Sports Marketing in the Credit Crunch

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Dr. Sean Ennis | Sports Marketing in a Global Context | MK950 | Elective Individual Essay | Session 2009/2010 | Semester B | Submission Date 01/04/2010 | Msc International Marketing Department of Marketing Assignment Sports Marketing in a Global HEMPLE, James Grant The current “credit crunch” will have some significant implications for sports marketers. Select ONE sport of your choice and address the challenges facing sports marketers in the midst of deep recession. Tackling… the Credit Crunch

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The current “credit crunch” will have some significant implications for sports marketers. Select ONE sport of your choice and address the challenges facing sports marketers in the midst of deep recession.

Transcript of Sports Marketing in the Credit Crunch

Page 1: Sports Marketing in the Credit Crunch

Dr. Sean Ennis | Sports Marketing in a Global Context | MK950 | Elective

Individual Essay | Session 2009/2010 | Semester B | Submission Date 01/04/2010 | Msc

International Marketing

Department of Marketing Assignment

Sports Marketing in a Global

HEMPLE, James Grant

The current “credit crunch” will have some significant implications for

sports marketers. Select ONE sport of your choice and address the

challenges facing sports marketers in the midst of deep recession.

Tackling…

the Credit Crunch

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Contents

1.0 Introduction ................................................................................................ 3

2.0 The Credit Crunch and Football ..................................................................... 5

2.1 Audience figures .......................................................................................... 5

2.2 Sponsorship ................................................................................................ 7

3.0 Implications for Sports Marketers .................................................................. 9

3.1 Tackling Audience Figures ............................................................................. 9

3.2 Tackling Sponsorship .................................................................................. 11

3.0 Conclusion ................................................................................................. 14

References .......................................................................................................... 15

Bibliography ........................................................................................................ 18

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1.0 Introduction

Howard and Burton (2002) suggest that numerous executives believe that sports are

resistant to a recession and Gibson (2009a) underpins this viewpoint. However, Gibson

(2009a and 2009b, pg 6) advocates that:

“…the sport media industry is at a crossroads as the global economic crisis impacts on

media companies, slowing revenue growth and narrowing profit margins.”

Pitts and Stotlar (2002, pg 79) defined sport marketing as:

“the process of designing and implementing activities for the production, pricing, promotion

and distribution of a sport product or sport business product to satisfy the needs or desires

of consumers and to achieve the company’s objectives”

This definition is further underpinned by Mullin et al., (1993). Coleman et al., (2002, pg

196) state that Sports marketing involves:

“…the selling of sponsorship rights to sporting events additionally utilising sports figures as

spokespeople to promote the purchase of sports and non-sports products and services.”

Blann and Armstrong (2007) argue that sports’ marketing is extremely complex as sports

has certain characteristics that make it unique citing that sport varies from other products

and services due to four distinct attributes.

Sports can be seen as largely intangible as you cannot touch sports teams. Tangibility in

sports occurs through the sale of replica clothing, DVD’s and seats in the stadium.

Furthermore, Sport is highly subjective and heterogeneous as the sports experience as

understandings vary dependent upon the viewer. Additionally, sports are extremely

incoherent and volatile with numerous factors that can affect the outcome of a result:

injuries to players, the emotional state of players, the momentum of teams, and the

weather (Blann and Armstrong, 2007). Moreover, Blann and Armstrong (2007) advocate

that sport is perishable as the sport experience is simultaneously produced and consumed

sport marketers often offer tangible items such as merchandise that aid our memory.

Finally, sports involve emotions as spectators and fans become emotionally attached to

their teams. Consumers do not often display such heightened emotions or psychological

attachment to other goods or products (Blann and Armstrong, 2007; Brooks, 1994).

Football clubs traditional aim is to be successful on the field. However, more importance is

now being placed on succeeding finically to obtain success on the pitch. Quirk et al., (1974)

advocate that sports marketer main task is to maximise profit. Sloane (1971) disputed this

and suggests sports marketers must maximise efficiency in order that supporters are

satisfied. Vrooman (2000) advocates both of these arguments stating that sport marketers

most equally maximise profits and satisfaction.

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This essay will examine current “credit crunch” and discuss its significant implications for

sports marketers by utilising Football as a case study. The essay will firstly focus on the

key issues created by the credit crunch namely Audience Figures and Sponsorship. The

essay will then propose the appropriate strategies that sports marketers can implement to

tackle the credit crunch to ensure long term sustainable growth.

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2.0 The Credit Crunch and Football

Chadwick (2009a) has argued that we actually don’t know because the value of the sport

economy as it is not measured. However, this essay proposes two potential areas within

the Football industry that are affecting sports marketers during the credit crunch; Audience

Figures and Sponsorship.

2.1 Audience figures

Firstly this essay will examine the affect the recession has had on the ticket sales in

football. Table 2.0 highlights the percentage change trends of consumers who pay to watch

sports at a venue. The table highlights that from the period 2004 to 2008 Football has a -

3.2 point change in consumers who pay to watch sports at a venue.

However, Rey (2009) highlights that attendance figures for the English Premiership have

only slightly dropped from 13,708,875 to 13,535,272, representing a 1.27 per cent

decrease. Table 2.1 highlights that nine of the twenty teams in the English Premier League

have shown an increase in attendance figures during the credit crunch. Stoke, Hull and

West Brom have all recorded significant increases in attendance figures due to their

promotion to the Premier League. Fulham also recorded encouraging audience figures due

to qualifying for the Europa League. These examples highlight how success impacts the

attendance figures despite the credit crunch. However, Middlesbrough who were relegated

from the English Premier League benefited from an increase in audience figures as well

suggesting that poor performance can still equate increased ticket sales. The figures in

Table 2.1 highlight the relationship between performance and attendance figures.

Table 2.0: Trends in sports paid to watch at venue, 2004-08

2004 2006 2008 % point change

% % % 2004-08

Football/soccer 11.4 11 8.2 -3.2

Rugby union 2.8 3.1 2.6 -0.2

Cricket 2.5 3.1 2.2 -0.3

Motor racing 1.4 1.4 1.5 0.1

Source: adapted from Mintel (2009a)

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Sports marketers must consider that mid-table teams are open to serious threats from

reduced attendances as they may have little to play for over the closing months of the

season. Football teams at the bottom of the table can often draw in fans keen to do their

bit in encouraging their team to safety. At the other end of the spectrum the top teams,

can rely on the big games selling out but may prosper from other games were occasional

fans who may be more likely to spend more within the stadium as part of their day out.

Secondary ticketing exchanges could become increasingly important in filling gaps. On-field

success and the media coverage and revenues this generates are a bigger influence on

clubs’ financial fortunes than the size of the crowds they attract. Attendances and

matchday revenues only come into play in separating clubs of a similar playing standard,

with Liverpool’s comparatively low capacity making them the poorest of the ‘big four’

Champions League qualifiers. Arsenal’s doubling of matchday revenue during the first

season in the Emirates Stadium highlights the enduring value of the stadium product.

However, despite these relatively positive figures research conducted by Mintel (2009b)

states that nearly a quarter of season ticket holders plan to cancel their tickets at the end of

the 2010 season. Mintel (2009a) comments that season ticket sales, which at most

Table 2.1: Premiership Attendance Figures

Team Average 07/08 Average 08/09 +/-%

Man United 75,691 75, 309 -0.50

Arsenal 70,070 60,040 -0.05

Newcastle 51,321 48,750 -5.01

Liverpool 43532 43611 +0.18

Man City 42126 42900 +1.84

Chelsea 41397 41588 +0.46

Sunderland 43344 40168 -7.33

Aston Villa 40029 39812 -0.54

Tottenham 35967 35929 -0.11

Everton 36955 35667 -3.49

West Ham 34601 33700 -2.60

Middlesbrough 26708 28429 +6.59

Stoke 16823 26821 +59.43

West Brom 22311 25828 +15.76

Hull City 18025 24816 +37.68

Fulham 23774 24344 +2.40

Blackburn Rovers 23944 23479 -1.94

Bolton 20901 22486 +7.58

Portsmouth 19914 19830 -0.42

Wigan Athletic 19046 18350 -3.65

Source: adapted from Ley (2009)

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Football clubs account for well over half of stadium capacity, offer a guaranteed level of

income until May 2010.

Research conducted by Pritchard et al., (2009) found that over a half of those sampled cited

external barriers such as work commitments, and a quarter recorded internal reasons like

personal or family priorities restricting their patronage.

2.2 Sponsorship

Secondly, the implications of the credit crunch on sponsorship will be examined. Sports

Sponsorship is seen as a strategic action (Carter, 1996; Gilbert, 1988; Otker, 1988). Slack

and Bentz (1996) state sports sponsorship involves:

“…the allocation of scarce resources with the intent of achieving certain organisational

objectives.”

Bennett (1999, pg 291) argue that:

“Sports sponsorship is an important marketing communications instrument that looks to

gain favourable publicity for a an organisation and/or its brands within a certain target

audience via the support of an activity not directly linked to the company's normal

business”

Fullerton and Morgan (2004) suggest that sports sponsorship based strategies have been

greatly impacted upon during the credit crunch with sponsors less willing to pay high

premiums (Mintel, 2009a). The credit crunch has caused organisations to scrutinise

budgets and sponsorship budgets. Due to this sport marketers are required to produce

inspiring sponsorship results as competitor’s battle for the attention of profitable sponsors.

Sponsors concerns over the potential for sports marketers to justify expenditure on what is

sometimes seen as a less measureable and quantifiable form of marketing, the industry

seems equipped to fight its corner and can in some cases offer better value for money than

traditional advertising Mintel (2009a).

Table 2.1 emphasises that even clubs that are deemed to be more successful are open to

the implications of the credit crunch on sponsorship. Man UTD’s loss of AIG as a sponsor

underscores the depth of the financial climate with the company going bust.

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Table 2.1: Major Sponsorship Concerns Affecting Football Clubs In the UK.

Newcastle

United

Northern Rock (UK tax payers) will continue to sponsor Newcastle until 2010 to the tune

of £5 million per year.

West Ham United

The XL Leisure Group went into administration in September 2008. They were one year into a three year deal as West Ham’s shirt sponsor, paying £2.5 million per year.

Manchester

United

AIG (American International Group) needed the US Government to bail them out with a

loan of $85 billion. There are two years left on the sponsorship deal worth £56.5 million

Bradford City

Bradford and Bingley have also been nationalised with assets sold to Spanish giant Santander.

Wigan Athletic

Wigan Athletic sponsors JJB Sports has seen the share price plummet by 60%. JJB’s sponsorship of the Wigan stadium and shirts ends at the close of the 2010 season.

Source: adapted from Mintel (2009a)

Additionally, Table 2.2 illuminates the major Football sponsorship deals in the United

Kingdom showing the amount of time remaining on the deals. This table highlights that

Football marketers must look to manage the relationships between their teams and the

sponsors to ensure longevity of the sponsorship agreement (Amis et al., 1999).

Table 2.2: Major UK sports sponsorship deals*, by total value of investment, 2008

Sponsor Involvement £m Time Remaining in

Years

Heineken UEFA Champions League € 80 3 (2011)

Chang Extension Shirt sponsor Everton FC 8 3 (2011)

Gulf Air Shirt sponsor QPR FC 7** 3 (2011)

Crown Paints Shirt sponsor Blackburn Rovers FC €5-6 3 (2011)

Scottish Government Title sponsor Scottish FA Cup*** € 2 2 (2010)

* and ** based on incentives and performance schemes

Source: adapted from Mintel (2009)

This report has thus far extrapolated the main problems the credit crunch has had on the

Football industry most prominently Audience Figures and Sponsorship.

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3.0 Implications for Sports Marketers

This section examines the possible strategies that sports marketers can exploit to tackle the

effects of the credit crunch on Audience Figures and Sponsorship. Chadwick (2009b)

believes customers should be defined as sponsors, commercial partners as well as fans and

spectators.

3.1 Tackling Audience Figures

As a result if the credit crunch Popcorn (2009) and Fisk (2009) emphasise the rise of

Mercurial Consumption where consumers are shopping more intelligently, seeking out the

best deals and comparing prices across numerous channels. Quelch (2008) argues that

organisations must adopt early buy allowances, extended finances and give generous return

policies to entice consumers during a recession. Howard and Burton (2002) advocate that

sport marketers should change prices depending on the market environment or the team’s

performance (increase prices as a team’s performance dramatically improves). Sports

marketers must establish how customers observe the value of their offering compared to

competitors and utilise this information to establish pricing strategies (Howard and Burton,

2002). Additionally, sport marketers are required to create and promote the consumer

experience that they offer so that the experience outweighs the financial cost (Howard and

Burton, 2002).

Football has seen the cost of tickets increase and during the credit crunch this may be a

difficult situation for sports marketers to manage. However, this also represents an

opportunity for sports marketers to cut admission price and gain favour among it’s the

team’s supporters (Mintel, 2009a). Quelch (2008) further advocates that price cuts attract

more support than promotions, sports marketers can additionally exploit this strategy.

Communicating to supporters that price cuts have been implemented could be an ideal way

to attract fans. However, sports marketers should incorporate limited availability and time

restrictions to encourage supporters to purchase.

Howard and Crompton (2004) stress that sports marketers can adopt differential pricing

such as: Flexible Season Ticket Packaging, Money-Back Guarantees and Web-Based

Ticketing. This strategy suggests that sports marketers must adopt a marketing orientated

approach during the credit crunch. Following a marketing orientated approach focuses on

the customers need and wants and recognises opportunities in the market place (Drucker,

1954; Felton, 1959 and Cespedes, 1990).

Differential pricing is based on the concept of price discrimination based upon the demand

that difference supporters have.

Loomis and Walsh (1997, pg 90) define price discrimination as:

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“…charging different prices for the same service where the price differences are not

proportional to differences in costs.”

Clowes and Clements (2003) advocate that price discrimination strategies are used by

many English Premier League teams. The price discrimination strategies include: season

ticket versus single ticket purchase; price reductions based on customer status and seat

location; and charging different prices for different opponents.

Howard and Crompton (2004) argue that price discrimination is dependent on three

variable factors: Quality of the opposing team, time (prices vary by different times of day,

week, or season of the year or first round versus championship game or match) and place

(prices vary by different seating locations). Football teams must allow fans the opportunity

to buy season tickets over extended periods of time and offer various financing options.

Football teams could even utilise extended return policies that allow fans to amend their

season ticket whether it be upgrading their package, moving seat or opting out of the

season ticket. Clowes and Clements (2003) investigation into English Premier League

pricing concluded that eight of the eighteen clubs sampled utilsed price packages. Sports

marketers can package games together in two or three match ticket packages to reduce the

impact of the credit crunch.

Howard and Crompton (2004) advocate that the theoretical arrangement that triggers all

commercial market transactions is social exchange theory which recognises transaction as a

two way process. Sports marketers of Football must ensure that both parties recognise

that the reciprocity in the exchange process is reasonable. If either a negative imbalance is

perceived then the relationship can be detrimental to the relationship and reduce loyalty

making too difficult to re-establish in the future. Social exchange theory fortifies sports

marketers’ decision to drive sales by reducing the risk fans incur in buying luxurious ticket

packages. Service guarantees in the shape of money back offers are a strategy that can be

used to contest the disparity in the exchange process by reducing monetary risk (Burton

and Howard, 2000). This pricing strategy could be successfully targeted towards those who

are purchasing season tickets for the first time as a method to reduce the cognitive

dissonance that occurs.

Sports marketers can increase ticket sales by utilising the Internet effectively (Howard and

Crompton, 2004). Internet based ticketing is more suitable for many consumers as fans

can see a clear map of the stadium and select the most appropriate seating area. This

option places part of the service experience in the hands of the supporter allowing sports

marketers to better balance expectations.

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Conversely, not all fans feel comfortable ordering online due uncertainty over the validity

and security of tickets and playing. To surmount this uncertainty sports marketing

practitioners can offer discounts to first time users and offer first choice on tickets.

3.2 Tackling Sponsorship

Mintel (2009a) highlight the nation’s obsession with football and stresses the importance of

the sport to the sponsorship market. Sports marketers must clearly communicate this

message to potential sponsors to ensure future income. Quelch (2008) states that brands

which increase advertising spends during a downturn can increase market share and return

on investment. Chadwick (2009b) suggests that sports marketers must be: ‘Fearless

Friendliness’, ‘Guarantee Grafters’ and ‘Loyalty Lovers’ in order to retain and attract

supporters and sponsors.

Chadwick (2009b) advocates that sports marketers who adopt the ‘Fearless Friendliness’

strategy will challenge the implications of the credit crunch. ‘Fearless Friendliness’ remain

close to customers maintain expenditure on sponsorship, direct marketing and public

relations. Sports marketers who implement this strategy can give the impression that they

are available and there for consumers even if they are not spending. Additionally, it allows

organisations to remain close to the market and understand the changing market dynamics

especially when the upturn happens.

Chadwick (2009b) sports marketers who are ‘Guarantee Grafters’ can offset the implications

of the credit crunch. This idea is based on the premise of the experiential consumption

paradigm (Pine and Gilmore, 1999; Schmitt, 1999) where supporters will attend the events

to escape the realities of life. Chadwick (2009b) argues that sports marketers must treat

their fans properly to ensure they leave with a good quality experience will be essential in

attracting and retaining customers. Chadwick (2009b) proclaims that this must manifest

itself in how sports marketers interact with sponsors. Sports marketers must make

sponsors feel like part of the family to ensure they remain engaged in the sport and

continue their investment during the credit crunch.

Additionally, Chadwick (2009b) argues it is a necessity that sports marketers are ‘Loyalty

Lovers’. During the credit crunch consumers are more prone to switch to better value

brands and better brand propositions. Quelch (2008) states companies counter such

behaviour is to implement loyalty programmes that pull customers closer. Sports

marketers can reduce the effects of the credit crunch by offering extra incentives to loyal

supporters such as meeting players, signing sessions and online discussions. Kahle and

Riley (2004) advocate that placing idol status can help during times of a downturn.

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In Figure 2.2 Cliffe and Motion (2004) advocate a conceptual framework that sports

marketers can utilise to attract sponsorship. Football marketers can use consumer,

stakeholder, channel and employee objectives to leverage sponsorship of the brand.

Adopting strategies based on this conceptual framework represents an opportunity for

Football marketers to reduce the implications of the credit crunch.

Figure 2.2: Conceptual Framework for Leveraging Sponsorship

Source: adapted from Cliffe and Motion (2004)

At consumer level Football marketers should look to leverage their brand awareness,

personality, experience and loyalty to manage sponsorship opportunities. Cliffe and Motion

(2004) state that recall and recognition of sponsorship can be used to attract sponsorship

and satisfy existing sponsors. Sports marketers must show sponsors that their brand will

be well received as a sponsor. Table 2.2 emphasises the value of a high-profile football

sponsorship in terms of exposure and awareness is demonstrated by the fact that

sponsorships of three of the ‘top four’ English football clubs achieve recognition levels of

around four in ten sports fans or higher (Mintel, 2009a).

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Table 2.2: Sports Sponsorships Recall

Sponsor/Team Recall %

AIG/Manchester United 47

Emirates/Arsenal FC 40

Carlsberg/Liverpool FC 38

Samsung/Chelsea FC 26

RBS/Six Nations Championship 18

O2/England rugby union team 18

Source: adapted from Mintel (2009a)

Additionally, sports marketers must manage the brand experience of their sponsors and

supporters and fans to reduce the implications of the credit crunch.

Kahle et al. (1996) describes the impact motivational processes like a desire for

camaraderie (group affinity) or self-expression have on fan attendance. Further efforts cite

positive links between a desire for eustress (stress that is deemed healthful or giving one

the feeling of fulfilment), group affiliation, entertainment, self-esteem enhancement and

identification on spectator patronage (Swanson et al., 2001). Shoham et al., (2000)

highlight the role identity construction and camaraderie play in motivating participation.

Others report desires like vicarious achievement (Cialdini et al., 1976), fantasy and fun

(Madrigal, 2006), excitement (Zuckerman, 1983), aesthetics and nostalgia prompting

spectator behaviour (Funk et al., 2004). Although fans can derive a range of experiential

benefits from attending, the gist of these studies suggest strong product desires increase a

patron's propensity to act.

Aaker (2004) argues that during times of hardship utilising nostalgia can be effective

strategy. Ballantyne et al., (2006) underpin this suggesting trust and familiarity is key in

times of uncertainty. James and Ross (2004) link motives behind sport event attendance

and the desire for assured experiential benefits. Coleman et al., (2002) further advocate

that sports marketers can utilise nostalgia. Football marketers can use the success of

previous teams and players in the communication of nostalgia. This will elicit a strong

emotional response from fans and supporters causing them to feel and extended sense of

loyalty with the club. If sponsor believe that the fans are proud of their traditions and they

with the brand value of the sponsor it can be argued as a tool that builds the relationship.

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3.0 Conclusion

In conclusion, this essay has examined the role of the credit crunch on sports marketing

practitioners working within the Football industry. Blann and Armstrong (2007) have

commented that balancing a company’s business objectives with consumer wants and

needs is a challenge in any industry but sport marketing is even more complex because

sport has certain characteristics that make it unique.

This essay has underlined that the overall trend of audience figures is declining during the

credit crunch. Mintel (2009a) highlight the relationship between performance and

attendance figures in the English Premiership. The essay has discussed the need for

Football practitioners to adopt various pricing strategies to combat the credit crunch.

Howard and Crompton (2004) and Quelch (2008) stress that sports marketers can adopt

differential pricing such as: Flexible Season Ticket Packaging, Money-Back Guarantees and

Web-Based Ticketing are an effective means to challenge the credit crunch.

Secondly this essay evaluated the role of sponsorship for sports marketing practitioners

during the credit crunch. Fullerton and Morgan (2004) suggest Sponsorship-based

strategies have borne the brunt of the impact of the economic environment in which they

are operating as marketers of non-sports products have begun to shy away from the sports

domain. Companies are cutting their costs, and marketing budgets, where most firms have

allocated their sponsorships, are among the prime targets for cost reduction. At consumer

level Football marketers should look to leverage their brand awareness, personality,

experience and loyalty to manage sponsorship opportunities. Recall and recognition can be

utilised to attract sponsors and satisfy existing sponsors (Cliffe and Motion, 2004).

Furthermore, Chadwick (2009b) suggests that sports marketers must be: ‘Fearless

Friendliness’, ‘Guarantee Grafters’ and ‘Loyalty Lovers’ in order to retain and attract

supporters and sponsors.

Audience Figures and Sponsorship can be seen as being uni-dimensional as they both

equally impact upon each other. Through the analysis in the essay it is feasible to conclude

that sports and particularly Football is recession resistant and certainly not recession proof.

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