Case: BRAND EXTENTION AT REAL MADRID

Executive summary

Real Madrid (RM) has been worldwide-known as one of the best soccer club in the world. However, RM has experienced negative profits in recent years due to changes in the soccer environment. To achieve sustainable growth, RM needs to extent its brand worldwide in order to gain profits. To do so, RM needs to set up a new channel of communications and partnership-relationship with retailers, broadcasters and franchisees who are key drivers in enabling RM’s brand extension around the world.

1. Ask SEED Question

Initial Question

What are we trying to achieve?

We want to extent Real Madrid brand worldwide to gain profits.

“Why”

· To have stable profit growth in the future independently from field performance.

Why?

· To counter the stagnation of revenue growth from traditional channels (broadcasters, sponsors, match day).

Why?

· To sustain the profitability of the club in the long term.

Well, that’s obvious!

The SEED Question

How can Real Madrid gain profits while extending its brand worldwide?

(How Real Madrid can have the best profitability through expanding it brand worldwide).

Why is the SEED Question Important?

· The question is strategic because it is a part of the implementation plan to achieve RM’ new vision and mission

· The question is explicit because it states exactly what kind of brand development we are pursuing.

· The question is executable because RM’ marketing forces can execute an implementation strategy to answer this question.

· The question is because it addresses the declining profit problem that RM is facing.

· While answering this question, we can truly solve the challenge at hand. By extending the brand worldwide, RM can have stable and increasing incomes by selling contents and merchandise and therefore achieve sustainable profitability.

· While answering this question, we will become a champion. When the brand is extended, RM will have stable income sources, therefore RM will not totally depend on incomes from traditional channels which are depending on the team’s performance. By answering this question, RM will become the champion in the soccer business field.

2. Mapping Ecosystem

Ecosystem

2.1. External factors

Law: RM has to follow the regulations in the business environment and the institutional rules framework of UEFA and FIFA without being able to influence them.

Media: RM has to be aware of the media’s influence in presenting a positive image and utilize it to achieve more visibility.

Market: RM needs to take into account market structure and conditions in different geographical regions where it extends its business.

2.2. Individual components

· Strategic partners: Sponsors and players are the strategic partners of RM because they bring RM incomes.

· Players’ sponsors: Sponsors bring incomes to the players, half of which are shared with RM.

· Real Madrid: RM’s management is the heart of the Ecosystem map. The management needs to utilize the other individual components in the map to extend RM’s brand in order to increase profits.

· Competitors: The competitors in the map include RM’s competitors in the field such as other soccer clubs and business competitors.

· Retailers: Retailers are RM’s distributors.

· Franchisees: Franchisees pay royalties to RM for using its assets such as logo and contents for business purposes.

· Broadcasting: The broadcasters show the club’s games to soccer fans all over the world.

· Customers: Customers are people or organizations who buy products/services from RM or RM’s franchisees.

2.3. Linkages and flows in the map

· RM and Sponsors: Money flows from sponsors to RM in exchange for advertising rights from RM.

· RM and Players: The most significant flow between the two in this case is the flow of money: RM pays the players for their services and the players give half of their advertising incomes to RM.

· Players and their Sponsors: The players have their individual sponsors who pay them for the right to use their image for advertising purpose.

· RM and Retailers: RM grants the retailers the rights to sell its products.

· RM and Franchisees: RM grants the franchisees the rights to use its assets such as logo and contents.

· RM and Broadcasting: RM grants the broadcasters the rights to air its games.

· Retailers and Customers: This is buying-selling relationship.

· Franchisees and Customers: This is buying-selling relationship.

· Broadcasting and Customers: The customers pay for the entertainment they get by watching the team’s games.

· Competitors and Broadcasting, Franchisees and Retailers: Competitors provide the broadcasting, franchisees and retailers money and information.

2.4. Evolution of the Ecosystem

Past

The main income sources were from gate receipts and broadcasting, which highly depend on RM’s performance in matches. While the incomes from gate receipts and broadcasting increased slowly, the expenses surged due to sharp increase in salaries paid to the players and quick augment in costs of buying the best players. When revenues were less than expenses, RM experienced negative profits in many years.

Present

To achieve sustainable growth in the future, RM needs to have stable independent revenue sources that are independent from its performance in the field. Given stagnant increase in traditional revenue streams, RM needs to leverage its brand into the global market to gain more revenues. The best way to leverage the brand is to extent the brand worldwide.

Futurur

If RM were unable to extent its brand worldwide to gain profits, it would continue to have losses and therefore unable to have the best players. If RM did not have the best players, its performance in games would not be better and therefore RM would not be able to gain championships. If RM lost games continuously, incomes from traditional sources would decrease. Therefore, RM would face deeper losses.

3. Key Drivers

From the Ecosystem Map, the Key Drivers are Retailers, Franchisees and Broadcasters through which RM can reach customers and extent the brand. The key drivers are the enablers for RM to extent successfully its brand.

4. Situation Summary

Real Madrid has been expanding its brand globally in the past few years. It has been increasing revenues from stable income sources such as merchandising by entering various international markets. The challenge in front of the club’s management is how to take the next step and extend its brand worldwide in a profitable manner.

In the case assignment we are asked to recommend the best strategy for the club to implement in order to answer the SEED question. However, we are not able to propose a strategy at this point because we need to follow the necessary steps to reach the conclusions. Still, if we were to provide basic guidelines, we recommend the following, hereby our situation summary.

1. In order to achieve its goal the club management needs to reach more customers.

2. In the end, the club needs to think of how to reach more visibility and extend its merchandise to new markets. Working within the framework of the ecosystem map and focusing on the key drivers and the SEED question, we will be able to pinpoint the right approach to increasing profitability in the long run and extending the Real Madrid brand worldwide.

3. We have identified three main channels for that, namely retailers, franchisees, and broadcasting. The connection of these channels with the customers and how Real Madrid will be able to utilize them is crucial for the success of the club in extending its brand worldwide in a profitable manner. If Real Madrid fails to utilize these channels, then other clubs, namely RM’s competitors, will do and the club will suffer losses.