Customer Equity and Player Diversity in MLB

Yesterday, Major League Baseball’s annual report on the diversity of players was released to the media.  The headline finding was that the percentage of African-American players is just 8.5%.  This percentage is much smaller than the NFL or NBA, and is down from 19% in 1995 and 27% in 1975.*

I found the report to be interesting in several respects.  When we started this blog, we began with a focus on brand equity.  Brand equity is the value of a brand like Coke or Apple.  Brand equity is useful because it is linked to customer loyalty, consumer awareness, and it may decrease consumer price sensitivity.  The issue of the diversity of MLB players brings to mind another class of marketing asset: customer equity.  In brief, customer equity is the value of a firm’s customer relationships.  It makes sense to think of customer relationships as economically valuable assets because customers tend to buy repeatedly, and their behavior is often a function of a firm’s marketing decisions.

I mention the topic of customer equity, because customer acquisition, and therefore customer equity can often be impacted by a brand’s current customers.  For example, Cadillac long suffered from being associated with an older demographic.  I even did some research that looked at how MBA program student demographics affected future student enrollment.

While the MBA student research was executed using sophisticated econometric techniques, at the heart of the research is a concept from sociology called homophily.  This is a simple concept that suggests that people often prefer to be parts of groups that consist of demographically similar members.  Player demographics therefore is a marketing issue, since a lack of African-American players could result in fewer African-American fans.  While the issue of lower percentages of African American players adversely affecting fan interest is a negative example of the aforementioned principle more positive examples also exist.  For example, Ichiro increased interest in the Mariners in Japan, and the Chinese-American community quickly embraced Jeremy Lin.  MLB fears that a lack of African-American players will reduce African-American fans, and consequently the future supply of African-American players.  This type of negative feedback effect could greatly reduce MLB’s customer equity in the African-American segment.

However, if I had to hazard a guess as to why MLB is suffering declining interest in the African-American community, I would identify a different culprit.  My conjecture is that MLB’s reliance on a farm system approach rather than a system where major universities develop talent, is the true  problem.  High school athletes are well aware of the lucrative nature of participating in professional sports, and how players like Lebron, Michael, Cam Newton and RG3 transcend being just athletes, and become brands.  These future professionals also know that stardom can be acquired in college or even high school through AAU basketball, or high profile college football recruiting.  Simply put, major college football and basketball offer opportunities for athletes to become stars at an earlier age!

*Note that there has been some criticism of the report’s methodology.  The major concern seems to be that the percentage provided in years like 1975 included all players of African heritage, while the current number only includes US born African Americans.

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