Pricing

If you sell it… they will come?

Pricing

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?

What would you pay for a World Series Ticket? (Giants/Royals)

What would you pay for a World Series Ticket?

(Reds/Red Sox)

What influences pricing

of sport products?

demand

objectivescompetition

technology

the other 3 p’s

Income - maximize profit or stay afloat

Sales - market share & growth

Competitive - meet, avoid, or undercut

Social - appeal to the public, offset costs

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

Consumer Pricing Evaluation Process

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?

MLB:

RED SOX ($350)

YANKEES ($337)

NFL:

49ERS ($641 - up 38%!!)

COWBOYS ($634)

NBA:

KNICKS ($659)

LAKERS ($542)

NHL:

MAPLE LEAFS ($572)

BRUINS ($509)

OrganizationalDeterminants of Pricing

Price should NOT be a direct result of COSTs alone!!!

— A Sport product's value is often SUBJECTIVE! —

(see ch. 12)

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.

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

Break-Even Analysis

Elasticity of Demand

❖ Elasticity of demand [e] =

❖ A measure of how sensitive a market is to price change

(continued)

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??).

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!

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

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)

Trends in Pricing/Ticketing

Sell the same product/service to different buyers at different prices (seat price variations: based on days, timing, seat loc