Case Study: When You Have to Choose Between Core and New Customers

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It was the Monday morning after the Phoenix race. Erica Jackson, chief marketing officer of the Mendoza Marathon Corporation, had risen early to watch people line up to register for next year’s event and expected an enthusiastic crowd. But when she walked into the field, she saw only dour looks and slumped shoulders.

Alan Kurtz, MMC’s chief operating officer, was standing off to the side, and she moved to join him, but a racer intercepted her. “Do you work for Mendoza?” he asked, sounding annoyed.

Erica looked down at the MMC logo on her water bottle, remembered putting on the matching hat, and knew she was outed. She’d joined the company six weeks before, following a long stint as CMO of Atawear, a high-end sports apparel company. As an avid runner, she was excited to work directly with CEO Danny Mendoza, the former Olympian and founder of the company, which ran races combining aspects of ultramarathons and military-style obstacle courses. The events started in the late 1990s as an ultimate personal challenge among Danny and his close friends but now had grown to more than 50 annual races across Canada, Europe, and the United States. And while Danny couldn’t compete in or even attend all the races himself anymore, he encouraged his staff to participate as often as they could. Staying connected to MMC athletes—especially the “Mendoza Maniacs,” as the hard-core racers referred to themselves—had always been important to him.

“This is a nightmare,” the racer said. “I didn’t even race yesterday, but because I want to register for next year, I had to drive overnight from LA to get here. I took a day off work, and now the line isn’t even moving.”

“You can also register online,” Erica offered, but the racer’s eyes started to roll before she finished the sentence.

Erica sighed. During her first weeks on the job, Danny had encouraged her to go on a “listening tour,” meeting with MMC staff and athletes, and she quickly learned that the race registration process was a huge pain point, frustrating both diehards and people keen to try a Mendoza Marathon for the first time. Under the current rules, you had two options: compete with thousands of others to register online when slots went on sale (which was usually fruitless; a recent GQ article had noted that MMC bib numbers sold out faster than Springsteen tickets) or stand in line for a select number of tickets at the race site, typically with a few hundred others. Showing up in person afforded you better chances, and it was what enthusiasts typically opted for—even registering in events they probably wouldn’t compete in, just in case they couldn’t get a bib for the race they wanted—claiming the online madness was for mere amateurs. And Mendoza maniacs often started queuing at dawn to earn their entry ticket.

“What’s your name?” Erica asked, noting his MMC tattoo. It was clear from the size of his bicep that he was serious about training.

“Toby, 11.” This was how maniacs often introduced themselves, name and number of races completed. “This part is just maddening. I’m a dedicated athlete. My wife is irritated by the amount of time and money I put into training for these races—the huge time sink just to register makes it even worse.”

“I’m Erica, zero—so far. And I can tell you we’re absolutely working on it. We’re going to change things up. We haven’t nailed down the details, but we’re getting there.” The line started moving, so Toby threw her a skeptical look and shuffled forward. Erica turned around to find Alan right behind her.

“Already making big promises, I see?” he said with a teasing smile. He’d clearly overheard the last part of her conversation.

“Well, he’s right,” she retorted. “I hope your plan makes this better for the Toby’s of the world.”

Exclusive Membership

The following week, Erica and Alan were meeting with Danny at MMC’s Toronto offices to go over the new registration scheme, which Alan had been working on for the past year. His idea was to introduce an exclusive membership program, tentatively called Mendoza Access, which offered advance entrance to any race for a $1,500 annual fee. Market research had shown that committed maniacs like Toby were already shelling out that kind of money (sometimes more) just to travel to registration sites. Moreover, many signed up for multiple events in case later they weren’t able to get into their first choice. This meant they took bibs that then went unused, exacerbating the scarcity problem for the would-be racers who were often shut out. Under the new plan, MMC would increase revenue from the annual fee while offering a hassle-free entry process. Even though she was new, Erica thought Alan’s proposal made a lot of sense—she’d seen VIP programs work well in her previous role and she was eager to put in place a registration process that worked for everyone.

“Does the $1,500 include the cost of registration?” Danny asked.

“No, they’d still be paying the $350 entry fee,” Alan replied. “But if you consider that they’re already paying for anywhere between two and six registration fees, flights, hotels, and meals—not to mention the time they waste getting to the sites—this is a much better deal for them.”

“And this will open more slots for other racers—people who haven’t run with us before?”

“That’s the idea. With Mendoza Access members not participating in the standard registration process and signing up only for the races they actually plan to run in, we’re estimating a gain of several thousand spots across all events,” Erica answered. “We’re actually being more inclusive with the Access program while making more money without raising registration fees. It’s a win-win.” Danny had been clear with Erica and Alan that he didn’t want a proposal that raised prices across the board—keeping the registration fee relatively affordable was important to him. They thought Danny would go for this solution because it was more targeted, focusing on price increases for only those willing to pay in order to save on the hassle and multiple registrations.

“And we’d be doing all of this, of course, without significantly increasing our costs, which is what Carlton is looking for,” Alan said, referring to the private equity firm that had recently invested in MMC. Danny had agreed to work with them because he knew his brand was underexploited, and Carlton had promised to help him expand his customer base (and thus their own returns) while staying true to the company’s mission of ethos of pushing one’s limits of physical and mental fitness. In fact, they’d been the ones to suggest he hire a CMO, and to recommend Erica.

“Telling me it will appeal to the suits won’t help your case,” Danny said. “I don’t care what they think.” Erica and Alan exchanged a quick glance. They both knew that he did care and was under pressure from Carlton to improve the bottom line, but he hated the idea that profits had to be part of MMC’s core strategy. When he talked about expansion it was always in the context of getting more people to embrace the MMC lifestyle, not increasing revenues. “I’m more interested in what our racers will think.”

“Access members will get a ton of other perks. VIP passes for spectators, subscription to our magazine, and discounts in the MMC store,” Alan noted.

Erica could tell Danny still wasn’t convinced.

“Why don’t we float it by some of our fans?” she said.

“Like in focus groups? What is this—1989?” Danny grumbled.

“No, online. Facebook, Twitter. Let’s just get a sense of how people will react. We don’t have to share all the scheme’s details, just the general idea.”

“They’re going to love it,” Alan said. “And if they don’t, they’ll learn to.”

Social Sentiment

“These are actual quotes?” Danny asked incredulously. It was a week later and he was reading through a report Erica just handed him. “‘For $1,500, the membership card better be made of unicorn skin!’” he recited. “‘Buy access to run alongside filthy-rich American weekend warriors who bought themselves past the line instead of real athletes? No thanks.’”

Erica cringed inwardly. She’d been just as surprised by some of the heated responses and was starting to feel lukewarm about the proposal. She knew better than to be swayed by a few vocal and passionate people online, but even in her short tenure as CMO she had come to realize how much Danny valued the maniacs.

“The response has been mixed,” Alan admitted.

“Mixed? These are brutal,” Danny said, reading another. “‘MMC is now just a bunch of money-sucking corporate vampires who don’t care about the people who made these races what they are.’ That doesn’t sound ‘mixed’ to me.”

“We need to look at the overall picture,” Erica pointed out. “There were three times as many positive responses about the program than negatives ones. Quite a few people said, ‘Sign me up!’”

Danny still hadn’t looked up from the report. He read another: “‘I appreciate that you guys are running a business, but this is insulting. Why don’t you just send Danny to my house to kick my puppy?’”

“Should we pull the plug on this?” he asked.

“I think we should go ahead,” Alan said firmly. “There’s risk, no doubt. But Erica has been clear that the people who comment on social media are going to be the most vitriolic, and even if you tally up the negative comments, it’s only a small minority of our Facebook followers. If we lost those people, it wouldn’t be the end of the world. Especially if we end up with the 3,000 Access members we expect. This is about growing the brand—and our revenues. I know you don’t want to piss off our core fans, but we have to gain the participation—and loyalty—of a larger group.

“Look at Porsche,” he continued. “Launching the Cayenne and getting into the SUV market had purists freaking out, but it’s now their best-selling model and no one jumped ship. The brand is as strong as it’s ever been.”

“Do you agree, Erica?” Danny asked.

She hesitated. Alan had a good point about Porsche, but her gut was telling her that maybe their case was different.

“I’m on the fence. I see where Alan is coming from, but I also know how important the maniacs are to our brand. I know you don’t want to be seen as sellouts, and I can’t help but think of Doc Martens. When they started actively marketing their boots to the masses, the out-crowd of punks, rockers, and artists totally abandoned them, causing the brand to lose its cool factor.”

“So you’re saying we might make a lot of money, but we’re going to be as uncool as Doc Martens?”

“I don’t think that analogy holds,” Alan said. “MMC isn’t a fashion trend. It’s a way of life, an addiction even. The maniacs may be annoyed, sure. But they don’t have to buy the membership. And it will take a lot more than this to make them stop racing. Our fans consider themselves part of the MMC family. They’re not going anywhere.”

“And if they do?” Erica asked. “We’re no longer the only game in town.”

“This new scheme doesn’t have to be set in stone. We can give it a shot and roll it back if need be,” Alan said. “We’ll apologize and go back to the way things were. Family forgives, right?”

Skip the Line

Erica was up late, catching up on e-mails when Alan’s name popped up on Slack.

You working too? she typed.

Actually registering my daughter for basketball but couldn’t resist checking messages, he wrote back. How’d you think the meeting went today?

I’d hoped we’d make a decision, she wrote.

Danny likes to mull things over.

Me too, she said. I keep thinking about Toby.

The tattoo guy in Phoenix?

Yeah. I’m trying to figure out how I’d explain Mendoza Access to him. He just wants to get into the race, and it feels a bit like we’re trying to make more money off of his dedication to MMC.

Why shouldn’t we, when we’re giving him what he wants? Don’t forget, he’s Toby, 11. 11! Do you really think he’ll abandon us now? 

Question: Should they move forward with Mendoza Access or go back to the drawing board?

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