The Sports Connection is a chain of health clubs operating in Los Angeles. They have been interested in evaluating the effects of various elements of their marketing strategy; in particular, this strategy involved changing the terms of their offer to consumers at regular intervals, normally every month. These offer terms include a number of variables: current price, amount of time free on top of one year's membership, and guaranteed renewal price. The firm would also sometimes offer a referral programme, which would reward new members for bringing in other new members within their first month of membership. In some months, the firm would change the offer twice, rather than once; they observed that this seemed to bring in more new members because of the 'deadline effect'. Whenever customers made membership enquiries they were told that the existing offer would be ending soon, and that the new offer would in some way be less favourable; either the price would go up, the amount of time free would be less, or the renewal price would go up. By using many variables in the offer terms the firm was continuously able to have some 'special' on offer, either a low price, more time free or a low renewal price, and to rotate these terms. As the deadline for the end of any offer drew near, the number of buyers increased. Thus it seemed that having two 'close-outs' in some months was a desirable strategy. Table 2 shows sales for the five different Sports Connection clubs in 198687. In Table 3 the values of different variables are shown for the time series data; the values are the same for all five clubs. Questions (a) Is there evidence that having two close-outs in a month has a beneficial effect on sales? . (b) The company is concerned that having two closeouts in a month simply results in people joining sooner than they would otherwise join, with no overall benefit in terms of new membership sales. Is there evidence of a dip in sales in months following a month with two close-outs? . (c) Examine the effect of the level of price on new membership sales; compare this effect with the effect of having two close-outs in a month . (d) Is there evidence of a trend effect? (e) What conclusions can you draw from your analysis regarding the marketing strategy of the Sports Connection?

Table 2: Sales at Sports Connection Club, 1986-87 Sales (new members) Santa Monica South Bay Beverly Hills Encino Long Beach Dec. 1987 447 336 274 202 201 Nov. 501 339 237 171 176 Oct. 358 286 239 161 165 Sep. 386 220 221 171 219 Aug. 418 273 215 201 170 Jul. 388 272 219 178 161 Jun. 325 210 213 233 183 May 350 282 360 264 Apr. 340 270 331 289 225 Mar. 455 203 331 321 255 Feb. 392 201 277 204 233 Jan. 498 302 439 204 241 408 271 295 214 187 Nov. 358 278 310 210 205 Oct. 363 280 285 212 136 Sep. 389 329 208 221 Aug. 280 313 334 219 228 Jul. 291 268 346 300 267 Jun. 311 283 284 234 228 May 332 350 291 240 212 Apr. 409 336 375 229 275 Mar. 480 292 307 247 285 Feb. 419 289 297 229 246 Jan. 487 365 348 311 Source: Wilkinson (2005). Table 3: Sales Parameters for Sports Connection Clubs, 1986-87 Price ($) Timefree Referral Renewal Number of Income (months) price ($) offer changes (S billion) Dec. 1987 381 3.6 No 149 2,745.1 399 5.4 No 151 2,710.5 Oct. 433 7.2 No 150 Sep. 400 7.2 No 195 2,683.3 Aug. 404 7.2 No 190 2,686.3 Jul. 412 7.2 No 185 2,682.2 Jun. 387 7.2 No 180 2,662.8 369 3.6 No 171 2,676.8 Apr. 361 3.6 No 166 Mar 388 7.2 No 180 2,680.3 Feb. 424 9.6 No 166 2,687.2 Jan. 414 9.6 No 147 2,656.3 Dec. 1986 377 3.6 No 180 2,661.9 386 5.6 No 180 2,655.5 Oct. 386 8.4 No 180 2,652.6 353 3.6 Yes 221 2,652.2 Aug. 331 3.6 Yes 213 2,653.4 Jul. 329 3.6 No 204 2,654.1 Jun. 364 3.6 No 168 2,649.4 May 375 8.4 No 168 2,628.0 Apr. 374 3.6 Yes 168 2,640.9 Mar. 371 2.4 No 168 2,602.6 Feb. 392 No 168 2,583.0 Jan. 380 No 168 2,558.1 Price= Average price for the month, taking into account different types of membership sold ($) Time free= Average amount of free time offered during the month (in months). Renewal price= Average annual renewal price offered ($). Income= National disposable personal income at annual rate ($ billion at 1982 prices). Source: Wilkinson (2005)