If you sell it… they will come?

Pricing Shank: chapter 15 (3rd ed)

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)

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

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

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)

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)

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

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

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

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)

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

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…)

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?