Loyalsticity: A Business Concept for Sports Clubs

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Over the past decade investments in customer relationship management (CRM) strategies, applications and tools have primarily been driven by businesses within industries such as telecommunications, banking and manufacturing. At the same time we have witnessed a growing trend in the sports industry with sports clubs adopting the tools and tactics from the CRM world as they increasingly, and at all levels, are run more and more like other businesses. One reason for this trend within sports clubs is due to the competitive environment they are faced with as the entertainment industry offers a growing number of options and alternative ways in which a sports fan or a spectator can spend his or her money.

On the other hand, businesses in other industries are focusing increasingly on finding ways to develop loyal customers as a means of differentiation, in an attempt to capture what has laid at the heart of the loyalty and affiliation of sports clubs and teams for decades, if not centuries. The fact that sports clubs are increasingly run like traditional businesses also means that their key assets are not their strongest players on the field but rather the people who bring in the revenue week after week and through merchandise purchase: the spectators and the fans. The percentage of revenue derived from match day attendance and merchandise varies from club to club but there is no doubt that these sources of income are vital for any club – whether they are managing a fan base of 1,500 or 75,000 spectators a game.

There seems to be a common understanding within the CRM community that in order to achieve success with CRM, companies, sports clubs, vendors and consultants need to consider and understand industry-specific elements and adapt any new initiatives and technology implementations accordingly. Therefore, rather than merely adopting generic CRM tools, a sports club is strongly advised to consider the specifics of the sports industry in relation to CRM as matching the two properly will lead to a more optimal result and will avoid many of the same problems or mistakes that businesses in other industries have faced. There are numerous of unique elements within the sports industry that need to be considered and addressed accordingly, such as differing loyalty levels, their specific customer segments and respective customer intimacy possibilities.

As a starting point it is suggested that all clubs look to one clear characteristic of the sports industry: the fact that support for a club and hence revenue of a club can, to a certain extent, be related to a club’s performance on the playing field. In the English Premier League in football it is a rule of thumb that each position gain in the league is worth half a million pounds in prize money alone and although this is an indicator which also takes into account commercial and broadcasting revenue, the impact of position gains or decreases on the fan base – and hence the most important revenue generator for most clubs, varies greatly from club to club. The on-field performance is only indirectly impacted by the management of a club (in terms of player purchases) and sport marketers and other functions in a club have only very little control over this. Management, sport marketers and other staff are responsible for all off-field activities and at the core of these functions and of strategic importance to any club in the world is to seek to reduce the revenue consequences of poor on-field performance and cash in – the most optimal way possible – during successful times. In other words, a club which can maintain its supporters and fan base during bad performance periods or which can increase its base during upswings or even average performance is a true winner in the world of sports today. These statements are generally accepted in the world of sports – in particular in sport management literature and research – but what has been missing has been a concept to identify how a club is performing in relation to this and in particular how to improve. This paper introduces a method to handle this particular situation and provides sports clubs with a concept which should be used as the basis for any customer relationship management strategies and activities.

Loyalsticity

In order to describe the correlation between a club’s or team’s performance and the support of the spectators and fans we introduce the concept of Loyalsticity. Loyalsticity is derived from the term elasticity, an economic term used to describe the correlation between price and demand for a product. When the price a product or a service decreases it is assumed that demand will rise but it is noteworthy that the change in demand depends on many factors related to the product and service. As such, the term elasticity of demand is often used to describe this correlation and to understand the effect a price increase or a price decrease can or will have on the demand for a product or a service. Loyalsticity is defined as demand (i.e. support for a team) based on performance of a particular sports club. Loyalsticity is thus not connected to price of the game tickets. Rather, given the fact that a club’s or team’s performance is often of greater importance to the demand on tickets – and oftentimes, more so than price – this parameter is used in relation to Loyalsticity. Loyalsticity is unique to sports as it is the only industry where customers truly care about the performance of the business. In most other industries the majority of consumers do not know the details around how the business is performing but in sports the customers are informed and reminded of this performance through news and even in the programs they receive when entering a stadium, rink or other sports facility. Think about which other business actually informs their customers about how they are doing on such a regular basis! Understanding Loyalsticity is essential for all sports clubs as it simply is the founding pillar to the clubs’ or teams’ CRM strategy. The Loyalsticity curve is illustrated below. For illustrative purpose the example of Borussia Dortmund and VfB Stuttgart – both teams in the German Bundesliga, are included in the depiction.

The situation Borussia Dortmund has achieved with their fan base is spectacular and one that thousands of other sports clubs would like to obtain. It simply does not matter if Dortmund has a temporary dip in performance; the fans (i.e. the customers) will only be slightly affected and even after a poor performance in the 2007/08 season (13th place) the club retains its spot at the top of the attendance charts in Germany and amongst the highest in Europe. Prior to the current season, the club was able to sell more than 50,000 season tickets, more than any other Bundesliga team. This level of club success is not unique to the team of Dortmund or to the sport of football, however. It doesn’t take much searching to find the equivalent in American Football (NFL) where teams such as the Green Bay Packers and Cleveland Browns are renowned for having very loyal fans who will follow and support their teams even when they go through a year with a record of 2-14. Other teams would face a significant or maybe crucial attendance drop if they went through the same dip or fluctuation in performance. A good example of this is VfB Stuttgart, who like Dortmund is also a German Bundesliga club, but where attendance varies more significantly over the past few seasons, very much driven by the performance of the team on the field.

Loyalsticity can be measured by means of the following formula showing the percentage change in attendance based on one drop in position in league standings:

Loyalsticity = (% Change in Number of Spectators)/(% Change in Position in League)

Clubs with small changes in spectators when results change have a low level of Loyalsticity (e.g. Borrussia Dortmund) whereas clubs whose attendance varies greatly depending on their performance are characterized by a high level of Loyalsticity. When analyzing Loyalsticity it is the absolute value that is essential to know, thus any negative value is ignored – this is similar to how economists use elasticity. The closer a Loyalsticity level is to 0 the less impact does a change in performance on the field or in league standings have on the number of spectators at the games. The actual measurement of Loyalsticity is most relevant when compared to other teams in the league, but can be extended to compare with other leagues or even other sports. Understanding where you come from but more importantly where you can go is a prerequisite for any CRM strategy. Analyzing and understanding Loyalsticity provides a strong guiding principle to any sports club or sports associations’ CRM strategy in order not to “blindly” pour money into conventional marketing strategies and hope for wonders.

Loyalsticity – One Level Deeper

The concept of Loyalsticity should not be seen as something unique or an isolated measure as it integrates well with for example two of the most well adopted terms in the world of sport fans research today; Basking in Reflected Glory (BIRG) and Cutting Off Reflected Glory (CORF). BIRG and CORF were developed in the 1970s to describe the effects of a team’s performance on its fans. Whereas BIRG refers to people jumping on a team’s bandwagon because they believe that associating with a winner makes them a winner, CORF refers to the situation where one distances oneself from an unsuccessful team for fear that such an association would also reflect negatively. For clubs it is essential for their long term sustainable success to limit the CORF as much as possible. The direct link between CORF and Loyalsticity is simply that fans do not show up for games or buy team merchandise when teams are not performing well, some of these due to CORF but others simply due to dissatisfaction with them or even simply the lack of BIRG. If a club can enhance [the] BIRG through marketing initiatives and combine that with a strategy of trying to keep these BIRG fans even if performance dips over time, it is proof of a strong CRM strategy. Research has found that BIRGing and CORFing become less likely as fans identify more closely with the team – relating this to Loyalsticity explains that teams with low Loyalsticity simply do not witness the same degree of BIRGing and CORFing as other teams. When measuring and analyzing Loyalsticity it is important to not only look at the actual numbers but if possible include unique number calculations. One reason for this is that no club will ever reach a situation where the number of fans only consists of repeat spectators. Understanding the mix of customers provides great insight into the more detailed level of Loyalsticity as well as a basis on which CRM strategies can be built. Doing this sort of analysis is not practically possible for all clubs but many clubs are capable of doing this today due to unique identifiers associated with tickets sales, club cards, seats allocation or match day purchases. With today’s technology clubs can manage these unique identifiers and take full advantage of two key components which are important monitoring elements of any CRM strategy: retention rate and churn. The retention rate illustrates the percentage of the customer base that the club retains, whereas the churn rate indicates how many customers a club loses on an annual basis. Without retention rate and churn figures a club is only able to identify that with strong performance their annual attendance is X whereas with sub normal performance their annual attendance is Y. They are not able, however, to identify if Y is a complete subset of X or characteristics of the remainder group Z which is a sum of X-Y. Clubs that can measure churn and retention rate can add great insights into the Loyalsticity analysis by understanding fully what type of customers make up X, Y and Z and hence take appropriate action. In addition, they can get an understanding of how stable X is as well as if Y stays the same over many seasons or if the churn rate even from the most loyal fans is significant.

Only looking at the actual numbers in relation to Loyalsticity might thus give a club a somewhat false understanding of the actual number of loyal fans as it doesn’t identify who the supporters are that are present at each game. It should thus be in every club’s interest to move towards being able to uniquely identify its customer and fan base – something which is possible by integrating most of today’s standard software applications with the club’s CRM strategy.

Change the Game – Move towards a More Sustainable CRM Strategy

As mentioned previously the most critical thing to understand is the level of Loyalsticity and to act accordingly. Let us take a look at a few examples:

Club with high Loyalsticity: The key focus should be on lowering Loyalsticity prior to putting any big spend or efforts into increasing performance on the field (e.g. purchasing better players) or increasing attendance at games through marketing initiatives. The reason for getting to a low Loyalsticity level prior to any big marketing push is to allow for the greatest possible return on the marketing initiative and to create long term benefits to the club. This exercise should be a key element of a club’s CRM strategy. Simply understanding why people attend the games and, in cases where attendance is based on high BIRG, a critical element of the CRM strategy should be to lower the BIRG as much as possible for people who have already attended games by identifying what else would trigger them to attend games more regularly. Conventional marketing mechanisms such as new marketing initiatives, gathering information about current and future spectators, lowering ticket prices for a single or for several games will not lead to any long term effect unless a club understands which of these triggers impact Loyalsticity as well. For illustrative purposes the case of VfB Stuttgart has been depicted below – showing that focus should be on moving the Loyalsticity closer towards 0 – all possible through a focused CRM approach on ensuring higher loyalty amongst spectators.

Club with low Loyalsticity: Having already obtained a low level of Loyalsticity the next step is to understand the reasons behind this. Based on this analysis, a club can assess how the same low level of Loyalsticity can be applied to new fans or spectators that show up for games based on better performance on the field or based on marketing initiatives. Following this analysis the next step is to consider the actual numbers that are to be worked with, i.e. the number of fans a club can potentially attract. Even if a club’s highest spectator number was 23,000, does that mean it can’t be higher? Does it require a better performance on the field or can marketing initiatives lead to a positive return on investment? In this regard it is important to set a visionary goal, one which is comparable to either other clubs’ spectator levels, competing sports’ spectator levels or to the spectator levels of other types of entertainment in the area or region. Having analyzed Loyalsticity in comparison with the number of fans in the league, a club will get a good indication of the potential room for growth that exists. For illustrative purposes the case of VfB Stuttgart has again been used – showing that when relatively low Loyalsticity level has been achieved it is time to increase the number of spectators through various initiatives and campaigns – offsetting any dip in performance by the team with a strong understanding and approach to CRM.

Loyalsticity on its own only explains behavioral or transactional elements of loyalty and not attitudinal or relational, which should also be included in the analysis. Obtaining the data to conduct such analysis is possible for a sports club due to the fact, as previously mentioned, that sports spectators and fans are often eager to express their opinions not only about the performance on the field but also with regard to the club’s overall performance [for more details click here]. Understanding Loyalsticity and thereby the behavior of spectators and fans, should be the foundation of any CRM strategy in sports. Sports clubs who manage to integrate the concept of Loyalsticity into their strategy will win in the long run. Sports today is big business and a sound economy, including increased revenue and profits, are required to take on competition and to purchase the right players. Clubs who don’t actively engage and include Loyalsticity in the running of their business risk being overtaken by other clubs who do – first financially and later on the sports front.

Related articles:

  • CRM in Sports: It’s a Different Ball Game
  • “Balance the Field” – CRM Success in Sports
  • Attention: Any Sports Clubs Looking for Higher Attendance Figures? (to be published shortly)
  • Can American Professional Sports Really Expand to Europe? (to be published shortly)
  • Know Thy Customer – The Sports Club’s Customer Mix (to be published shortly)
  • Which CRM Application is Right for a Sports Club? (to be published shortly)
Kristian Gotsch
Loyalsticity
Kristian Gotsch has more than 15 years experience within the world of CRM. As CRM Manager at the Eredivisie (Dutch Premier League), Kristian has a great interest in sports and CRM and is the founder of Loyalsticity. Prior to his current role Kristian held various CRM positions at T-Mobile, PwC and Microsoft. This is a personal rather than a corporate blog. My opinions reflect my own views rather than necessarily those of my employer.

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