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![Elasticity of Demand
❖ Elasticity of demand [e] =
❖ A measure of how sensitive a market is to price change
(continued)](https://image.slidesharecdn.com/pricing-150420111337-conversion-gate01/85/Pricing-13-320.jpg)
Pricing
- 1. If you sellit… they will come? Pricing
- 2. 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?
- 3. What would youpay for a World Series Ticket? (Giants/Royals) What would you pay for a World Series Ticket? (Reds/Red Sox)
- 4. What influences pricing ofsport products? demand objectives competition 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
- 5. 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
- 6.
- 7. 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?
- 8. MLB: RED SOX ($350) YANKEES($337) NFL: 49ERS ($641 - up 38%!!) COWBOYS ($634) NBA: KNICKS ($659) LAKERS ($542) NHL: MAPLE LEAFS ($572) BRUINS ($509)
- 9. Organizational Determinants of Pricing Priceshould NOT be a direct result of COSTs alone!!! — A Sport product's value is often SUBJECTIVE! — (see ch. 12)
- 10. Break-Even Analysis Fixed 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.
- 11. When are youBreaking 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
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- 13. Elasticity of Demand ❖Elasticity of demand [e] = ❖ A measure of how sensitive a market is to price change (continued)
- 14. 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??).
- 15. Price Elasticity ofDemand 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!
- 16. 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
- 17. New Sports ProductPricing Penetration Pricing - introducing the product at a low initial price relative Price Skimming - introducing at high price (assumes inelasticity)
- 19. Trends in Pricing/Ticketing Sellthe same product/service to different buyers at different prices (seat p
Editor's Notes
- #6 Remember: Satisfaction = Benefits - Costs Value = Perceived Benefits Price of Sports Product How add value? A) Increase benefits or B) lower price Factors fans consider?? 1) The total cost of attending 2) Time it takes to attend a game the most common response for not attending more games is a lack of time or other commitments. Price is NOT the most important factor guiding the decision to attend again. 3) The overall enjoyment of attending a game Organizational Pricing challenge: The perceived benefits are often intangible (hospitality benefits for a sponsor, or the ability to experience nostalgic feelings for a fan) Job costing unrealistic or extremely difficult Elasticity of demand varies widely in sports- Red Sox – inelasticity of demand Marlins – elasticity of demand
- #7 What influences fans’ expectations of price? 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 Demand – Is there a social element to value?
- #10 What goes into price setting? Internal – organizational goals, costs, (production and promotion) distribution outlet (Walmart vs. Dick’s), Day of game vs. prepurchase External – demand (price elasticity), perception of value, income, economy, competition, technological advances
- #11 Pacers – FC of 500M Fixed revenue (sponsorships 300M, broadcasting 50M, merchandising 50M, league distribution 50M) Remaining FC to cover is 50M VC is $4 person, Avg selling price including suites, club seats is $76. 50M/(76-4)= 694,444 tickets / 41 games = 16,937 per game
- #13 At lower than 4000 units, my costs exceed my revenues. At higher units, revenue passes costs.
- #16 Price elasticity = % change in demand/% change in price Inelastic: e < 1 Unitary: e = 1 Elastic: e > 1