6 THEME 6: ENGAGING THE PRICE WAR: TICKET AND MERCHANISE SALES

Learning Objectives

*Understand the relationship among price, value, and benefits

*Understand the relationship between price and the other marketing mix elements

*Explain how pricing decisions are influenced by competitive environment

*Explain how costs and organizational objectives may affect pricing decisions

Introduction of Basic Pricing Concepts

Everything considered as a sports product or service (i.e., tickets, memberships, commercial signage, apparel/equipment, concessions, and players’ rewards/salaries) comes with a price. Price is often set according to variables such as location, image, and time. It has several unique characteristics. Price is easily changed, heavily impacted by the demand, highly visible, and extremely important to consumers. A simple definition of price is a statement of value for a sports product (Shank & Lyberger, 2015). The essence of pricing is to quantify the value of item being exchanged. We may commonly refer this exchange as barter or trade. As we perceive the value of a product or service, we usually rely on our sensory inputs (how we see, feel, and touch) to examine the tangible and intangible features of that specific product or item. Shank & Lyberger (2015) use the following simple formula to explain the relationship of the perceived benefits to the price paid.

Value = (Perceived Benefits) ÷ (Price of Sports Product or Costs)

When a consumer affirms the perceives the value of a product or service highly, he/she will formulate a sense of satisfaction toward the product or service. Economists usually use another simple formula to reflect how benefits and costs impact one’s satisfaction.

FYI Examples of Expensive Price Tags and Average Ticket Prices of Pro-sports

FYI. British Premiere Soccer League TV Global Rights (Source: Sport Marketing Analytics)

In general, price decisions are affected by two primary factors. Like the aforementioned decision-making model, the authors would like to use another simple acronym, the PIE model, to address the internal and external determinants of pricing. The Internal factors (I) are normally controlled by the organizations and include determinants such as the other marketing mix elements (i.e., product, promotion, public relations and distribution), costs, and organizational objectives. The External factors (E) focus on influences that go beyond the organization’s control. Those determinants may include consumers’ demand, competition, legal concerns, economy, and technology. Within the Pricing decision process (P), there are also situational factors that address time, the usage situation, and other social factors (i.e., how an organization’s social objectives or ethical responsibility influence its pricing strategies).

Diagram 1. PIE Pricing Model (Adopted from Shank & Lyberger, 2015)

Q1. The _____ that may affect a consumer’s acceptable range of prices include the presence or absence of time, the usage situation, and social factors.

• (a) situational factors
• (b) elastic demand
• (c) variable cost
• (d) price perception
• (e) value factors

Q2. Packaging costs for a new pair of rollerblades represent a _____ cost item.

(a) total

(b) fixed

• (c) variable

(d) intermediary

(e) none of the above

Q3. _______ is the sum of the producer’s expenses that are stable and do not change with the quantity of the product consumed. (Fill in the blank:)

Relationship of Price to Other Marketing Mix Elements

Price has been called the “pressure point” that can effectively affect a consumer’s purchasing decision (Shank & Lyberger, 2015). It also shares close relationships with each one of the marketing mix elements. A product’s price varies at the different stages of its product life cycle. Sophisticated designs, functions, and features of sports products can certainly enhance a greater perceived value from the consumers, thus the price of those products will increase. The price of many items within a product line is also varied due to product differentiation.

The price of sports products and services is dictated by the choice of distribution channels. The complexity of the delivery process, location of the retailer stores, construction costs of arenas, and new features of facilities can all easily cause the price of tickets or products to spike drastically. Publicity and public relations are common strategies used to persuade and change the consumers’ beliefs and values about certain products and services. The key function of price promotion is geared towards the information about price. Price reductions and discounts are the most common messages designed to encourage immediate purchases from consumers. In addition, sales personnel are often involved in the price negotiations to complete sales deals.

The fluctuation of a product price can be determined by whether the product suits the consumers’ demands and tastes. The availability of substitute sports products (or services) can also affect how the manufacturers or service providers determine the price. Ultimately, the consumers’ income is the most sensitive indicator that reflects the ideal pricing range.

Price Elasticity of Demand

Consumers’ demand for certain products (or services) and their affordability and willingness to pay both are critical to the pricing equation. The concept of price elasticity of demand will help the sports marketers understand how consumers respond to price changes. The price elasticity of demand is the degree of change in quantity of demands that results from a given change in price (Leeds & von Allmen, 2014). If the percentage change in consumer’s demand is lesser than the change in price, then the demand is inelastic. Obviously, the sports teams would love to have an inelastic demand for their events, since this helps generate much more profits. For example, the demand for the rivalry games between the Yankees and the Red Sox remain constantly high (relatively unchanged), despite the fact that the clubs raise the prices of the single-game tickets by 10-15%. This means the same number of individuals are still willing to pay a higher cost to attend the games. This pricing concept paves the way for the introduction of dynamic pricing strategy.

Q4. In general, the availability of substitute sports products have no effect on how the manufacture providers determine the price. True/False

Q5. The demand for the playoff tickets is still high, even though the price has increased twice higher than the regular season tickets. This is an example of elastic demand. True/False

Pricing Strategies

In the following sections, the authors will describe primary pricing concepts that are popularly adopted in s industries.

Differential Pricing Strategies

Different consumers value products and services differently. Product value includes a variety of elements such as convenience for accessing services or attending games, aesthetics of designs, cleanliness of facilities, availability of the products, and durability of goods. Sports fans can use a useful tool, Fan Cost Index, to find out the average cost for a family of four for attending various professional sports events (http://www.sportsbusinessnews.com/content/mlb-fan-cost-index-2014). This index includes items such as four average tickets, two small draft beers, four small soft drinks, four hot dogs, two game programs, two souvenir caps, and parking for one vehicle. Secondary market discounts can be seen when a lot of open seats are unsold and available prior to the start of the event. The team may lower the price to draw attendees to the event at last minutes.

New Sports Product Pricing

Two popular pricing strategies are utilized during the introduction phase of a new product. When the former NBA star Stephen Marberry launched his own brand of basketball shoes, he adopted the penetration pricing by lowering the price versus what the other major competitors charged, such as Nike, Adidas and Reebok. Price skimming is about charging a high premium price to get rid of unwanted or non-ideal customers. The controversial new brand, Big Baller Brand, created by LaVar Ball, is an extreme example that sets the price of a new pair of basketball shoes at $495 USD.

Psychological Pricing

It is quite common to see the products of certain famous brands (i.e., Under Armour and Titleist) cost more than others. These brands are communicating a distinct image through prestige pricing. Traditional pricing refers to setting a price at what people are accustomed to paying. A well-established organization can use the referent pricing to set the bar. This price will be used as a standard by the consumers to judge all other prices. Odd-even pricing involves prices that are set just below whole numbers. Many so-called dollar value fast foods are set at $0.99 instead of an even $1.00. Despite the actual price difference being very small, consumers perceive the lower price as a greater value. It is expected that the rule of scarcity plays a huge role for certain marque events.  The Super Bowl happens once a year featuring the best football teams on the planet. Undoubtedly, the price for the limited seats are expensive.

Product-Mix Pricing

Another popular pricing strategy used by the sports marketers is to bundle different products or services together for a new listed price. It is often that sports teams bundle season-ticket packages (or partial season-ticket packages) with parking or other specialty products (i.e., licensed merchandise or foods) or services. It is advised that sports teams should not give out free tickets or discounted tickets too often, because this practice will lessen the value of the tickets (or the events). However, teams will offer a lower price for the tickets (the core product), but place a higher mark-up on concession items, such as food and drink, known as the captive products. This type of captive product pricing strategy can also be seen by offering free wireless service (e.g., giving out free Wi-Fi access).

Cost-Based Pricing

Unlike the manufacturing industry, pricing the sporting events and products can be quite difficult, because the variable costs and marginal profits for the intangible services are hard to estimate. To ensure the survival of the sports organizations, the organizations should use the following pricing methods to maintain profitable financial status.

(a) Cost-Plus Pricing: Set the selling price at a level equal to cost plus the ideal margin of profit.

(b) Target Profit Pricing: Set a profit goal at a certain percentage, be sure the selling price is high enough to reach that goal after all the costs are deducted.

(c) Break-Even Pricing: This strategy is to identify the point at which total costs (i.e., fixed costs + variable costs) equals total revenue. The formula for the Break-Even (BE) Point is listed as:

BE Units = Fixed Cost/(Selling Price – Variable Cost)

For example: Fixed Cost (rental cost, taxes, and equipment for the games) = $1,000,000

Ticket price = $40 and Variable Cost (labor costs, concession costs, and others for serving each additional attendee) = $20

1000000/ (40-20) = 50000 (the number of fans needed to break even)

Video Clip: Pricing sport power

https://www.youtube.com/watch?v=RuRjHOoz910

Special Pricing Concerns and Adjustments

In the previous paragraph, the authors discussed that price setting depends on multiple internal and external factors. In practical situations, we often see different price ranges set based on various user groups. User Segmentation allows the sports marketers to investigate the needs and affordability of various groups, such as corporate season-ticket holders, single-ticket purchasers, special community groups, and student fans. Different packages are introduced along with bundling different services to maximize profits and satisfy each groups’ needs and wants.

In addition to internal and external factors which help determine the initial price, price adjustments are a continuous process that are required to respond to competitors. This process is made to stimulate the demands for products or services, when sales do not meet specific expectations. Sometimes, prices are adjusted to help the organizations achieve their objectives. Price increases are dynamic decisions that sports marketers may need to make despite the consumers (fans), retailers, and employees rejecting the ideas. The rising cost of player salaries, inflation, or even extra demands can all cause a price increase. Price discounting is a promotional tool that is used to increase demand or reward desired behaviors. Because the marginal cost for selling a sports ticket is relatively low (i.e., printing of the ticket, clean-up cost, and utility), the sports marketers often like to discount the ticket to encourage demand. The two most common types of price discounts in sports marketing are quantity discounts (reward the attendees for buying large quantities of tickets) and seasonal discounts (stimulate demand in off-peak period).

Finally, the authors would like to introduce the Five Cs model that can be utilized as a reference guide for making a price-setting decision. It is suggested that a sports organization can set the price of its products, events, or services within the ranges of these five proposed prices. In other words, these are five prices that must be closely considered and compared for the organization to determine its final price. They are:

• (a) Ceiling price: the consumer will not pay beyond this price (the high-end price of the group);
• (b) Central tendency: the most frequently charged price or the common price;
• (c) Customers’ perception: the ideal price that consumer may wish to pay;
• (d) Competitors’ price: the price that major competitors may charge; and
• (e) Cost: charge below this price, the organization will lose money (the low end of the group).

Q6. _______ refers to the point at which total costs equal to total revenue.

(a) Cost based pricing

(b) Target profit pricing

(c) Break even analysis

(d) None of the above

Q7. A competitors’ price that is used to judge the value and served as a price comparison can also be viewed as ________.

• (a) skimming price
• (b) referent price
• (c) penetration price
• (d) psychological price

Q8. The WNBA wanted to attract as many fans as possible in the early years of the league by using    _____.

• (a) psychological pricing
• (b) pricing segmentation
• (c) penetration pricing
• (d) differential pricing
• (e) cost-based pricing

Q9. Family packages, season ticket packages, and golf balls sold with tees are all examples of _____.

• (a) price bundling
• (b) price skimming
• (c) captive pricing
• (d) differential pricing
• (e) referent pricing

Table 2. Ticket Information of Morehead State University Fall Sports

Photo 1. Season Ticket Prices of Army Football Games

Dynamic Pricing Practice in All Levels of Sports

Dynamic pricing is a strategy to generate extra ticket revenues by changing prices based on different levels of demand, types of customer, and weather (Duran, Swann, and Yakici, 2012).  This strategy is commonly used by street vendors, antique dealers, hotel industry, and airline industry to boost extra profits from sales. The practice of dynamic pricing is evidently pervasive in all major professional sports since its initial introduction by the San Francisco Giants in 2011 (Fisher, 2012; King, 2012; Scibetti, 2011). Sports teams rely on the quality of the opponent, days of the week, month of the year and special events to determine fluctuating prices (Rascher, McEvoy, Nagel, & Brown, 2007). At the collegiate athletics level, many more major conference powerhouses are likely to adopt dynamic pricing as well (Butler, 2012). Shapiro and Drayer (2012) were pioneers who attempted to identify the influential factors for adopting dynamic pricing in Major League Baseball. They identified 14 significant variables, such as ticket prices of previous year, six performance-related variables, weather, and rivalry games, which may positively influence the implementation of dynamic pricing. Although large conference programs might successfully leverage dynamic pricing, the authors suspect dynamic pricing can be an ideal pricing strategy for regional, small-market collegiate athletic programs.

The key reasons that sports organizations implement dynamic pricing strategy are volume and revenues generated by total ticket sales (Ferguson, Stewart, Jones, & Le Dressay, 2009). Small schools with moderate to low demand are likely to struggle if extra costs are added to games. Besides, the small athletic programs will not have the manpower and technology to handle the sophistication of complex variable analysis (Chen, Henderson, Smith, & Mason, 2014). In addition to dynamic pricing practice, professional franchises and major BCS schools have partnered with QC and Digonex to resell unused or unsold tickets.  The benefits of this type of partnership include: (1) enabling fans to post and resell unused tickets online; and (2) enabling universities to deliver guaranteed, valid new tickets to buyers. Sophisticated models are also developed to identify optimal ticket bundle packages, so the teams can resell individual tickets at maximum ticket revenues (Drake et al., 2008; Duran and Seann, 2007). Although a team that applies a dynamic pricing strategy may hurt fans’ perception toward the events’ consistent price position, it is suggested that this problem can be corrected by offering a flexible substitute of resources or products (Ceryan, Shin, and Duenvas, 2013). The best way to avoid the issue of price fluctuation is to convince the consumers (or attendees) to purchase season tickets (Chen, Henderson, Worrell, & Salazar, 2012).

Q10. Which of the following variable(s) is/are frequently used for determining the ticket price for the dynamic pricing practice?

(a) Team’s current performance

(b) Weather

(c) Price of previous season

(d) All of the above

Video Clip: Business of Sports | Dynamic ticket pricing

https://www.youtube.com/watch?v=61dIPpRze_o

Brainstorming Activities

(a) Try to use internet or any online device to look at the monthly cost for each of the following packages. Specifically identify the different sports channels each have offered and highlight the additional charge that is required for special channels on demand, such as NFL Sunday Pass, NBA Channel, FSN regional channel, and different types of ESPN programs.

*Direct TV

*Dish Network

*Spectrum

Try to search the game day ticket price by using the following websites:

The needs: two adult tickets plus parking for one vehicle on July 4, 2018 at the Yankee Stadium

Seating: Section 100s

Compare the availability, price difference, and how fast the search result is identified.

Then explain which company you would buy the tickets from.

http://www.stubhub.com

http://www.ticketmayor.com/

http://www.ticketnest.com/

http://www.theallineed.com/webmasters/06082301.htm

References

Chen, S., Henderson, K., Smith, C. D., & Mason, N. (2014). Is dynamic pricing viable for small market collegiate athletics? Journal of Applied Marketing Theory, 5(2), 26-35.

Chen, S., Henderson, K., Worrell, E., & Salazar, W. (2012). Collegiate sports fans’ perceptions and expectations of personal seat license programs. Southern Business Review, 27(2), 1-13.

Ceryan, O., Sahin, Ozge, and Duenvas, Izak (2013). Dynamic pricing of substitutable products in the presence of capacity flexibility. Manufacturing & Service Operations Management, 15(1), 86-101.

Collignon, H., Sultan, N., & Santander, C. (2011). The sports market: Major trends and challenges in an industry full of passion. http://www.atkearney.com/documents/10192/6f46b880f8d1-4909-9960-cc605bb1ff34

Dees, W., Walsh, P., McEvoy, C., McKelvey, S., Mullin, B.J., Hardy, S., & Sutton, W.A. (2022) . Sport marketing (5th ed.). Champaign, IL: Human Kinetics.

Duran, S., Swann, J. L., & Yakici, E. (2012). Dynamic switching times from season to single tickets in sports and entertainment. Optimization Letters, 6(6), 1185-1206.

Ferguson, D. G., Stewart, Kenneth G., Jones, J. C. H., & Le Dressay, A. (2009). The pricing of sports events: Do teams maximize profit? Journal of Industrial Economics, 39(3), 297-310.

Fisher, E. (2012). Dynamic pricing comes to MLB postseason. Street and Smith’s SportsBusiness             Journal. 15(27), 3.

Himmelberg, M. (1999). The sporting life: long hours, low pay, starting at the bottom. What fun!

Orange County Register.

King, B. (2012). Ticket challenge: getting the price right.

http://www.sportsbusinessdaily.com/Journal/Issues/2012/03/19/In-Depth/Ticket-pricing.aspx

Maslow, A. H. (1970). Motivation and personality (2nd ed.). New York: Harper and Row.

Michaels, M. (2018). The price of a 30-second Super Bowl ad has exploded — but it may be worth it for companies. http://www.businessinsider.com/super-bowl-commercials-cost-more-than-eagles-quarterback-earns-2018-1

NASSM (n.d.). Sport management programs: United States.

https://www.nassm.org/Programs/AcademicPrograms/United_States

Pitts, B., & Stotlar, D. K. (2013). Fundamentals of sport marketing (4th ed.). Morgantown, WV: Fitness Information Technology.

Plunkett, J. W. (2010). Plunkett’s sports industry almanac 2011. Houston, TX: Plunkett Research.

Rascher, D. A., McEvoy, C. D., Nagel, M. S., & Brown, M. T. (2007). Variable ticket pricing in Major League Baseball.” Journal of Sport Management, 21, 407-437.

Scibetti, R. (2011). Recap of MLB dynamic pricing in 2011. Retrieved from http://www.thebusinessofsports.com/2011/10/25/recap-of-mlb-dynamic-pricing-in-2011/

Shank, M. D., & Lyberger, M. R. (2015).  Sports marketing: A strategic perspective (5th ed.).     New York, NY: Routledge.

Shapiro, S., &  Drayer, J. (2012). An examination of dynamic ticket pricing and secondary           market price determinants in Major League Baseball. Retrieved from      http://www.nassm.com/files/conf_abstracts/2012-234.pdf

Weiner, J. (2007). Are the days numbered for the paper ticket? Street & Smith’s SportsBusiness Journal, 10(9), 17-25.