SEM1 4.07 A - Pricing
• PI - Describe pricing issues associated with SEM products
• PI - Identify factors affecting pricing of SEM products
https://www.youtube.com/watch?v=G28icMeIVXY
Pricing issues: Cost vs. Value
• COST (of the event)
– Cost of production for good/service
– Some events have higher production costs
• Cost is ‘objective’
– Cost is constant
– Cost is set, it is factual
– It “costs” a certain amount to make a product or
produce an event.
Pricing issues: Cost vs. Value
• VALUE (to the consumer)
• Perceived benefits:
– Tangible : Physical benefits (Buying a set of weights to get into shape)
– Intangible : (Buying a set of weights to look good at the beach)
– What is the overall value to the consumer?
– Overall value – consumers will look at costs of attending event:
parking, concessions, merchandise. Is it worth the money spent?
• Value is ‘Subjective’
– Unique experience for each person
– Based on individual feelings
http://www.youtube.com/watch?v=xziNM_Cbv1c
Why do ticket prices vary?
• Seat location
• Performance of the team
• Popularity of the
team/entertainer
• Location of the venue
• Time of the event
• Opponent
• Scarcity of tickets
• Paying for a new stadium
– PSL’s
http://www.youtube.com/watch?v=61dIPpRze_o
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Ticket discounts
Market segmentation
Top Athletes
Value to the consumer
Expenses
Production Costs
Unsold Tickets
“Deadwood”
Pricing Objectives
• Objectives:
• What are the goals of the good/service?
• Do you want it to seem “high class” or affordable?
• What type of attendees do you want?
• How much profit do you want to make?
Company-Focused
Competitor-Focused
•Pricing products to •Beating the
enhance the image competition
•Covering costs
•Creating profit
•What the
consumer will pay
Customer-Focused
•Offering the most
discounts
•Offer lowest prices •Offer “fair” price
to gain share
in the consumer’s
mind
Factors affecting the pricing of sports products
1.
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4.
Lead time
Market demand
Market segmentation (target marketing)
Price Strategies
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Smoothing
Bundling
“Scaling the House”
Yield management
5. Responding to Competition
– Penetration
– Skimming
1. Lead Time
• Lead Time: The time between customer order
and delivery of final product.
• Sports and Events will often charge less if
tickets are purchased ahead of time.
– Ex: “Purchase concert tickets now for $25 or at
the door for $35.”
2. MARKET DEMAND
DEMAND: How much of a product will customers buy at a certain price?
PRICE ELASTICITY:
– The degree to which demand for a product is affected by its price
• Changes in price cause a change in demand for the product
– INELASTIC DEMAND
• Price changes have little to no impact on quantity of sales
• “Need” items
• Ex: Milk, Eggs, Super Bowl Tickets, Gasoline?
– ELASTIC DEMAND
• Small price changes have big impact on quantity of sales
• “Want” items
• Ex: Ipod, Sports Equipment, new clothes
2. MARKET DEMAND
Effect of Elasticity:
• Elastic Demand
• Inelastic Demand
Demand
Price
Price
Demand
3. Market Segmentation
• Target Marketing – fan loyalty
• Discounts to certain age groups – kids free!
• Coupons sent to specific geographic locations
4. Pricing Strategy (for tickets)
• Smoothing - dividing product into different
segments:
• Time: Pay more money for “Prime time”
• Place: Pay more money for court-side seats and less for
nosebleeds (higher seats)
4. Pricing Strategy (for tickets)
• Bundling
– Selling tickets in a package (“bundle”) with
other tickets or products.
• Season tickets, group discounts, free or
discounted merchandise with purchase.
4. Pricing Strategy (for tickets)
• “Scaling the house”
– Pricing tickets differently based on
• Location of seat
• Location of entire section
• Yield-management pricing
– Maximize revenue at venues with limited capacity
• Charge more at smaller venues!
• Charge more to make more revenue per ticket.
5. Responding to the Competition
• Responding to Competitors –
• Set prices on what the competition is doing
• Non-price: Charge higher prices than competitors
for unique product and services
– Ex: The Panthers can charge what they wish – unique
and no competition
• Price: Encourage sales with lower prices than
competitors
5. Responding to the Competition
• Penetration pricing
• Setting prices lower than the competition
– Used to introduce a new product
– Encourage maximum participation
» (More people will purchase if price is lower)
5. Responding to the Competition
• Skimming
– Setting prices higher than the competition
• “What will the market bear?”
– (How much will people pay?)
• When a product is new and unique, you
can skim and charge higher price
• Promotes a “high-class” image of product
Videos
PSLs
• http://www.youtube.com/watch?v=xziNM_Cbv1c
Dynamic Ticket Pricing
• http://www.youtube.com/watch?v=61dIPpRze_o
StubHub
• http://www.youtube.com/watch?v=rEQSseLnT1Q
Fan StubHub Mistake
•
http://www.thedenverchannel.com/news/local-news/denver-broncos-fan-mistake-on-stubhubcom-costs-him-nearly-600-to-sell-histickets-against-chargers