IRONMAN, one of the better known brands in sports, faced a critical business challenge: The enormous equity among followers was clearly underexploited and the business was searching for ways to better capitalize on this value. The new strategy would need to accommodate core customers as well as new ones, a challenging mission as the two groups have different expectations. Did the brand succeed or fail in its attempt?
In a case study taught in the classrooms of ESADE and published in Harvard Business Review, Associate Professor Marco Bertini reveals how IRONMAN faced this challenge and what the company learned from the unexpected scenarios it encountered in the process.
ESADE Knowledge: Why did you choose this business challenge?
Marco Bertini: One of my former students in the MBA program, an avid triathlon participant, took on the task of analyzing IRONMAN’s pricing strategy. His insights made me realize that there was a story to tell, which ultimately evolved into this case study. IRONMAN is a very strong brand with an interesting mix of dedicated, loyal customers: some even go as far as tattooing the IRONMAN logo on their body. ”
“Although I believe it is the third most important brand in sports, the company behind it was not doing its job at turning all this goodwill into healthy revenue”.
EK: What did the brand do to improve this?
MB: At some point in this long story, a venture capital firm bought the organization and they started doing all sorts of things: more races, different race formats, new sponsorship deals, a large (and in many cases dubious) merchandise program, etc. Many of these initiatives were not received very well, and core customers started to complain to the company was taking it too far – that the pursuit of revenue was diluting the ethos of the brand. The general question that the case study asks is, How should a company that banks on its relationships with customers go about growing and exploiting a brand at the same time? These two critical activities are certainly intertwined: if you don’t get the balance right, you are either “giving away” equity or trivializing it.
EK: So what happened?
MB: This case in particular is about a tipping point in the evolution of the company. In previous IRONMAN races, fans who wanted to participate had to physically go to the location of the race one year in advance and apply in person. People complained about this and the company saw this as an opportunity to introduce a loyalty program, called IRONMAN Access, that would allow participants to apply online and secure a spot by paying around $1,000.
EK: How do you run this case study in the classroom?
MB: I teach it to ESADE MBA, MSc and Executive Education students. Basically, the students are asked whether or not they support the Access program and why. The split usually is 50-50. Students in favor of running the loyalty program see the tangible value of signing up online: it literally saves time and money relative to travelling to the race location a year in advance and standing in line for the chance to get a spot. Rationally, this makes perfect economic sense.
The point of this case study is that your pricing decisions have to be consistent with the brand, because otherwise you run the risk of destroying value. If you think about pricing as something that is detached from the brand, a lever that is there purely to capture a value that is there and is fixed, then you can get yourself into trouble.