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Case Study Three

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Affinity and Beyond: Leveraging NASCAR’s Integrated Supply Network to Drive Fan Equity SUSAN CADWALLADER Steven G. Mihaylo College of Business and Economics, California State University, Fullerton, Fullerton, California, USA TOM BOYD School of Business and Management, Kaplan University, Ft. Lauderdale, Florida, USA AARON THOMAS Steven G. Mihaylo College of Business and Economics, California State University, Fullerton, Fullerton, California, USA The National Association for Stock Car Auto Racing (NASCAR) serves as the context for a case study in which the concept of fan equity—the net present value of current and future fan revenue—is considered integral to its supply network. We posit that fan equity is driven by relationship equity created through relationship-building activities generated by the NASCAR govern- ing body, sponsors, tracks, teams, drivers, the media, and fans themselves. This study suggests that the driving force of relationship equity is the cooperation of these entities, each of which recognizes the value of supply network relationships and leverages the invest- ment in relationship-building and cooperative-marketing efforts to create, nurture, and grow fan equity. KEYWORDS customer equity model, fan equity, NASCAR, relationship equity, sports marketing The authors acknowledge California State University, Fullerton, and the Office of the Dean of the Steven G. Mihaylo College of Business and Economics for their support in funding the project. The authors sincerely thank the executives of the California Motor Speedway and NASCAR for their guidance and for providing access to employees. Address correspondence to Susan Cadwallader, Steven G. Mihaylo College of Business and Economics, California State University, Fullerton, P.O. Box 6848, Fullerton, CA 92834-6848, USA. E-mail: [email protected] Journal of Marketing Channels, 19:193–211, 2012 Copyright#Taylor & Francis Group, LLC ISSN: 1046-669X print=1540-7039 online DOI: 10.1080/1046669X.2012.686861 193 INTRODUCTION Imagine what the shopping experience would be like if all the packaged goods manufacturers in a typical grocery store worked together as a team, led by the retailer, to enhance the shoppers’ experience. Furthermore, imagine that this retailer understood not only that its most loyal customers were important assets that provided value on the balance sheet as corporate goodwill but that other organizations might be willing to pay large sums of money to access those satisfied customers. For example, picture a grocery chain in which famous chefs, sponsored by food manufacturers and affiliated with the grocery chain, cooked and served food to shoppers; promotional items, test labs, and tasting events assembled in grocery store parking lots on weekends; and manufacturers of greenenergysystemspaidthegrocerychainforaccesstoitscustomersand participated in store events to enhance shoppers’ experience. This scenario might be farfetched, but it is exactly what the National Association for Stock Car Auto Racing (NASCAR) has done with sports sponsorship and whose sponsorships have garnered a reputation as effective marketing mechanisms (DeGaris, 2010). Although imitating this scenario might be difficult in other industries, it is also difficult to duplicate in the sports industry. Thus, perhaps the question is not whether to reinvent the model for a particular industry but how. We examine how NASCAR abandoned the linear supply chain to create a supply ‘‘wheel’’ or network that maximizes the opportunities available in a supply chain beyond traditional terms. Meenaghan (1991, p. 36) defines sponsorship as ‘‘an investment, in cash or in kind, in an activity, in return for access to the exploitable commercial potential associated with that activity.’’ Sponsorship marketing has proved to be of central importance to both sports organizations and sponsors in the cutthroat competition for the attention and dollars of sports fans. In such a competitive environment, the ability to effectively manage fan perception of a team (or sponsor) brand is considered premium (Boyle & Magnesson, 2007). As a result, sponsorship marketing has grown as part of the broader discipline of sports marketing (Farrelly & Quester, 2003; Sam, Beatty, & Dean, 2005) and strategic planning (Amis, Pant, & Slack, 1997). From the sport organization’s perspective, sponsorship marketing, along with fan spending and broadcast revenue, is a primary revenue source. Prominent, well-liked brands are linked to company revenues, so it is not surprising that many sponsors strive to enhance their brand image with sponsorships. From the sponsor’s perspective, sponsorship marketing is a way to reach a parti- cular demographic through association with and enhancement of the fan experience with the sport and its stars. Fan demographics are a staple of sponsorship proposals; fan behaviors, such as media usage, merchandise purchases, and event attendance, identify ways for sponsors to connect to customers (DeGaris, 2010). When a close cooperative relationship exists 194S. Cadwallader et al. between the sport entity and the sponsor, sponsorship moves beyond revenue generation to drive fan loyalty programs, develop fan affinity for the sponsor’s brand, and build a sense of community within the sport. Increasing fan loyalty (Depken, 2000) and team identification (Madrigal, 2001; Wann & Branscombe, 1993) can provide financial benefits to the sport entity—for example, fans with high levels of team identification are more likely to purchase licensed team merchandise (Fisher & Wakefield, 1998; Wann & Branscombe, 1993) and attend games (Fisher & Wakefield, 1998) or events. In most major sports that enjoy heavy sponsorship spending, the dominant relationship is typically between the team or league and a sponsor- ing organization. The relationship with sponsors is typically dyadic between the team (league) and the sponsor (e.g., the National Football League [NFL] and its official sponsor, Coors). However, when a broader view of the parties involved in building fan relationships is taken in the relationship-building process, opportunities exist to leverage multiple fan relationships, which in turn increases value for the fan, sponsor, and all levels of the sport product. Perhaps the best illustration of this idea is NASCAR’s commitment to partnering with sponsors to create value for both fans and sponsors and, by doing so, producing what can be considered one of the most effective and unique value-added sports supply chains in the world, one driven by multiple channel member interrelationships. A principal driver in NASCAR’s success, and the key difference between NASCAR and other major sports, is its approach to product development and relationship management. This difference makes NASCAR the ideal context in which to apply and extend the customer equity model (CEM; Rust, Lemon, & Zeithaml, 2004; Rust, Zeithaml, & Lemon, 2000), a framework that can be used to build and measure the suc- cess of customer-centric programs (Vogel, Evanschitzky, & Ramaseshan, 2008), such as sponsorship marketing. The CEM was one of the first models to link corporate marketing actions directly with customer spending actions. The CEM is a comprehensive model that identifies different drivers—value equity, brand equity, and relationship equity—that affect customer equity. Customer equity refers to the total of the discounted lifetime values summed over all the organization’s current and potential customers (Rust et al., 2004; Rust et al., 2000). The primary objective of any governing sports body (e.g., NASCAR, NFL, Major League Baseball [MLB]) is to maximize the value of the fan to the league=team and the sponsors. In the traditional sense, fan affinity and loyalty serve as ultimate outcome measures of the effectiveness of marketing efforts and are used to derive the value of fans to the affiliated parties (e.g., teams, players, sponsors). According to the CEM, however, affinity and loyalty are not key outcome measures but rather serve as antecedents of relationship equity. Therefore, relationship equity, together with value equity and brand equity, drives customer equity, a far more powerful outcome Leveraging NASCAR’s Integrated Supply Network195 measure. This measure should be used to evaluate the effectiveness of mar- keting efforts but, more important, customer equity is a holistic measure of the bottom-line financial value of the fan. Our objective in this study is to understand the nuances of the CEM and apply them to sports and sponsorship marketing. Specifically, we adopt a new sports-marketing conceptualization of customer equity termedfan equity (Cadwallader, Boyd, & Thomas, in press) and then explore fan equity in the context of NASCAR’s supply chain. We refrain from using the term customer equityfor our conceptualization because, in the context of sponsor- ship, the sponsor is also a customer of the sport entity and, as such, the use of this term could prove confusing. Thus, we adapt and apply this sports-specific substitute for customer equity using NASCAR as a test case. In the first part of the study, we use the CEM as a framework to introduce the concept of fan equity and to present relationship equity as a driving force in its development. In the second part, we discuss NASCAR’s unique approach to maximizing its relationship equity by leveraging the cooperative efforts of all the value chain members. We focus on the NASCAR sponsorship structure, composed of a network of interrelationships among sponsors, tracks, teams, drivers, and fans, and we feature the sponsor as both a consumer and a producer of fan equity. We conclude with suggestions for future research in terms of leveraging supply chain relationships to maximize fan equity. THEORETICAL BACKGROUND Customer Equity Model The CEM identifies different drivers—value, brand, and relationship equity— that increase customer equity. Value equity is the customer’s objective assess- ment of the utility of a brand based on his or her perceptions of what is given up for what is received. Brand equity is the assessment of a brand beyond its objectively perceived value. Relationship equity expresses a customer’s tend- ency to stay committed to the brand beyond objective and subjective assess- ments. This model relates an organization’s marketing strategy and affiliated investments to the customer’s actions, which generate revenue. Although the CEM provides a useful framework to measure sports-marketing success metrics, we modify it to better capture the nuance of the critical sponsor–fan relationship in NASCAR. Our extension (a) substitutes a new concept (fan equity) for cus- tomer equity and (b) considers relationship equity, primarily driven by sponsor- ship marketing efforts, the driver with the greatest impact on fan equity. Fan Equity Fan equity is a sports-marketing–specific interpretation of customer equity. The concept of fan equity is new to marketing. Cadwallader et al. (in press) 196S. Cadwallader et al. identify two definitions (Free & Hudson, 2006; Salomon Brothers, 1997) from the finance literature that are based on the concept of loyalty and that assert that fan equity represents a value for investors (i.e., sponsors) that acts as a hedge in case the team=sport does not perform well. However, to a large extent, fan equity is driven by relationship-building efforts that tend to be more experiential and involve multiple partners working together to create a deep connection between a fan and these partners. Under this premise, fan equity is the net present value of current and potential revenues driven by a fan’s relationship with a particular sport (Cadwallader et al., in press). Sports sponsors pay for access to fans with the understanding that a common association with the sport ultimately establishes a connection between the fan and the sponsor. Two benefits to sponsors exist from fan equity. The first benefit is based on the relationship between the sport and the sponsor; this benefit results primarily from the fan’s recall of positive experiences related to the sponsor’s association (Agarwal & Kamakura, 1995) with the sport. The second benefit is based both on the fan’s percep- tion that the sponsor is responsible for enhancing his or her sport consump- tion experience and on the fan’s conscious decision to reward the sponsor with his or her business for enhancing this experience. Thus, in the context of this second benefit, the sponsor’s benefit is maximized when all value chain members work cooperatively to enhance the connection between a fan and the sport by providing relationship-building experiences for the fan, which in turn increases relationship equity, one of the three drivers of fan (customer) equity. Greater fan equity equates to greater sponsorship value that, in turn, commands a higher price from the sponsorship. Because maximizing fan equity is at the center of the NASCAR–sponsor relationship, sponsors will- ingly pay for access to fans and, in turn, these fans become more valuable as a result of the partnership, thus justifying the marketing investment. NASCAR CASE STUDY Sports Comparison NASCAR has grown from modest roots in the 1940s to a major sport today, reporting more than 75 million fans in 2005 (Hurt, 2005) and upward of 100 million fans today (GfK Mediamark Research & Intelligence, 2010). Although NASCAR is not considered one of the traditional ‘‘big four’’ sports in the United States (i.e., football, baseball, basketball, and hockey), it has established an extensive presence in the sports world. To illustrate the true value of NASCAR in the sports industry, we used data derived from MRIþ, the leading database of key magazine planning resources (GfK Mediamark Research & Intelligence, 2010), to compare NASCAR’s fan attendance and viewership habits with those of the big four Leveraging NASCAR’s Integrated Supply Network197 sports. GfK Mediamark Research & Intelligence uses a national probability sample of more than 25,000 households to determine usage rates for a wide variety of products and services. In Tables 1 and 2, we report the aggregate viewers and aggregate attendance, which represent the projected annual consumption of NASCAR (versus the big four sports) over 2 years (2007 and 2009). Unlike the NFL, which holds 256 games per season; the National Basketball Association and the National Hockey League, which hold more than 1,230 games each; and MLB, which holds 2,430 games, NASCAR holds a mere 36 weekend events. However, because NASCAR weekends consist of races on Friday, Saturday, and Sunday, 108 events per racing season actually take place, and thus we use this figure for comparison purposes. Attendance per event makes an impressive argument for dominance, and NASCAR’s race tracks hold considerably more fans than the big four arenas. To supplement this argument, we also focus on aggregate viewers to compare NASCAR with the big four sports. In addition, per-event data standardize the aggregate data from GfK Mediamark Research & Intelligence, providing a reasonable comparison across all sports. In 2007, NASCAR led the big four in the number of viewers per event, with 282.89 thousand unique viewers; football came in second, with 282.25 thousand (see Table 1). In 2009, NASCAR viewers per event dropped, while football viewership totals increased slightly (see Table 2). Regardless, TABLE 1Aggregate Viewers and Attendance 2007 Summary Total eventsAggregate viewersAggregate attendanceViewers per eventAttendance per event Basketball 1,230 34,761 10,996 28.26 8.94 Baseball 2,430 48,499 20,664 19.96 8.50 Football 256 72,256 11,787 282.25 46.04 Hockey 1,230 10,973 8,499 8.92 6.91 NASCAR 108 30,552 10,209 282.89 94.53 Note. Viewer and attendance data are expressed in thousands. Source: GfK Mediamark Research & Intelligence (2010). TABLE 2Aggregate Viewers and Attendance 2009 Summary Total eventsAggregate viewersAggregate attendance Viewers per eventAttendance per event Basketball 1,230 37,725 17,893 30.67 14.55 Baseball 2,430 49,593 27,778 20.41 11.43 Football 256 75,566 18,721 295.18 73.13 Hockey 1,230 15,224 15,781 12.38 12.83 NASCAR 108 27,699 16,693 256.47 154.56 Note. Viewer and attendance are expressed data in thousands. Source: GfK Mediamark Research & Intelligence (2010). 198S. Cadwallader et al. NASCAR is matched only by the NFL in viewers per event, in support of its rise to preeminence among the traditional big four sports. Because all NASCAR teams compete at a single location, the draw of a NASCAR weekend is inherently magnified compared with other sporting events, creating additional appeal for advertisers because they can physically reach a wider audience with less effort. In other words, this single-location structure creates an environment in which sponsors can enhance the experi- ence of a broad audience; however, even this advantage is meaningless with- out the steps NASCAR takes to create opportunities for its partners. For example, the length of time fans spend at the track on race day offers a fairly unique opportunity for corporate hospitality (DeGaris, 2010) while also creating consumer demand for the sponsors’ goods and services—the ultimate goal of sponsorship marketing efforts. Team owners, drivers, and fans all recognize that sponsorship dollars put the cars on the track (DeGaris, 2010). According to Andrew Giangola (personal communication, June 15, 2007), director of business communications for NASCAR, ‘‘the sport could not operate without sponsors.’’ Sponsorship is the economic engine of motorsports. Although sponsorship is certainly not unique to NASCAR, few leagues, teams, or events have mastered the art of creating and delivering experiential marketing activities as well as NASCAR does. A sponsor’s experience-enhancing presence is a primary factor that sets NASCAR apart from the big four sports. Part of this difference is driven by the nature of NASCAR events. As mentioned, though most sports events last a few hours, NASCAR creates a weekend-long experience for hundreds of thousands of spectators. The NASCAR Experience The consumption experience refers to ‘‘the total outcome to the consumer from the combination of environment, goods, and services purchased’’ (Lewis & Chambers, 2000, p. 46). According to prior research, economic value is often derived less from providing a high-quality product or excellent service delivery and more from the memorable engagement of customers through transformative experiences (Arnould, Price, & Zinkhan, 2002). In contrast with a narrow focus on functional features and benefits, experiential marketing focuses on customer experiences that occur as a result of encoun- tering, undergoing, and living through situations (Schmitt, 1999). A sports fan obtains a customized, singular experience—one that he or she may have even co-created with the organization—rather than a standard purchasing transaction. This experience is created and delivered through the coordi- nation of multiple parties attempting to maximize value for their partners and customers. Sports events cannot rely only on the entertainment of the sporting event but must create a memorable experience for fans. Because maximizing fan equity is at the center of the NASCAR–sponsor relationship, Leveraging NASCAR’s Integrated Supply Network199 sponsors focus efforts on improving the overall fan experience. Therefore, the sponsor not only pays for access to NASCAR fans but, in doing so, increases fan equity, making the sponsor both a customer for and a producer of fan equity. Sports consumption today means more than mere attendance. Tele- vision, radio, and the Internet have expanded the scope of sports, and new technologies enable sports fans to consume sports on their own sched- ule. NASCAR fans are no different; indeed, a NASCAR fan epitomizes this shift in consumption habits. NASCAR fan loyalty extends beyond attendance or viewership; that is, NASCAR often encompasses a fan’s entire life. It is not uncommon for NASCAR fans to wear official gear costing hundreds of dollars or dedicate entire weekends to a NASCAR event. Similar to the big four sports, NASCAR consumption through media broadcasts is even more popular than race attendance. NASCAR fans can follow their favorite drivers on Twitter, through blogs, and even through Facebook. Fans follow the lives and conflicts of their favorite drivers as they would a soap opera or reality show character. Television media have opened the door to advanced partnerships and sponsorships that include more than traditional banners or logos. A NASCAR sponsor has myriad ways to ‘‘touch’’ a consumer—anything from sponsoring a team to branding an event to spon- soring a blog. NASCAR sponsors become a part of fans’ consumption experi- ences. For example, when fans visit NASCAR pits at a race, a sponsor’s presence there helps them experience the link between the sponsor and NASCAR close up, strengthening the association. The most significant difference between NASCAR and its competition is that rather than simply providing a sporting event, NASCAR manages a com- plex set of associated activities that involve the track, team, driver, sponsor, and media—which we conceptualize as a supply network that creates a ‘‘life- style.’’ In other words, the race becomes a reason to celebrate that lifestyle and the role of NASCAR in fans’ lives. This supply network enables NASCAR sponsors to more effectively practice affinity marketing, the act of targeting a niche market through association with and enhancement of that market’s preferred activity. In the NASCAR case, sponsors attempt to enhance fan con- sumption of NASCAR to transfer a fan’s affinity for NASCAR to affinity for the sponsor’s brand and products (Stanco, 2008). Through these activities, NASCAR refines its by-product, establishing fans as customers in the process. Relationship Equity and the Supply Network Relational exchanges involve long-term, continuous, and complete relation- ships that are built on commitment, trust, common goals, communication, and cooperation (Morgan & Hunt, 1994). NASCAR and its sponsors embody this conceptualization in their supply network relationship and, as such, take a group approach; that is, they embrace fans within this network by offering 200S. Cadwallader et al. and including them in experiences that require coordination between net- work members. In contrast with a traditional supply chain, in which power in a dyadic setting reflects the relative strength of one organization over another (Mooi & Frambach, 2009), NASCAR encourages a cooperative approach among all members of the supply network. Figure 1 illustrates how NASCAR positions itself at the center of a supply network, eschewing the notion of a ‘‘chain’’ for that of a centralized cooperative network. The running theme throughout the following explanation of supply network interrelationships is that all members work toward the same goal, recognizing that financial rewards that accrue to each member of the supply network are directly proportional to the value of fan equity. Furthermore, fan equity is increased through the cooperative efforts of all members of the sup- ply network. The NASCAR supply network includes the NASCAR governing body, tracks, teams, drivers, sponsors, the media, and, to some degree, the fans themselves, to create the fan experience and initiates the development of fan equity by building relationship equity in line with the CEM. To better understand the relationships among the entities of the supply network depicted in Figure 1, it is first important to understand the NASCAR organizational structure. According to Edwards, Alderman, and Estes (2010), traditional North American spectator sports leagues are organized similarly to a cartel system featuring vertical integration and distinct hierarchies—that is, a closed system with fixed barriers of entry and expansion. In contrast, NASCAR’s organization operates independently from the competitive entities and facilities within the sport. Track ownership groups operate separately from NASCAR’s competitive teams and technically from the sanctioning body. FIGURE 1NASCAR supply network. Leveraging NASCAR’s Integrated Supply Network201 Conceptually similar to track owners, NASCAR’s race team owners also oper- ate as independent firms outside NASCAR’s administrative structure. NASCAR also remains the only major spectator sport in North America without any form of representation for its athletes (Pierce, 2001), which means that NASCAR drivers work as independent contractors for individual race teams in a largely unregulated system. Because of NASCAR’s loose organizational structure, the pursuit of sponsorship revenue is highly competitive among the NASCAR sanctioning body, racetracks, and race teams (Edwards et al., 2010). With this organizational structure in mind, Figure 1 is analogous to a clock in that it reflects the relative influence of network members on relationship equity, in which positions representing smaller numbers have a lower impact. Although tracks are necessary for hosting NASCAR races, they provide the lowest impact on relationship equity because fans’ relationship with or loyalty to a track tends not to be as intense as that with other supply network members. Race teams are positioned next because fans may often feel part of the team by cheering them on to victory or lis- tening on headsets as the crew chief barks driver instructions over the team radio. Fans are more likely to be loyal to a NASCAR team than to a parti- cular track; thus, when the team factor is present, we posit that relationship equity rises. In many sports, the driver or ‘‘player’’ and team positions may be reversed, particularly because the big four sports are heavily team-based. For example, although Alex Rodriquez is a driving force of the New York Yankees, and fans may wear jerseys with his name, a fan is usually labeled a ‘‘Yankees fan,’’ not an ‘‘Alex Rodriquez fan.’’ However, NASCAR fans are often described as fans of a driver who is associated with a team. Although NASCAR racing is a sport, it is also unique in its reliance on a single figure, the driver, to generate sponsorship dollars (O’Roark, Wood, & DeGaris, 2010). Many sponsors’ marketing proposals highlight drivers as the main feature of a sponsorship relationship (DeGaris, 2010) instead of tracks or teams. Therefore, we posit that drivers have a greater impact on relationship equity than the teams for which they drive. In terms of their relationship with sponsors and the media (the next two nodes in the supply network), it is important to note that drivers are more than pilots of stockcars; they are also pitchmen. They endorse their sponsors’ products on radio, on television, and in print and appear at company events. They are also celebrities who appear on television shows and in the tabloids. A NASCAR sponsorship goes far beyond the financial contribution to the team because it establishes a relationship with the driver, which in turn helps build a loyal customer base through frontline marketing interactions (O’Roark et al., 2010). Sponsors are then incorporated into the supply network to further inten- sify the fan experience and take relationship equity to higher levels. Sponsors potentially create the highest level of fan affinity and fan loyalty by enabling the experience to live on through the consumption or display of purchased 202S. Cadwallader et al. products (e.g., soda, clothing) after the event. By extending event attendance or viewership from mere spectatorship to a highly involved and ongoing experience, sponsors maximize relationship equity and, therefore, fan equity. Direct benefits can accrue through the purchasing habits of the most loyal fans who buy a sponsor’s products simply because the sponsor sup- ports a particular driver or team. It is this loyalty that illustrates the concept of relationship equity and drives the NASCAR supply network. The entire focus of this value-added process is to develop and sustain strong fan rela- tionships, which in turn provide the highest level of fan equity to the final purchaser—the sponsor. NASCAR, teams, drivers, and sponsors must work together to create a memorable fan experience that delivers the benefits accrued from increased fan equity. However, creating the fan experience and sharing it with fans beyond the boundaries of the venue and duration of the race is effective only when also shared through broadcasting, promotions (e.g., events, appearances), and advertising—activities that fall within the domain of the media. The media delivers what Young (2010) describes as the ‘‘show’’ and plays a critical role in building fan equity. The media have been influ- ential in co-creating with sponsors a highly loyal fan base. For example, in its study of 2,000 NASCAR fans conducted in December 2007, Sponsorship Research & Strategy found that 82%of avid NASCAR fans pay more atten- tion to television commercials that pertain to NASCAR (DeGaris, 2008). Motorsports fans watching race broadcasts are also less likely to switch channels if a commercial featuring the favorite drivers appears (DeGaris, 2008). All of NASCAR’s Sprint Cup Series races are televised on a major broadcast channel, ESPN, or TNT. This means that each week, a sponsor has approximately 3 to 4 hours of quality television exposure. In 2008, the Sprint Cup Series was rated number two in regular season sports on television, trailing only the NFL, which shares 3 months of a season with NASCAR. We posit that the media should appear after sponsors in the sup- ply network because they serve as the link between the message sender (sponsor) and the message recipient (fan); however, the sponsor remains the most influential network partner. Fans also contribute to the building of fan equity in the supply network by purchasing products or using the services NASCAR sponsors provide; thus, they serve as the final judge of the effectiveness of the network’s mar- keting efforts, validating their place in the supply network of Figure 1. Crimmins and Horn (1996) argue that consumers who are true fans of a pro- perty (sport) reward a sponsor with their patronage. Data collected from a national probability sample of 1,000 people who described themselves as NASCAR fans indicate that 71%said that they ‘‘almost always’’ or ‘‘frequently’’ chose brands of NASCAR sponsors over competitors simply because of the sponsorship. Moreover, 42%said that they switched brands after a manufacturer became a sponsor (IEG Sponsorship Report, 1994). Leveraging NASCAR’s Integrated Supply Network203 The Importance of NASCAR Sponsors Although the big four sports may employ a similar supply network, NASCAR’s success can be attributed to its unique sponsor involvement. In the NASCAR supply network, a sponsor helps intensify the fan experience and, by doing so, increases loyalty and fan equity. NASCAR fully leverages the power of its sponsors to enhance the fan experience not simply by promoting their brands but by allowing them to have a true presence at events and through integrated marketing campaigns on and off the track. Given today’s commercialization of sports with a bombardment of advertise- ments and messages, sponsors might expect to have limited effectiveness with consumers. However, because of the effectiveness of NASCAR–sponsor partnerships and affinity marketing opportunities, rather than dismissing affiliated sponsorships, NASCAR fans embrace this practice as an antecedent to their enjoyment of NASCAR events. Examples of effective fan activities (see www.nascar.com), which would not be possible without the cooperative relationships forged among the members of the NASCAR supply network, include the following: 1. A sponsor creates a promotional sweepstakes with NASCAR in which win- ners meet drivers and attend a NASCAR event. Advertising for the pro- motion features affiliated tracks, teams, and drivers (e.g., Sprint 4G Flyover Sweepstakes). 2. A sponsor partners with another sponsor to place promotional displays in stores (e.g., M&M’s [Kyle Busch’s sponsor and the official chocolate of NASCAR] in Target stores [Juan Pablo Montoya’s sponsor]) and advertises this fact. 3. A sponsor pays $20 million to place its brand name on the hood of a NASCAR vehicle but also receives 20 driver appearances at local product promotion events in malls and=or stores in which fans can meet the driver and collect his or her autograph (e.g., Joey Lagano and Home Depot). 4. A sponsor has a booth set up at races in which fans can get rub-on tattoos of their driver’s number (e.g., Dale Earnhardt Junior’s number 88), get in a NASCAR simulator, and buy driver- or team-specific merchandise at the sponsor’s pavilion. 5. A driver is featured doing something outrageous after winning a race (e.g., Carl Edwards doing a back flip off the side of his car), and his or her sponsor benefits the following week, confirming the adage ‘‘Win on Sunday, sell on Monday.’’ The entire supply network works both on and off the track through acti- vated (points 1 and 2) and leveraged (points 3, 4, and 5) sponsorships. Rather than simply paying NASCAR, sponsors advertise (activate) their sponsorship and promote their association with a driver or team. Through this activation, 204S. Cadwallader et al. sponsors fully leverage their position, sometimes spending two or three times as much money advertising the sponsorship as funding it (Andrew Giangola, personal communication, June 15, 2007). This activation further promotes the NASCAR experience by building anticipation of races, maxi- mizing the effects of affinity marketing, intensifying the fan experience, and increasing fan equity through relationship-building marketing efforts. Figure 1 depicts each supply network member’s contribution in creating relationship equity as NASCAR centric but, to maximize the level of relation- ship equity, no one member can perform tasks without the cooperation of the rest of the network. If any member were to be removed from the process, the subsequent levels could not exist. Thus, it is thecollaborationand interorganizational relationshipsthat allow relationship equity to peak. Leveraging the NASCAR Supply Chain Network Supply chain management philosophy emphasizes supply chain integration that links a firm with its customers, suppliers, and other channel members (Eng, 2006). From a relationship-marketing perspective, a focus on symmetri- cal dependence in a supply chain helps ensure long-term continuity of rela- tionships (Bordonaba-Juste & Polo-Redondo, 2008); however, successful asymmetrical long-term relationships also exist (Hingley, 2005). In such a case, the partner may govern the supply chain in both theory and practice. Relationship governance often improves performance and is considered the key to the creation of competitive advantage (Ling-yee, 2007). NASCAR’s governing sports body is such a partner in the NASCAR supply network. The NASCAR governing body drives relationship equity, one of the three drivers of fan equity, by facilitating opportunities to leverage sponsorships through cooperative affinity-marketing projects. Although on the surface it may seem that NASCAR and its channel partners (i.e., tracks, teams, drivers, sponsors, and media) are simply providing entertainment, all supply network members are helping develop relationship equity through a collaborative effort to max- imize fan equity. This type of collaborative or cooperative effort among channel mem- bers, as Young (2010) notes in her description of the NASCAR–racetrack relationship, is an example of vertical integration. Vertical integration resem- bles an administered vertical marketing channel (VMC), in which members are more closely aligned than they would be in a conventional marketing channel (CMC; Rosenbloom, 1994). Conventional channels are fragmented networks in which channel members are loosely aligned and relatively autonomous. In contrast, VMCs consist of networks of horizontally coordi- nated and vertically aligned entities managed as a system (Davidson, 1970). The key difference between these systems is the degree of effective interoranizational management (Rosenbloom, 1994) by and among channel partners. McCammon (1970), who coined the termvertical marketing Leveraging NASCAR’s Integrated Supply Network205 systems, notes that these types of channels are designed to achieve techno- logical, managerial, and promotional economies through the integration, coordination, and synchronization of marketing flows from production to consumption. The integrated NASCAR supply network, emphasizing the creation of fan equity, does not visualize the channel process as one that flows from pro- duction to consumption. Rather, although it might appreciate the benefits of a vertical marketing channel, it completely integrates the sponsor, the final customer. Along with fans, sponsors are not mere recipients or consumers of the output of the NASCAR supply network because they helped create it. This supply network conceptualization runs contrary to the CMC model and, to a lesser degree, the VMC model in which the final customer is the focus of the supply chain but not a member of it. Analogies are rare in con- sumer goods industries because most companies fail to recognize their cus- tomers as an asset of value to some other organization. Usually, grocery chains do not treat consumer packaged goods manufacturers as partners to enhance the consumer shopping experience or consider how to deliver their shoppers to that manufacturer; this would be the rough equivalent to what NASCAR has done with its sponsors. As mentioned previously, although a NASCAR event generates fan revenue, NASCAR’s true product is fan equity (the monetary value of loyal fans), which is then ‘‘sold’’ to sponsors. By including the sponsor in the fan equity supply network, NASCAR enables its customer to help create a more valuable product. This practice is grounded in effective relationship management and the sponsors’ recognition that NASCAR’s integrated supply network enables them to fully leverage their affinity-marketing techniques, thus establishing more effective sponsorships and maximizing value. Further- more, this practice epitomizes supply chain management. It is well estab- lished that the most effective supply chains are customer-focused, from the cultivation of raw materials to final production. All members of the NASCAR supply network recognize that though fans are important, they are ultimately a product to be purchased. This recognition is the reason NASCAR fans are so loyal and NASCAR sponsorships are so valuable. Finally, to better understand the effectiveness of the integrated supply network, it is necessary to recognize the difference between creating fan experiences and building fan equity through relationship-building efforts designed to create and build relationship equity. In the case of NASCAR, and in all sports, providing the total fan experience is merely one marketing tactic. The more enjoyable the experience, the happier the fan is and, thus, the more loyal he or she will be in the future. These characteristics directly lead to increased fan equity, which can be considered a more strategic objec- tive. Therefore, although creating the best fan experience to drive relation- ship equity is critical, succeeding in this aspect is merely a means to an end and not the end of maximizing fan equity. 206S. Cadwallader et al. QUESTIONS FOR CHANNEL MANAGERS The NASCAR supply network maximizes the value of its true product, fan equity, because it creates and nurtures fans by leveraging sponsor partner- ships. By establishing that the true product of any sports entity is not the fan experience but rather the fan equity derived from that experience, we show the importance of adopting the nontraditional, integrated supply network approach. NASCAR continues to receive recognition from sponsors because it maximizes value for them; it does this by including customers and sponsors in the creation of the end product, fan equity. Implications for channel managers in general and sports governing bodies in particular when considering the NASCAR case center on how best to re-conceptualize their current supply chain to leverage partner relation- ships and increase customer equity. We suggest the following questions that managers can ask to ascertain whether adopting the NASCAR supply network makes sense for their organization. Is the Network’s Customer Equity a Marketable Commodity? The NASCAR case suggests that to be truly effective, supply chains must incorporate more creative approaches to how they view value creation, including identifying who a customer is and who a partner is in less restric- tive ways. The first step in this development is to recognize that the best opportunities may exist beyond the confines of the traditional supply chain and that when the output of a great customer value chain is loyal custo- mers, the greatest asset may be the value of those customers to another party, either within or outside the existing supply chain. In the NASCAR supply chain, the relationship creates the value of the product called fan equity. Does the Supply Chain Operate Holistically as a Network Rather Than Sequentially? A holistic network is more willing to adjust processes or even contractual agreements should the need arise. For example, when NASCAR recognized that each track’s negotiating its own broadcast contracts was hurting every- one in the supply network, NASCAR worked to get tracks to agree to allow NASCAR to negotiate for all of them as a group to secure a better deal for everyone. Network members ceded control to another network member to increase network inputs (Andrew Giangola, personal communication, June 15, 2007). Leveraging NASCAR’s Integrated Supply Network207 How Should the Firm Partner With the Supply Network to Increase Customer Equity? In contrast with sports that view sponsors as a way to subsidize operational expenses, NASCAR views sponsors as partners in delivering customer experi- ences and thus brings the sponsor into the NASCAR culture. In MLB, spon- sors pay for giveaways, such as bobble heads, in exchange for name billing at the game. Alternatively, a NASCAR sponsor is part of the team and, as such, works through NASCAR and team personnel to provide fan experiences on and off (e.g., at community events, in grocery stores, through product tie-ins) the track. Do Channel Partners Collaborate to Benefit the Firm’s Customers? As a result of leveraging the activities of several sponsors to support the 50th anniversary of the Daytona 500, NASCAR was able to promote the event in 25,000 grocery stores around the United States (Andrew Giangola, personal communication, June 15, 2007). This coordinated effort proved beneficial to all types of partners in the NASCAR supply network. How Can the Firm Enhance Supply Network Effectiveness so That All Partners Benefit From Increased Customer Equity? NASCAR continually makes large investments in both human and financial resources to help sponsors maximize the value of their sponsorships. The NASCAR sponsor support staff, also known as the ‘‘Partnership Marketing Staff,’’ includes six account executives, two directors, and one vice president. NASCAR also has a business solutions group designed specifically to help sponsors determine how best to activate their sponsorships (Andrew Giangola, personal communication, June 15, 2007). The lesson to other major sports is simple: They should stop treating their fans as the customers at the end of the supply chain. Most major sports have already recognized their fans as a valuable asset. They make billions of dollars providing access to fans through sponsorships and broadcast contracts. The difference is that in the big four sports, and others, the sponsor is not brought in as a full partner of the supply chain to create fan equity. Rather, the sponsor is considered only a customer of the supply chain. Perhaps more relevant is the lesson for marketers of more conventional goods and services. Loyal customers are a firm’s most valuable asset, and when a firm can find ways to turn that asset into revenues and partnerships with other companies, everyone wins. NASCAR holds a summit meeting of all its sponsors’ chief executive officers. 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