chapter 10 Pricing Strategies

Objectives To understand core issues of price versus cost, price, and value and the setting of pricing objectives To understand the main pricing practices used in the sport industry To recognize the special factors that influence any pricing strategy

Value Value is the quantitative measure of the worth of the product. Satisfaction = Benefit  Cost Satisfaction is subjective and personal, but it can be collectively quantified Class example: 2 tickets to the final 4 (4 pairs)

Golf Equipment Survey “Reasons for purchase selection” Price – 76% Value – 54% Brand Reputation – 29% Selection Variety – 27% Service – 17%

Pricing Price is the exchange value of a good or service and the value of an item in the marketplace. Price is the most manipulated part of the marketing mix. –Readily changed –Effective marketing tool –Highly visible and easy to communicate

Sport Products That Are Priced Hard or soft goods (equipment or apparel) Tickets Memberships Concessions (food, novelties) Information (magazine, cable subscriptions) Access for corporate entities (entitlement space, signage, banner ads) Image (“swoosh” or photo)

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 s/2015%20mlb%20fci%20(1).pdf

Consumer Perception: Linking Price With Value Quality (including a sense of rivalry, competitiveness, star power) Convenience (including proximity to venue and parking) Aesthetics Cleanliness, comfort, security Availability (of tee times, of good seats) Durability Consumer perceptions somehow link price (and total cost) with value. Marketers must recognize this and attempt to explain the connection. Product values may include these elements:

Common Potential Pricing Objectives Efficient use of resources (personnel, space) Fairness (consumers' ability to pay) Maximum participation opportunities Positive user attitudes and image Maximum product exposure and distribution Profits – Need to bring return to investors Survival – must price to obtain profitability

Common Standard Approaches to Pricing Production costs – cost to put out our product Market conditions – good/bad economy Competitors – keep market share Organizational objectives - $ vs. community Product or event - tangibles v intangibles Brand strength – can we command a higher price because our brand is strong

Production Cost: Break-Even Analysis Fixed cost (FC) Stadium rental Taxes Office equipment Variable cost (VC) Wages Material costs Concession stands Break-even point = FC / (selling price – VC)

Break-Even Analysis

Simple Price Formula: Cost-Plus Pricing Cost + Desired profit = Price Account for cost paid, then mark up to desired level. Demands accurate Fixed Cost and Variable Cost information. The Curb # Project

Capitation Pricing Offering a price “per head” Typically used on a group basis Providing a “group” discount that, in turn, creates a bulk-revenue stream Fitness Club Example – 150 employees at half price memberships. In reality, only 22% used the facility. Fitness club wins in perception of value and bottom line profit. Leaders get a free ticket strategy (McBus Card)

What the Market Will Bear? Strategy Largely based on experience and comparisons Mistakes can prove costly Seattle Seahawks Jersey’s price increase by 50%, until when……… Remember Eli Manning?

Special Pricing Factors Market demand – Elastic or Inelastic Lead time – Last minute game day sales are more impulsive and will cost more User segmentation – Student section pricing vs luxury box patrons Smoothing – charging different tennis court rental rates for prime and non-prime times (golf twilight fees) Actions of competitors – Match competitors

Special Pricing Factors Elasticity of demand is percentage change in quantity demanded divided by percentage change in price.

Elastic Demand Elasticity of demand = Percentage change in quantity demanded / Percentage change in price A measure of how sensitive a market is to price change (continued)

Elastic Demand (continued) Inelastic –It occurs when a given percentage change in price results in a smaller percentage change in quantity. –Increase in price will mean increase in profits. Elastic –It exists when a given percentage change in price results in a larger percentage change in quantity. –Increase in price will mean decrease in profits. Unitary –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.

Special Pricing Factors to Consider

Special Pricing Factors Lead time: The average amount of time between ticket purchase and the date of the event typically decreases as the price for the event decreases User segmenting –Single game –Miniplan –Season tickets –Group tickets Time and place smoothing or variable pricing –Pricing on demand –Examples are good seats and bad seats, high volume time and low volume time

Penetration Pricing Penetration pricing is the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors.