipients e-mail system was able to view graphic displays or color, it used only text in the E-Zine.Only 25% of those who indicated willingness to receive it ever opened it, and of those 1% placed 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 doDiamond 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 absolutely 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. Alternative ly, it could buy us exposure on television, and that would build a stronger brand. Alloys budget for 1999 included a line item of $2.5 million for production of two television spots and $2.5 million for air time.Yet AOL was Alloys most important source of traffic to the Website. More than a third of visitors to the Alloy site used AOL as their Internet service provider. Would a competitor on the AOL site be able to intercept them? Would the announcement of a competitors deal with AOL on the eve of the IPO be as bad for Alloys share price as an Alloy deal would be good? The cellphone rang again. It was his partner, Neil Vogel. Matt, Wall Street would like it if you would do that deal. They dont want iTurF to pick it up. This is valuable real estate on a really important teen property.9Downloaded by Junfei Xu on 9/02/2013. New York University, Stephen Tamke, Fall 2013, 001-003500-048Alloy.com Marketing to Generation YExhibit 1 pith Teen Spending in 1996$billions%Apparel36.734Entertai nment23.422Food16.715Personal Care9.29Sporting Goods6.76Other15.314Total108.0100 theme Packaged 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 DeanWitters report Fashionsof the Third Millennium,June 1999$108 billion$91.5 billion19981999Teen Research Unlimited(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 May19992615Cost of goods133235Gross profit128334Selling, general and admin.1753109Interest income (expense)(112)11Loss 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 Fiscal proceedingFiscal 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)$12532.5%41.7%46.3%$98$2,000$9,2001,50025,000Weekly e-zine registrations480Source Company 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 % ofrevenueOperatinge xpensesNet loss get along ofregistered usersSource Company records12Downloaded 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 MagazinesPublicationPublisherCirculation 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 Publishing265,650GirlLewitt & 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