4.01 PRICING

ESSENTIAL QUESTIONS A: What are the concepts of pricing in SEM? B: How do the 5 factors affect pricing in SEM?

PRICING Pricing is the process of stating the value of a product. Value is subjective (feelings or opinions rather than facts) A customer’s opinion of the value of a product is based on perceived benefits.

PRICING Pricing sport/event products is unique because of the extremely high demand. The widespread popularity of sports (particularly professional sports) and entertainment has created this high demand for sport/event products.

MARKETING MIX Price is most visible element of the marketing mix or 4 Ps: Product Price Place Promotion

VALUE Value is unique to each individual Customer because the benefits of purchasing the product are based on that individual’s perceptions.

What to price? Different types of products that sport/event marketers must price: A. Tickets B. Concessions C. Equipment 1. Sale 2. Rental

What to price? D. Souvenirs E. Clothing 1. Sport apparel 2. Licensed merchandise

What to price? F. Media 1. Magazines 2. Pay-per-view events G. Memberships 1. Health clubs 2. Golf courses

FACTORS THAT AFFECT THE PRICING OF SEM PRODUCTS:

TANGIBLE & INTANGIBLE BENEFITS Examples of tangible benefits of a surf board: 1) a wrist strap to keep it connected to you in the water

INTANGIBLE BENEFITS Example of intangible benefits of a golf bag: 1) It will allow you to get exercise on the course. 2) It will allow you to spend time with your friends.

“TOTAL COST” 1. The total cost of attending an event is much more than just the price of the ticket. a. Gas b. Parking c. Lodging

PRICING OBJECTIVES Marketers think about their pricing objectives-goals to achieve. Pricing objectives are important because they determine pricing strategies.

PRICING OBJECTIVES Pricing objectives need to line up with the overall objectives of the entire sport/event organization. 1. Some focus on the company itself. a. Trying to enhance its image b. Trying to cover costs c. Trying to create profits Pricing objective example: Pricing products that will enhance the brand image

PRICING OBJECTIVES Some focus on the customer. a. Reach a specific target market b. Achieve a price that customers will feel is “fair” c. Encourage maximum participation in an event

PRICING OBJECTIVES A sport/event organization might price entry fees for a marathon below the normal rate to encourage maximum participation in the race. Lower fees would not meet competitors’ prices since the fees would be less expensive than for other marathons.

COSTS a. Expenses involved with manufacturing, promoting, and distributing the sport/ event product b. Affect pricing because the price of the product must at least cover costs for the organization to survive

FIXED COSTS AND VARIABLE COSTS 1) Fixed costs are the expenses that stay the same no matter how much of the product is being produced. a) Rent b) Equipment c) Salaries d) Maintenance

FIXED COSTS AND VARIABLE COSTS 2) Variable costs are the expenses that change along with the amount of production. a) Materials b) Packaging c) Advertising

Retailers have the biggest impact on the final price of a sport/event product because they control the final markup. Prices are higher at retail stores

All prices are set to cover costs for each member of the distribution channel, including manufacturers and wholesalers, but retailers have a bigger impact since they have the final say on price.

PRICE ELASTICITY Price elasticity is a measure of how sensitive customers are to changes in price. It gauges the relationship between market demand and pricing.

INELASTIC DEMAND An inelastic demand means that price changes have little to no impact on product sales.

ELASTIC DEMAND An elastic demand means that small price changes have a big impact on product sales.

MARKET DEMAND Market demand is the amount of a product that customers are willing to purchase at a certain price. As a general rule, customers are more likely to buy products at lower prices rather than at higher ones.

UNITARY DEMAND A unitary demand means that changes in price create proportionate changes in product sales. The demand for ski rentals is unitary because when the prices dropped slightly, rentals increased slightly

CUSTOMER-RELATED FACTORS

MARKET SEGMENTATION Sport/Event marketers usually want to focus their efforts on a specific group of customers. b. To do so, they must look at the market in terms of market segments.

CUSTOMER-RELATED FACTORS Charging different prices to different people is not illegal if the product is a service. For example, at college football games, tickets are priced lower for students and faculty members. Swimming lessons may be less expensive for three-year-olds than for twelve-year- olds.

TECHNOLOGY AS A PRICE FACTOR Technology affects sport/event product prices by Both raising and lowering them. In some cases, technology raises the price of a sport/event product because the product is more technologically advanced than similar products. In other cases, technology lowers the price of a sport/event product by allowing customers to order it online and skip members of the distribution channel. Technology has an effect on prices but does not make them unstable.

PRICE SMOOTHING

marketers can divide their products by either time or place.

TIME SMOOTHING involves determining “prime times” and “nonprime times” for services. PLACE SMOOTHING The process of dividing a sport/event venue into “sections” and pricing them accordingly.

TIME SMOOTHING Movie ticket price is $5 between 1p.m. – 5p.m. to attract people to the theater during off peak hours.

PLACE SMOOTHING The closer to the action, the more expensive the ticket. Upper level, “cheap seats” allow customers without a lot of money to attend games and events as well.

COMPETITION-RELATED FACTORS Penetration pricing strategy a. Setting prices LOWER than those of the competition b. Used to introduce a new product c. Used to gain a greater share of the market

COMPETITION-RELATED FACTORS PRICE SKIMMING STRATEGY a. Setting prices HIGHER than those of the competition b. Used to keep other competitors from entering the market c. Used to promote a prestigious image of a product