sports pricing spring 2015.key
TRANSCRIPT
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If you sell it… they will come?
Pricing Shank: chapter 15 (3rd ed)
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University of Michigan❖ Recently lowered student
season tickets by 37.5% (from $280 to $175)
❖ Why?❖ season tickets dropped from
21,000 to 13,000❖ Team performance
❖ Elastic or Inelastic?
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What would you pay for a World Series Ticket? (Giants/Royals)
What would you pay for a World Series Ticket? (Reds/Red Sox)
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Line-up
❖ Sports Pricing Strategy❖ Core issues of price versus cost, price, and value ❖ Setting of pricing objectives ❖ Main pricing practices used in the sport industry ❖ Special factors that influence pricing strategy ❖ Pricing trends
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What influences pricing of sport products?
demand
objectivescompetitiontechnology
the other 3 p’s
Income - maximize profit or stay afloatSales - market share & growth
Competitive - meet, avoid, or undercutSocial - appeal to the public, offset costs
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Pricing is important because…❖ Price is the most manipulated part of the marketing mix
❖ Easily changed ❖ Effective tool ❖ Highly visible
❖ Consumer: Price is a statement of value❖ Value —————> ❖ How can a sport marketer ADD VALUE? ❖ Depends on each customer! (or group)
❖ Organization: Price is an assignment of value the organization places on their product/service
❖ Pricing challenge ❖ Factors that influence pricing decisions
❖ Internal (brand equity, 3 P’s, cost, etc..) ❖ External (environmental forces)
perceived benefits of sport product
(tangible & intangible)price of sport product
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Consumer Pricing Evaluation Process
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Fan Cost Index❖ Four “average-price” tickets❖ Two small draft beers❖ Four small soft drinks❖ Four hot dogs❖ Parking for one car❖ Two game programs❖ Two adult-size caps
Can you guess the top FCI (team) for each Major League
Sport?
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MLB: RED SOX ($350)YANKEES ($337)
NFL: 49ERS ($641 - up 38%!!)
COWBOYS ($634)
NBA:KNICKS ($659)LAKERS ($542)
NHL:MAPLE LEAFS ($572)
BRUINS ($509)
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Organizational Determinants of Pricing
Price should NOT be a direct result of COSTs alone!!! — A Sport product's value is often SUBJECTIVE! —
(see ch. 12)
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Pricing ModelsStandard Approaches to Pricing
What would you consider? .. for NKU??? ❖ What the market will bear ❖ Break-Even Analysis❖ Differential Pricing
❖ Advent of “Variable pricing” or “dynamic”❖ Penetration vs. price-skimming
❖ Key issue in new product intros❖ Bundle pricing❖ Cost-Based Pricing
❖ Cost-plus, target profit, break-even❖ Psychological Pricing
❖ Prestige pricing
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Break-Even AnalysisFixed cost (FC) - don’t change per unit❖ Stadium rental❖ Taxes❖ Office equipment
Variable cost (VC) - change per unit❖ Wages, Sales Commissions❖ Material costs, energy (heat/AC)❖ Concession stands❖ Promotional items
Break-even point = FC / (selling price – VC)
also called: Contribution margin per unit.
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When are you Breaking Even…?
❖ Fixed Costs = $100,000
❖ Variable Cost per Unit = $17
❖ Sales Price of Ticket = $38
❖ How many tickets must you sell to Break Even??
4,761
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Break-Even Analysis
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Cost-Plus Pricing
Cost + Desired profit = Price
❖ Account for cost paid, then mark up to desired level.
❖ Demands accurate FC and VC information.• Grouping a series of products together as a single bundle
sold at a single price • In bundling “mini-plans” or partial season ticket plans,
teams will often bundle some good games with some bad ones
Bundle Pricing
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Elasticity of Demand❖ Elasticity of demand [e] =
❖ A measure of how sensitive a market is to price change
(continued)
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Elasticity of Demand (continued)
❖ Inelastic: e < 1❖ A given percentage change in price results in a smaller percentage
change in quantity demanded. ❖ Increase in price will mean increase in profits.
❖ Elastic: e > 1 ❖ A given percentage change in price results in a larger percentage
change in quantity demanded. ❖ Increase in price will mean decrease in profits.
❖ Unitary: e = 1 ❖ Unitary demand exists when a given percentage change in price
results in an equal percentage change in quantity. ❖ End result is the same as before (so why bother??).
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Price Elasticity of Demand
Unitary Elasticity
When should I increase my price??- When it will be viewed as JND- No viable alternatives exist to increasing costs
(Unbundling, reduce features)
Note: your book’s graph is WRONG!
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Elastic or Inelastic?❖ You are a Group Ticket Sales Manager for the Reds
❖ In 2013 your Avg. group price (15-30 ppl) per game was $20 per seat. In 2013 you sold 25,000 group rate seats over the course of the entire season.
❖ In 2014 you had to raise prices. Your new avg. price per game was $23 per seat. In 2014 you sold 21,000 Group rate seats over the course of the season.
❖ What is the elasticity of demand? 16% change in D / 15% Change in P = 1.06
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New Sports Product Pricing
Penetration Pricing - introducing the product at a low initial price relative to competition (assumes elasticity)
Price Skimming - introducing at high price (assumes inelasticity)
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Differential Pricing
Sell the same product/service to different buyers at different prices (seat price variations: based on days, timing, seat location, age, etc…)
Most common: Second Market DiscountingDifferent prices for different segments-Variable-Dynamic
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Trends in Pricing/Ticketing
Sell the same product/service to different buyers at different prices (seat price variations: based on days, timing, seat location, age, etc…)
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Cincinnati Cyclones Ticketing Breakeven Exercise
• Home is US Bank Arena (capacity 14,453) • Compete in ECHL (‘AA’ minor league hockey) • Won league championship (Kelly Cup) 2 of last 4 years • Rank 11th of 19 ECHL teams in attendance; average 4K/game • Attendance has been up between 5-15% each of the last 4 years • Frequently utilize concession price promotions: $1 hot dogs, $1 beers, etc. • Season tickets: $360 (36 games); $264 (24 games); $144 (12 games) • Premium (club seats): $612 full season only; 200 available (150 sold) • Sold equivalent of 1500 season tickets; remaining 2500 single game buyers • Single game prices: $26.50 lower level, $13.00 upper; ($17 average sold) • Ticket variable costs: $50/season ticket; $3/single game ticket • Owners desire to cover a minimum of $2M in fixed costs with ticket sales
Challenge: At what level(s) would you set ticket prices for next season? Any further segmentation? Your pricing strategy?