Affinity relationships that get results.
"Professional associations may well take on the roles of old labor unions," remarks Jane Chatterjee in a Knight-Ridder report that appeared in the August 18 Washington Post. According to the article, Chatterjee, a training consultant, about halved the cost of medical coverage when she joined the local chamber of commerce and took part in its managed-care plan.
"Portable benefits, those that follow you to a firm or self-employment, can broaden the job options for many of us," comments reporter Susana Barciela, emphasizing that people who are laid off in the downsizing-crazed corporate world can lose critical benefits. Noting the power in numbers when people group together, she poses the question, What better vehicle for portable benefits than a professional organization?
These observations of the increased need for and growth of association affinity programs are reflected in ASAE's 1996 study Policies & Procedures in Association Management. The number of associations offering insurance and group-purchasing discount services has grown significantly since ASAE's 1992 study. So has the diversity in the services offered. The 1996 study specifies 14 types of group insurance programs and 22 types of group-purchasing discount services provided by associations, up from 12 categories of insurance programs and 6 categories of discount services specified in 1992.
A prospective member generally doesn't make the decision to join an association based on the desirability of its affinity programs unless the association offers insurance that is not available or as affordable without the group, as in Chatterjee's case. And all affinity programs are portable. Still, while a prospect may not become a member simply to gain access to, say, car rental or credit card discounts, once people do join, they may be more satisfied members because of the affinity offerings. An association can benefit not only from the retention of satisfied customers but also from the royalties that result from well-formed affinity relationships.
Consultant Harmon O. Pritchard, Jr., CAE, who is based in Germantown, Maryland, knows the joy of seeing people join an association to take advantage of an affinity offer. As senior vice president of marketing and then of special projects for the Aircraft Owners and Pilots Association, Frederick, Maryland, from 1974 until his retirement last year, Pritchard developed numerous affinity programs, one of the first being a life insurance program that was only available to private pilots through AOPA. That exclusive situation has since changed - few insurance companies exclude private flying now; but for some time pilots were drawn to AOPA for its insurance. They were also joining in the 1970s for the car rental discounts, which were much less common than they are today and which appeal to private pilots in particular because once they fly to their destinations, they need transportation on the ground. "In many cases," Pritchard points out, "the money you saved on one car rental was enough to pay your AOPA dues" - $19 at that time.
Revenues from affinity programs greatly assist AOPA in avoiding significant increases in dues, which are now $39. (The association hasn't had a dues increase since 1991, when dues were $35.) Earnings from the many affinity programs AOPA currently offers its 341,000 members accounted for 31.4 percent of the association's total revenues, $30 million, last year.
Realistic revenue expectations. The compensation that a program provider is willing to pay your association depends on the size of your membership, the projected revenue from the group, and whether you give the provider an exclusive arrangement, Pritchard explains. Credit card programs, for example, may be compensated on a per-card-issued or -renewed basis, a per-transaction basis, a percentage of finance charges, a percentage of purchase volume, or a combination of these factors.
Programs with the most potential. "There are very few programs that are gold mines, unless you create something new that really meets a need," says Pritchard. "Your traditional things can produce revenue, but I don't think the bonanza is there anymore." By traditional, he means programs such as credit card discounts and long-distance telephone discounts. "There are a million of those now," he notes. "So the challenge is to make the affinity programs as unique as you can to your organization, so that you're less subject to the competition posed by the proliferation of those services. Your best opportunity is to come up with an insurance program that meets a definite need."
That's exactly what the Association of the Bar of the City of New York did, according to Jennefer Eccles, who served there as business and marketing manager before switching recently. to director of marketing for the New York City chapter of the YWCA. "The professional liability program and all the affiliated insurance programs brought in members," Eccles says. She notes that while the Association of the Bar's other affinity offering - online legal research discounts, overnight package delivery discounts, and more - are not perceived to be top membership benefits, they are acknowledged for adding value to membership. "When you provide people with something extra," she says, "they appreciate it and will often take advantage of it."
Eccles saw growth over the past year mainly in the insurance and credit card programs. In 1995, insurance programs alone contributed almost $250,000 to the $9 million budget of New York City's Association of the Bar, which has more than 20,000 members.
Service providers generally all functions involved in administering and marketing their services. Many program providers want the association to cover the marketing expenses. If the association doesn't want to foot the bill, the program provider generally lowers the royalty offer.
In general, successful programs don't simply arrive at your association's door ready to go; you must invest significant effort up front to first choose wisely among program providers and then establish the kind of relationship that will work best for your association.
Formally assess member needs. Pritchard urges associations to conduct a thorough assessment before becoming involved in any affinity relationship. "If any program has a chance to succeed," he says, "it will be because the association identified a need and is filling it, rather than just dreaming up a program and then trying hard to sell it to everybody." He learned that lesson in the mid-80s, when AOPA began an online service through CompuServe that was quickly canceled. "We were way ahead of the members in terms of computers. . . . We really didn't do enough research to see if our members were ready for that service." When the timing was right, AOPA relaunched this service, and now the association has a successful forum on CompuServe.
Test the program. Pritchard recommends considering a program proposal against these criteria:
* Is the program appropriate for the organization? For example, AOPA members - pilots - probably have little use for an office-supply discount program.
* Does the program fill a member need?
* Will the benefits be clear to members?
* Will the program be available to all members? Do not accept programs that exclude any members, such as with an insurance provider that is only interested in the cream of the crop. If you have a nationwide membership, don't accept programs that can only deliver services regionally.
* Is the program unique? If not, does it offer better prices or benefits than your members can obtain elsewhere?
Check around. Find out what similar services other companies are offering, emphasizes Eccles. Request references. And check out companies with the Better Business Bureau.
Finesse the program. With any program, Pritchard advises, "take a look at it and see what can be done to make it particularly appropriate for your association." For example, while at AOPA, he crafted an agreement with a health insurance provider that increased the benefit if someone was hospitalized from an aircraft accident. "That wasn't a big deal," he acknowledges, "but it made the program more specific to that group."
Ask about customer service. Pritchard warns against doing business with a salesperson who offers an independent program without the backing of his or her company. Members need a level of customer service that a lone salesperson probably cannot provide.
Set goals. Eccles suggests consulting with the affinity program provider in setting goals, then keeping an eye on those goals to judge how well the program is doing.
Evaluate regularly. Once up and running, a program may need changes to meet the needs of the times. Or, as time goes on, the program may no longer be needed in any form.
* DON'T DREAM UP A PROGRAM and then try to sell it to members; formally assess member needs and build programs to fill them.
* INSURANCE PROGRAMS - Ones tailored to your membership - generally offer the best opportunities for financial gain.
* TO KEEP ROYALTIES TAX-FREE, be mindful of where the association's role begins and ends with affinity programs.
RELATED ARTICLE: Avoid Taxes Through Well-Crafted Agreements
BY PAULA COZZI GOEDERT
In light of the intense scrutiny to which royalty payments will be subject if the Internal Revenue Service calls for an audit, associations must carefully structure agreements with third-party service providers to prevent the taxability of payments.
The IRS position is that royalties will only be treated as tax-free if they constitute a payment solely for the use of intangible personal property, such as a name or logo. Following are guidelines to assist your association in drafting agreements that will pass IRS muster.
1. If the fees received by the association under an agreement are intended to be tax-free royalties, call the agreement a "Royalty Agreement" or "License Agreement" and refer to the fees as "royalties."
2. Avoid the word "agent." The outside service provider should not be referred to as an agent of the association, nor should the association be referred to as an agent of the service provider. There must be no implication that the association is in the service provider's line of business.
3. State in the agreement that it is not intended to create a joint venture or partnership between the parties.
4. In the agreement, refer to the program as the outside service provider's program - not as a program of your association. For example, the agreement should not state: "Administrator is hereby retained to provide services for the XYZ Association's insurance program." It is the service provider's program, and the association is merely licensing its name and logo to it.
5. Do not list in the agreement any duties or activities for the association to perform to assist the service provider in marketing its products or services.
6. Do include provisions that permit the association, in the interest of protecting its goodwill, to review marketing materials and other documents or correspondence prepared by the service provider.
7. Do not share expenses with the service provider. This would be viewed by the IRS as participation in marketing activities. The service provider should pay fair market value for advertisements in association newsletters, exhibit space, and other marketing vehicles.
8. If the outside service provider insists that the association provide marketing services, consider having them performed by a for-profit subsidiary, for fair market value. If a for-profit subsidiary is used, develop two agreements with the service provider: a licensing/royalty agreement for the association and a marketing agreement for the subsidiary.
9. Always work off the gross. Do not contract for any percentage of net profits from the activity, which would imply that the association and the service provider are partners in the business activity.
10. Make sure that miscellaneous documents, such as correspondence or board minutes, do not reflect a reality different from the agreement.
Paula Cozzi Goedert is a partner in the law firm of Jenner & Block, Chicago.
RELATED ARTICLE: ASAE-Sponsored Affinity Programs
Since establishing its first affinity relationship in 1986 - a MasterCard program through MBNA - ASAE has been involved in various affinity relationships, including the following.
* Car rental discounts through various service providers. For information, call Alamo, (800) 327-9633; Avis, (800) 331-1212; Budget, (800) 455-2848; Hertz, (800) 654-2200; and National, (800) CAR-RENT.
* Communication packages through MCI offer discounts on fax broadcasts, fax-on-demand, outbound long-distance telephone calls, toll-free numbers, and audio-and video-conferencing. Call (800) 600-5551 to enroll. To find out how your association can sponsor this program for your members, call Kathryn Teague, (703) 506-6059.
* Equipment discounts through The Document Company, Xerox - savings on copiers, printers, fax machines, and more. Call (800) ASK-XEROX, ext. ASAE.
* Financial services programs include
* Credit card program through MBNA America provides a MasterCard. Call (800) 847-7378.
* Credit/debit card processing through Mellon Bank offers savings on transaction fees and processing rates when accepting credit card payments from your members. Call ASAE Services Corp., (202) 626-2835; or Mellon Bank, (800) 772-4383.
* Legg Mason Investment Program. Provides associations with cash management alternatives, certificates of deposit, and professionally managed income and equity accounts. Call Legg Mason, (800) 662-0267.
* Mellon Bank "1 Plan." Provides customized home mortgage services for ASAE members and for their association memberships, featuring preferred interest rates and discounted fees. Call Mellon Mortgage Co., (800) 235-6260, ext. 2404.
* Smithy Braedon/ONCOR International "Realsites" Program. Offers real estate services at below-market rates plus local, national, and international market data available to ASAE member-represented associations. Services include site and facility acquisition, disposition, office and industrial leasing, asset and property management, investment sales, real estate planning, and financing. Call Smithy Braedon, (800) 406-0776.
* Insurance and retirement plans include
* 401(k) and Other Supplemental Retirement Plans. For associations with corporate memberships. Call American Buying Retirement Services, Inc., (800) 495-4050; or ASAE Services Corp., (202) 626-2825.
* Association, Executive Deferred Compensation Plans. For ASAE-member association senior executives, the Horizon program of selected insurance and financial products. Call JZA, Inc., (703) 683-7274.
* Association Health Insurance Program Consulting Services. Evaluation and administration support for member benefit coverages. Call W. F. Morneau & Associates, (703) 684-4845.
* Association Office Policy. Coverage for general liability, property, workers compensation, commercial auto liability, crime, computer operations, and excess liability. Call ASAE Services Corp., (202) 626-2825.
* Association Property-Casualty Insurance Program Consulting Services. Planning, evaluation, and negotiation support for member insurance coverages. Call AON Risk Management Services, (800) 368-0321.
* Expo-Plu$. Coverage for loss of revenues resulting from cancellation of a convention due primarily to acts of God. Call Seabury & Smith, Inc., (202) 457-6815.
* Group Life & Health Insurance and Retirement Plans. For ASAE members and their employees. Call JZA, Inc., (703) 683-7274.
* Group Long-Term Disability Insurance Plans. For corporate association memberships. Call American Buying Retirement Services, Inc., (800) 495-4050; or ASAE Services Corp., (202) 626-2825.
* HIV/AIDS Insurance. For members of medical-related associations, provides disability and death benefits for work-related accidents. Call ASAE Services Corp., (202) 626-2825.
* Nonprofit Organization/D&O Liability Insurance. Protection for directors, officers, employees, volunteers, and the association entity from losses that arise from alleged wrongdoing in the performance of their work-related duties. Call ASAE Services Corp., (202) 626-2825.
* Proinsure Program. Specializes in errors and omissions liability protection for members of professional societies. Call MIMS International Ltd., (410) 296-1500; or ASAE Services Corp., (202) 626-2825.
* Security For The Long Term Program. Offers individual-membership associations a menu of insurance plans to sponsor, including term life, disability income, business overhead expense, AD&D, and hospital indemnity protection. Call MIMS International Ltd., (410) 296-1500; or ASAE Services Corp., (202) 626-2825.
* USA Comp Insurance Co. Ltd. Provides workers compensation. Call ASAE Services Corp., (202) 626-2825.
* Overnight shipping discounts with Airborne Express can save ASAE members up to 40 percent on air express delivery. Call (800) MEMBERS.
Gerry Romano, CAE, is senior editor of ASSOCIATION MANAGEMENT.
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|Title Annotation:||includes related article on avoiding taxes on royalty payments and list of affinity programs sponsored by American Society of Association Executives|
|Author:||Goedert, Paula Cozzi|
|Date:||Nov 1, 1996|
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