Case study: New pricing scheme backfires

The story

The term “Ironman” has become synonymous with physical endurance.

A gruelling three-sport race, comprising a 2.4 mile swim, a 112-mile bike ride and a marathon, the triathlon competition is badge of honour for those who complete it.

The event started in Hawaii in 1978, more or less as a dare but it has evolved into a more professional sport.

In 1990, American triathlete James Gills paid $3m for the Ironman trademark and founded the World Triathlon Corporation to try to commercialise and expand the reach of the sport. This included, for example, licensing deals such as one with Timex to use the trademark in its GPS-enabled watches.

In 2008, private equity firm Providence Equity Partners acquired WTC.

The challenge

Ironman contestants can be broken down into different groups such as the professional triathlete or the well-educated, driven but amateur competitors who have a high disposable income. Whatever their background, commitment is key. Contenders train for at least 20 hours a week for up to six months and many spend thousands of dollars on equipment, travel, dietary regimes and fees.

By late 2010, Providence Equity Securities wanted to make more money from the sport. WTC had already spun off events for women and children. Less successful had been an increase in entry fees, which had drawn accusations that the brand was being exploited crassly.

Meanwhile, WTC also realised that the sport’s professionals were often finding it difficult to register for the races in which they wanted to compete. There were, for example, only limited places available for the most serious competitors before registration was opened up to the general public.

This led some professional triathletes to apply for several races at the same time, only to drop out if they got a slot in their preferred race – even if it meant sacrificing the entry fee of $600. Not only did this mean the triathletes were out of pocket, it also created up to 3,000 empty slots each year.

The strategy

WTC introduced Ironman Access, an annual membership programme. For $1,000, each competitor was guaranteed a place in the competition of their choice and the higher charge would be offset by not having to enter more than one race. The scheme also offered discounts on Ironman partner brands, sports gear and other products.

What happened

Ironman Access was heavily criticised by serious triathletes, who felt it was inconsistent with the ethos of their sport. They worried that, by charging such a high premium, the sport was becoming based more on how much money you had rather than ability.“You have to earn being an Ironman and cannot buy it,” said one triathlete.

Many also worried that the sport’s owners were motivated more by profit than the needs of competitors.

The outcry prompted WTC to rescind the Access programme just a day after launching it. In its place, it introduced the Ironman Legacy programme, which grants loyal athletes who have completed a set number of races the chance to compete at the marquee Hawaii event at least once.

Key lessons

A company’s pricing strategy needs to be aligned with the brand, especially when the core customer segment has an emotional investment in the product.

In the case of Ironman, the serious triathletes were mishandled. While the Access programme promised to take away the pain of registering, it was antithetical to the brand values they held dear. This damaged the relationship with the competition’s core brand builders and threatened the long-term commercial prospects of the sport.

The serious triathletes may generate less revenue than the aspirational athletes, who are eager to clad themselves in Ironman gear and pay for it, but they play a different, non-revenue related role by acting as an inspiration for the amateurs.

- Financial Times, 7 May 2012