SEM1 4.07 A - Pricing PE - Develop a foundational knowledge of pricing to understand its role in marketing PI - Identify factors affecting pricing of SEM.

SEM1 4.07A - Pricing

• PE - Develop a foundational knowledge of pricing to understand its role in marketing

• PI - Identify factors affecting pricing of SEM products (lead time, market demand, market segmentation, smoothing, responding to competitors)

• PI - Describe pricing issues associated with SEM products (cost, value, objectives)

Why do ticket prices vary?

• Seat location• Performance of the team• Popularity of the

team/entertainer• Location of the venue• Time of the event• Opponent• Scarcity of tickets• Paying for a new stadium

– PSL’s

• Ticket discounts• Market segmentation• Top Athletes• Value to the consumer• Expenses• Production Costs• Uncertainty• Unsold Tickets “Deadwood”

Factors affecting pricing of SEM products

• Lead time• Market demand• Market segmentation (target market)• Smoothing/penetration/skimming price

strategies• Responding to competitors

Lead Time

• Lead Time: The time between customer order and delivery of final product.

• Sports and Events will often charge less if tickets are purchased ahead of time.– Ex: “Purchase concert tickets now for $25 or at

the door for $35.”

Market demand• Price Elasticity – is the degree to which demand for a

product is affected by its price• How much of a product customers will buy at a certain price -

Relationship between market demand and price

• Inelastic demand - Price changes have little to no impact on quantity of sales• “Need” items - necessity, brand loyalty, urgency of purchase

– Ex: Milk, Eggs, Super Bowl Tickets, Gasoline?

• Skimming pricing strategy would work here – high then lower

• Elastic demand - Small price changes (up or down) have big impact on quantity of sales• “Want” items – luxuries, availability of substitutes

– Ex: I-pod, sports equipment, new clothes

• Penetration pricing strategy would work here – low then normal

Effect of Elasticity

• Elastic Demand

• Inelastic Demand

Price

Demand

Price Demand

SEM1 4.07 Activity

• Students work in pairs and create a PPT showing elastic and inelastic products– Students must show 2 sports goods & services & 2

entertainment/event goods & services (8 total)– On each PPT slide list if the product is elastic or

inelastic and the factor affecting why it is• Ex: NFL football, elastic due to availability of substitute

products

– Must have 2 sports products that are elastic and 2 that are inelastic – same for event/entertainment

Market Segmentation• Target Marketing – fans/brand loyalty, PSL’s• Discounts to certain age groups – kids free!• Coupons sent to specific geographic locations

Pricing strategy - Smoothing• Smoothing - dividing product into different

segments:• Time: Pay more money for “Prime time”• Place: Pay more money for court-side seats and less for

nosebleeds (higher seats)

Pricing strategy Penetration - Skimming

• Responding to competitors – pricing can assist in gaining sales or market share based on how it relates to your competition• Non-price: Charge higher prices than competitors for unique product and

services– Ex: The Panthers can charge what they wish – unique and no competition

• Price: Encourage sales with lower prices than competitors

• Penetration pricing• Setting prices lower than the competition

– Used to introduce a new product – Encourage maximum participation (More people will purchase if

price is lower)

• Skimming• Setting prices higher than the competition (as high as the

consumer/market will pay/bear)– When a product is new & unique, you can skim the cream and

charge higher price– Promotes “high-class” image of product

Pricing issues: Cost and Value• COST (of the event)– Cost of production for good/service– Some events have higher production costs

• VALUE (to the consumer)– What are the perceived benefits to consumers?• What is the overall value to the consumer

– Overall value – consumers will look at costs of attending event, parking, concessions, merchandise, etc.

• Unique experience to each person• Perceived benefits:

– Tangible : Physical benefits (Buying a set of weights to get into shape)– Intangible (Buying a set of weights to look good at the beach)

Different pricing objectives

Company-Focused Competitor-Focused Customer-Focused•Pricing products to enhance the image

•Covering costs

•Creating profit

•What the consumer will pay

•Beating the competition

•Offer lowest prices to gain share

•Offering the most discounts

•Offer “fair” price in the consumer’s mind

• Objectives:• What are the goals of the good/service?• Do you want it to seem “high class” or affordable?• What type of attendees do you want? • How much profit do you want to make?

Ticket pricing strategies

• Scaling the house/arena/stadium– Pricing tickets differently based on• Location of seat• Location of entire section• Time of purchase• Price is less if purchased further in advance

• Yield-management pricing – Maximize revenue at venues with limited capacity• Venues with limited seating price tickets differently to have

greater revenue potential• Charge more at smaller venues!