Maru batting center spreadsheet

For the exclusive use of A. Anyaogu, 2020. REVISED MARCH 31, 2015 JULIE HENNESSY AND EVAN MEAGHER KEL688 Maru Batting Center: Customer Lifetime Value Eager to avoid being distracted by the Tokyo Kitasuna team’s training for the summer 2012 Kōshien National High School Baseball Championship, Maru Keitou (丸継投) moved into the back office of Maru Batting Center (GK)1 (丸バッティングセンター (合同会社)), in the Roppongi district of Tokyo’s Minato ward, to contemplate her fledgling company’s marketing strategy. A decorated former collegiate softball player with a PhD from Oxford University, Maru had a deep knowledge of the game and of her customers. She lacked a marketing background, however, so she had recently signed up for a hosted customer relationship management service that would allow her to track the cost of acquiring and serving each of her four main customer segments, data she could use to determine which segments to target in the upcoming year. Business Model Unlike most batting cage facilities in the United States, Maru Batting Center (MBC) was open only for appointments made at least 24 hours in advance. (See Exhibit 1 for pictures of batting cages in Japan.) Customers booked one or more of the eight batting cages that offered baseball and softball pitching machines for a specific period of time, typically in half-hour increments. Maru assigned one or more of her part-time workers—depending on the appointment—to open and supervise the facility. This not only avoided high fixed costs but also allowed MBC to avoid hiring full-time employees, which reduced labor costs by eliminating employee benefits. 1 Godo Kaisha (GK) is a type of Japanese business entity. It is often referred to as the “Japanese LLC,” though it has some legal differences from its American counterpart. ©2015 by the Kellogg School of Management at Northwestern University. This case was developed with support from the December 2009 graduates of the Executive MBA Program (EMP-76). This case was prepared by Evan Meagher ’09 under the supervision of Professor Julie Hennessy. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail custserv@hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Kellogg Case Publishing. This document is authorized for use only by Angelica Anyaogu in MKTG 525 Summer 2020 taught by RAMANA MADUPALLI, Southern Illinois University - Carbondale from Apr 2020 to Oct 2020. For the exclusive use of A. Anyaogu, 2020. MARU BATTING CENTER KEL688 Having a customer in the cage required one or two part-time workers to set up and fix any problems with the machines, retrieve and reload balls, and accept payments.2 The hourly workers earned an equivalent rate of ¥1,5003 per customer hour in the cage.4 Batting Cage Market MBC marketed to four primary customer segments, each with its own price sensitivity, frequency of use, and attrition rate. Little Leaguers5 Consisting of boys’ and girls’ baseball and softball players between the ages of 6 and 15, the Little Leaguers had an annual attrition rate of just 25 percent because children in Japan tended to play baseball or softball throughout their youth. This core segment was also very large, as baseball was the country’s de facto national pastime. However, Little League customers required two part-time employees on hand to supervise them as well as a reasonably accomplished hitting instructor to support their training. For this task, MBC relied on freelancing middle and high school coaches, each of whom was paid ¥3,000 per hour. Enthusiastic and—Maru had to admit—occasionally overbearing parents were willing to pay for this added value, which allowed MBC to charge ¥6,500 per hour. Every Little League customer purchased an average of ten hours in the cages per year. Purchases were typically concentrated in the preseason months of February and March. In order to advertise its services to this large and avid customer segment, MBC sponsored all Little League and middle school teams in Tokyo’s Minato ward. Although the sponsorship was expensive (it was financed by a revolving credit line), Maru believed that it helped make MBC the training facility of choice for families in the region and that it possibly helped her target other family members who might fall into adjacent customer segments. Children who joined a sponsored team received a team jersey with their name, player number, and the MBC logo and phone number on the arm.6 The league rulebooks, which were sent to players at the beginning of each season, featured a full-page advertisement for MBC. Maru estimated7 that it would cost her ¥1,000 to contact each Little Leaguer and that 10 percent of those players would become regular customers.8 2 Assume that only one customer is in the facility at a time, regardless of segment, and that because each segment has very different needs and schedules, double-booking is never a problem. 3 Although not relevant to the calculations, the Japanese yen (¥) was trading at about 78 per U.S. dollar on December 21, 2011. 4 The workers arrived slightly before the customer’s appointment to turn on the machines and left slightly after it was over, but the ¥1,500 equivalent rate takes this into account. 5 Assume that Maru can identify which segment customers fall into based on the staffing they require, the type of machine they wish to use, and the day of week/time of day they wish to reserve—and that as a result, she can charge different prices without repercussions. 6 Assume that the jersey is a one-time expense tied to acquiring the customer, not an annual expense. 7 Maru divided the total cost of the sponsorship by the anticipated total number of Little League players in the Minato ward. 8 The 10 percent figure includes both Little Leaguers who come with their parents and those who come as part of a team function. 2 KELLOGG SCHOOL OF MANAGEMENT This document is authorized for use only by Angelica Anyaogu in MKTG 525 Summer 2020 taught by RAMANA MADUPALLI, Southern Illinois University - Carbondale from Apr 2020 to Oct 2020. For the exclusive use of A. Anyaogu, 2020. KEL688 MARU BATTING CENTER Summer Sluggers Summer Sluggers were Japanese adults who played baseball and softball during the summer, although Japanese men tended to continue playing baseball after high school rather than switching over to softball as their American counterparts generally did. These customers played on less competitive company teams and wanted to practice before or during the season. The slightly decreased intensity led to more price sensitivity,