Expert Answer:MAR4803 Marketing Strategy Case 3 Springfield Nor’

  

Solved by verified expert:Required: Create a word-processed document that includes your “talking points” for the discussion along with your answers to questions 1-3 listed below. The format for your prepared document is informal, as notes, which means bullet points are acceptable. Hand-written papers are not acceptable. NOTE: The following questions are intended to guide your analysis of the case and do not represent an exhaustive list of issues to be considered. 1. Evaluate the research survey undertaken by the League Sports Association and by Larry Buckingham, the Nor’easters’ marketing director. Consider and discuss the steps in the process that led to the findings of the survey. 2. What do you consider to be the key findings of the research survey? Comment on what Buckingham learned about prospective customer profile, pricing, and single-ticket versus season ticket packages. 3. What considerations should the Nor’easters take into account in establishing a pricing policy? Be as specific as possible. We will do together in class: 4. Design a mathematically informed ticket pricing plan for Nor’easters’ first season that will maximize revenues. Should Buckingham offer more than one type of season package? How, if at all, should ticket prices vary by package type? Be very specific and be prepared to explain the assumptions that underlie your pricing strategy. 5. Will the team to be able to at least breakeven given your proposed ticket pricing plan? Be sure to consider all sources of revenue. Are they missing anything not discussed in the case? What it their net income (negative or positive) under your plan.
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For the exclusive use of A. Huwaykim, 2019.
2510
REV: MAY 11, 2009
FRANK V. CESPEDES
LAURA WINIG
CHRISTOPHER H. LOVELOCK
The Springfield Nor’easters:
Maximizing Revenues in the Minor Leagues
It was barely 8 a.m. on January 19, 2008 and already Larry Buckingham knew this would be a
trying day. Buckingham, marketing director for the Nor’easters, a new Class A minor league baseball
team in Springfield, Massachusetts, had already taken telephone calls from two local reporters
seeking comment on the news that the city’s only other professional sports team, the Falcons, a minor
league ice hockey team, might leave the city. Many people in the region had heard a radio interview
the previous day in which the Falcons’ general manager announced that unless the team sold 300
more season tickets for the upcoming season, the Falcons would be leaving Springfield.
The Nor’easters had not played a game—yet—and wouldn’t for nearly a year and a half. They had
just opened their offices in Springfield. Owner Jimmy Mercante (a Springfield businessman) and
President and General Manager Bob Cortez eagerly anticipated their first season, which would start
in June 2009. But the Falcons’ announcement was troubling. The Nor’easters, too, needed to sell
plenty of season tickets for the team to thrive in Springfield. Ironically, Buckingham had just begun
preparing Nor’easters’ ticket offers. He would have the Falcons’ announcement in mind as he set
prices for the first season—a decision that had to be finalized before mid-June 2008, when tickets
were scheduled to go on sale. Buckingham’s situation was especially stressful because, although he
had a successful decade of experience in marketing various entertainment services, especially live
theatre, the sports industry was new to him.
The City of Springfield
Springfield, located 90 miles west of Boston, was the third largest city in Massachusetts. Through
the 1950s, the city was a vibrant and diverse manufacturing center, but by 2008 only a few large
manufacturers remained, and Springfield had lost many higher-wage-earning residents, resulting in
a 3.6% drop in average wage income since 1990.i In 2006, the U. S. government estimated that the
median income for a family of three was $37,800, and the median household income was $31,046.
________________________________________________________________________________________________________________
Senior Lecturer Frank V. Cespedes, Laura Winig, and former Professor Christopher H. Lovelock prepared this case solely as a basis for class
discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. All names and key data
in this case have been disguised. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is
coincidental. There are occasional references to actual companies in the narration. The authors and HBS are grateful to C. J. Knudsen (Vermont
Lake Monsters) and Tim Baumann (Lowell Spinners) for their help in finalizing the case.
Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Alaa Huwaykim in Marketing Strategy (MAR 4803) Spring 2019 taught by FELICIA MORGAN, University of West Florida from Jan 2019 to May
2019.
For the exclusive use of A. Huwaykim, 2019.
2510 | The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues
Nearly 25% of families lived below the poverty line. Approximately 60% of the households in
Springfield comprised families with children younger than 18 years of age, 10% were senior citizens
living alone or as couples, and 25% were single men or women under age 65 living alone. The
remaining 5% comprised all other living configurations.ii
But the news wasn’t entirely bad. Though Springfield had long been considered a working-class
city, the economy was changing as entrepreneurs, lured by the area’s low-cost housing and plentiful
labor, opened small businesses. Service industries such as healthcare and financial services offered
the hope of future employment opportunities for the city’s sizable youth population. Indeed, more
than 25% of Springfield’s 55,338 residents were under 18 years of age—the highest percentage in the
state.iii
Given its size, many newcomers and visitors to the city were surprised to discover how rarely
Springfield residents were exposed to professional sporting events. The greater Boston area was
home to world-class teams such as baseball’s Red Sox, football’s New England Patriots, hockey’s
Bruins, and basketball’s Celtics. But the Springfield area itself offered few spectator opportunities for
sports fans. Residents could attend college sporting events at local schools. Despite its fame as the
birthplace of basketball and as home to the Basketball Hall of Fame—a major tourist attraction—
Springfield had no professional basketball team. Aside from the Falcons hockey club, fans who
wanted to attend a professional sporting event had to drive elsewhere.
Minor League Baseball
In 2008, there were 176 minor league baseball teams in the U.S., competing through 19 regional
leagues. Minor League Baseball® was popular and generally well attended. Tickets were considered
very affordable, and the intimate venues allowed fans to get close to the players and the action.
Baseball fans liked that the young players were eager to show off their potential and played hard,
which made for exciting games.
The teams, located in small and mid-size cities as well as the suburbs of large cities, were
considered “player development programs” where young players were expected to hone their skills
in progressively challenging minor league classes—A, AA, and the highest, AAA—on their way up
(the players hoped) to the major leagues. Each of the 30 teams in Major League Baseball was
affiliated with minor league teams to which they could send young players for development at the
appropriate level of competition. The major league teams provided funding for players’ salaries as
well as bat and ball expenses. Minor league teams, however, were responsible for all other operating
expenses, including uniform expenses, league dues, staff salaries, office and travel expenses, and
stadium leases. Generally, club owners ran their teams as viable businesses (see Exhibit 1 for
Nor’easters’ estimated annual operating expenses). Buckingham knew that owner Jimmy Mercante
expected to at least break even in the first year. Some of the budgeted $1.96 million in expenses
would be offset by concession sales, and some borne (as noted) by the major league partner, but the
rest of the revenue was expected to come from ticket sales.
The team was scheduled to play a 76-game season (38 games played at home), with games
scheduled for six evenings (Monday-Saturday) and one afternoon (Sunday) weekly, from mid-June
through the first week of September. Players had only a handful of days off sprinkled throughout the
season. Springfield College offered the use of its stadium—a former high school football field that in
the 1990s had been converted to a 3,600-seat, open-air arena with 2,000-seat bleacher and (under the
roof) 1,600 grandstand seats; this was within the standard capacity range for Class A baseball teams.
The college provided the stadium in exchange for 100% of the parking revenue ($4 per car.); thus, the
Nor’easters were freed from paying any stadium leasing fees. (See Exhibit 2 for a diagram of the
2
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This document is authorized for use only by Alaa Huwaykim in Marketing Strategy (MAR 4803) Spring 2019 taught by FELICIA MORGAN, University of West Florida from Jan 2019 to May
2019.
For the exclusive use of A. Huwaykim, 2019.
The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues | 2510
stadium.) The City of Springfield and three nearby colleges had pledged financial support totaling
$21,000. In addition, local restaurants and hotels, recognizing that the team’s games would likely
increase their own revenues, pledged $25,000 in sponsorship and advertising.
Using Existing Research
To be successful, a minor league team had to cultivate a loyal fan base. Upon learning of the
Nor’easters’ plan to locate in Springfield, Mae Blesch, sports reporter for The Springfield Daily, wrote:
The team is going to need to quickly bring together two disparate team audiences in the
Springfield community. The first are die-hard sports fans who are tired of driving to Boston or
cheering for other cities’ teams. The second are the families, the little leaguers, the college
students, and the casual fans eager to experience professional ball here in our own hometown.
Blesch’s story also quoted general managers from sports teams in other small cities. Their
consensus was that flexibility, simplicity, professionalism, and fun were the keys to selling the
Nor’easters to Springfield residents. Indeed, one GM noted: “We don’t really sell baseball, we sell
entertainment. From inflatable bounce houses to prize giveaways to kiddie baseball toss contests, we
are in the family fun business.” Blesch noted that (unlike Major League Baseball) teams’ won-lost
records appeared to have little to do with attendance; mediocre teams that provided a high
entertainment value often had very high attendance.
Buckingham had data that appeared to support at least some of Blesch’s findings. National
research conducted in 2005 by the League Sports Association indicated that families with school-age
children were three times as likely to attend a baseball game as retirees or families with pre-schoolers.
The research also showed that only 8% of those surveyed had attended a professional baseball gameiv
that year, though 23% had watched one or more games on television. Of course these findings
applied to both major and minor league sports (the only data available, unfortunately) so
Buckingham knew he had to be careful when using the data to draw conclusions about the minor
league market. He also did not know anything about the underlying methodology of the research but
reasoned that imperfect data was probably better than none.
Buckingham knew that the college student population, which helped to support a number of
college football and basketball (though no baseball) teams in the area, was rarely visible at
professional sporting events, likely due to the high cost of tickets and lack of transportation.
To design his ticket offers, Buckingham first had to find out what local baseball fans wanted and
what they might be willing to pay to attend minor league games in Springfield. Buckingham planned
to analyze the remaining data from the 2005 League Sports Association survey that examined the
characteristics of spectator audiences for all professional league sports (for selected results, see
Exhibit 3).
Nevertheless, Buckingham wanted more than three-year-old survey data and the anecdotal
evidence of a local journalist to guide him; he felt he needed a detailed, methodologically rigorous
survey on which to build Nor’easters’ pricing strategy. “I want to be able to tailor the team’s offerings
based on knowledge of the local market—where the regional audience has been clearly segmented
and analyzed in advance,” said Buckingham. He decided to move forward with a market research
survey: “Without it, we would be flying by the seat of our pants,” he said.
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2019.
For the exclusive use of A. Huwaykim, 2019.
2510 | The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues
Designing the Survey
At the start of his research project, Buckingham felt his primary research objectives were relatively
simple: he wanted to predict how many people would come to see the Nor’easters and how much to
charge them. He knew he needed to identify the team’s potential audience in terms of demographics
and social behavior—i.e., education, income, household composition, and prior sports attendance. He
wondered what else he needed to know.
Work began on the survey during the second week of January 2008. To prepare, Buckingham
conducted detailed telephone interviews with his counterparts at half a dozen well-established minor
league teams around the northeastern U.S. to better understand their businesses and their marketing
perspectives. He made several observations:
Most of the marketing directors emphasized the need to price seats on par with the
competition—movies, bowling, other sporting events. One MD said, “My city is a lot like
Springfield economically, and these folks have to be very careful with a dollar.”
Another MD told me he derives his ticket revenue from a mix of season tickets, group sales,
and individual ticket sales but couldn’t explain exactly how he’d arrived at the proper
proportioning among those three categories. I realized I’d have to rely on the survey to help
me learn as much as I could about season ticket versus individual ticket buying behavior.
The same MD said that regardless of our findings, we should consider promoting group ticket
sales with special promotions to Little League teams, summer camp programs, family days
out, and the like. He also told me to keep in mind that ticket prices can be kept reasonably low
if we make an effort to secure corporate sponsorships and sell stadium banner ads, for
example.
The very first MD I spoke with emphasized concession sales. He said he makes more than half
his revenue from snacks, souvenirs, and arcade games alone. I asked the other MDs about
concessions; everyone said they were critically important but gave a range of answers as to how
important. It was clear I needed to include a question about concessions in my survey.
Buckingham realized the issues—particularly those involving the concession sales—were very
complex. He was mindful of a gap in his professional background: he had never worked for an
organization that could earn meaningful income from hot dogs, sodas, beer, baseball caps,
bobblehead figures, and team yearbooks—at a 39% profit margin no less. He realized there might be
subtle trade-offs between the pricing of tickets, the structuring of multiple-ticket packages, and the
revenue yield from concessions. He’d need to shed some light on these trade-offs through his
research.
Buckingham also got some information from his boss, Team President and General Manager Bob
Cortez, but getting Cortez to focus on research was difficult. At this point in the team’s development,
Cortez was tied up endlessly in issues of finance, operations, and government relations. He didn’t
have much time to consider Buckingham’s survey—and when he did, he mainly kept advising
Buckingham to “ask them this” and “ask them that.” Buckingham stood firm on this point, warning
Cortez that the survey should contain only questions whose answers would affect actual decisions: “It
is very easy to fall into the game of ‘it would be nice to know’,” he said, “but it’s counterproductive.”
Accordingly, questions were designed with three criteria in mind: maximum information yield for
management decisions, question clarity for respondents, and ease of data analysis.
4
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2019.
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The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues | 2510
Originally, a mail survey had been planned, but this idea was rejected because it would require
six weeks to complete. Instead, Buckingham decided to mail 10,000 postcards that would direct
recipients to a Web site where they could complete a questionnaire. Upon doing so, the respondent
would be entered into a drawing for a chance to win a $500 restaurant gift certificate. The online
survey data would be tabulated in real time as the surveys were completed. Buckingham estimated
he would have results within two weeks of his initial mailing. He felt the total survey budget of
$3,800 (which included postcard design, printing, and postage; the online survey service; and the gift
certificate but not the cost of the mailing lists, see below) was very reasonable.
The online questionnaire was pretested three times on friends, relatives, and business associates of
the Nor’easters staff (but not on a sample of the mailing group). Several questions posed initially
were radically changed or rejected as too complicated; for example, one question, which asked how
much respondents would pay for three different types of season tickets (half-season, full-season and
a 5-ticket multi-game package) for seats in one of two different sections of the stadium (grandstand
admission and bleacher seats) was split into two simpler questions.
The pretest results shed light on individuals who might want to purchase multiple tickets for the
same game (for friends and family). These individuals tended to identify themselves as multi-game
package purchasers, on the assumption that a block of 5 tickets for a single game might be offered at
a price similar to that of the 5-ticket multi-game package. As a result, Buckingham believed that, for
planning purposes, the club should assume no more than one block of tickets per individual.
Developing the Sample
By the beginning of February 2008, Buckingham had completed the questionnaire design. He had
identified two main categories of information to examine: price sensitivity and sports attendance
patterns. Questions on these categories, plus others on seat location, concessions, and personal
background of respondents, composed the final version of the questionnaire.
The mailing list for the postcard was drawn from two sources. A sample of 5,000 names was taken
from Springfield census tracts of households with income above the poverty level. These names were
supplied by a broker for a fee of $90 per thousand names. Another 5,000 names were obtained from
the mailing lists of four sports-related organizations in Springfield, each of which had been asked to
supply a random sample of names from its database: minor league hockey and college football
individual and season ticket buyers and parents of Little League baseball and softball players. The list
costs ranged from $125 to $130 per thousand names.
In describing Nor’easters’ potential fan base, Buckingham said: “Our fans can be anybody who
can enjoy a good ball game, and I think that means fans can come from any class, any gender, and
any part of town.” Buckingham saw no contradiction between this definition of a fan base and the
survey sample frame. “The goal of the survey is to identify people who would respond and subscribe
without ever having seen a Nor’easters game,” he explained.
The postcards inviting survey participation were mailed February 12, 2008. Within a week, 510
Internet responses had been received; another 75 people without access to the Internet called the tollfree number listed on the postcard to complete their survey via telephone. Approximately 4% of the
postcards were returned to Buckingham as undeliverable. Ultimately, 625 responses were tabulated.
Although there were variations in the response rates for the census tract mailing list and those for
the spor …
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