Chapter 17
Pricing Decisions
in Sports Marketing
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
17-1
Price
• What the Buyer Gives Up in the Exchange
Process
• The Fourth and Final Variable of the
Traditional Marketing Mix
17-2
Elasticity
• Elastic Demand – Market Exhibits
Sensitivity to Changes in Price
• Characteristic of Most Products
• When Beef Prices Rise, Consumers
Reduce Expenditures on Beef and
Purchase More Substitute Products (Such
as Chicken or Pork)
17-3
Inelasticity
• Inelastic Demand – Market Is Less Sensitive to
Pricing; Purchase Product at Higher Prices
– Few (or no) Substitutes – Gasoline
– Buyer Not Willing to Forgo Purchase - Textbook
– Buyer Not Able to Forgo Purchase - Medicine
17-4
Factors That Influence Price
• Drop in Box 17.1 Here
17-5
Situational Influences
• Unusual, Often Short Term Influences, that
Impact Consumer Purchase Decisions
– Team Is Winning
– Move to a New Stadium
– Presence of a Visiting Star Player
17-6
Costs
• In Spectator Sports, this Generally Relates to
the Team’s Payroll or Appearance Fees Paid to
Individual Athletes
• MLB’s New York Yankees Payroll in 2008 Was
$209,081,579
• Appearance Fee of Some $2 Million for Tiger
Woods to Play in the New Zealand Open
Resulted in Major Increase in Ticket Prices
17-7
Competition –
Cost of Alternatives for Consumer
• Baseball versus Football (MLB v. NFL)
• Baseball versus a Motion Picture
• Gold’s Gym versus Curves
• Nike versus adidas Athletic Shoes
17-8
Supply and Demand
• Surplus Drives Prices Down; Shortage Is a
Catalyst for Higher Prices
• Teams that Sell Out – Lakers, Patriots,
Maple Leafs and Cubs – Have Higher
Ticket Prices
• Teams Struggling to Fill the Stands Often
Resort to Promotional Pricing
17-9
Marketing Objectives
• Market Share Objectives
• Prestige and Image
• Seeking Higher Market Share, Top Flight
Golf Balls Are Sold at Prices Much Lower
than Those of the Premium Brands Such
as Titleist, Callaway, and Nike
17-10
Legal Considerations
• Taxes Added to Cost of Products
• Team “Scalping”
• MLB’s Chicago Cubs Taken to Court Over
Team’s Resale of Desirable Tickets at
Highly Inflated Prices
17-11
Consumer Perceptions –
“Perception Is Reality”
• What Consumers Think about the Product
Influences Their Perception of Value
– Influences How Much They Will Pay
– Thus Influencing Price that Can Be Charged
– Titleist Golf Balls Command Premium
• Does the typical golfer know why Titleist is superior?
17-12
Marketing Mix Consistency
• Price Needs to Work in Harmony with the
Other Elements of the Marketing Mix
• Price Also Needs to Be Consistent with the
Target Market
• Many Marketers of Sports Products Offer
Alternatives Featuring Different Prices
17-13
General Implementation Strategies
• Cost-Plus
• Markup
• Promotional
• Bidding
• Yield Management
• Target Return
17-14
Pricing Applications:
Spectator Sports
• Most Commonly Criticized Component of
the Strategies Employed by the Marketers
of Spectator Sports
• Fan Cost Index – Average Ticket Price
– NFL $72.20
for Most Recent Season
– NBA $48.83
– NHL $49.66
– MLB $25.43
17-15
Fan Cost Index
• Cost for a family of four to attend a game
in each city for each of the four major
North American Sports Leagues. Includes:
– 4 average tickets (2 adults & 2 kids)
– 4 small soft drinks
– 2 small beers
– 4 hot dogs
– 2 programs
– Parking
– 2 adult-sized souvenir caps
17-16
Fan Cost Index (2008 Season)
• Average for the NFL
– $396.36
• Average for NFL’s New England Patriots
– $596.25
• www.teammarketing.com/fancost/
17-17
Pricing Applications:
Spectator Sports
• Season Ticket
• Partial Season Ticket
• Price Tiering
• Variable Pricing
17-18
Pricing Applications:
Spectator Sports
• Value Pricing
• Promotional Pricing
– Discount Pricing
– Bundling
– Cross-Promotion Discounting
17-19
Controversial Pricing Applications:
Spectator Sports
• Qualifying Payment
– PSL
– Donation to University Program
• Bidding
• Secondary Ticket Market
17-20
Pricing Applications –
MLB’s Chicago Cubs
http://chicago.cubs.mlb.com/chc/ticketing/seating.jsp
NOTE:
• Price Tiers
• Variable Pricing (Platinum, Gold, Silver, Bronze)
• Bidding (CBOE Seats in Red)
• Value Pricing (Bronze Games)
• Other identifiable strategies include season tickets,
partial season tickets, bundling, bidding, crosspromotion and the secondary ticket market
17-21
Pricing Applications:
Participation Sports
• Supply and Demand Based Pricing
• Level of Service
• Variable Pricing
• Individual Considerations
17-22
Pricing Applications: SASS
• Traditional Retailing Principles
• Supply and Demand
• Value Added through Licensing
• Value Added through Celebrity Endorsement
17-23
Pricing Applications: SASS
• Markup
– Based on COGS
• Evident that Prices for SASS Are
Influenced by the Set of Factors
Discussed for Spectator Sports
17-24
Closing Capsule
• Many Factors Influence Price
• Drop in Box 17.1 Here
17-25
Closing Capsule
• Pricing Policies Are Commonly Criticized
– Tickets for New England Patriots NFL Game
– Greens Fees at Pebble Beach
– Nike Shoes Endorsed by LeBron James
– A Beer at a Sports Stadium
• Any Bargains in that List?
• Emergence of Secondary Ticket Market
17-26
Closing Capsule
• Marketers in Each Category of Sports
Products Recognize the Presence of
Different Market Segments
• Prices Vary Significantly Depending on
Which Segment Is Being Targeted
17-27