Chapter 3
The Demand for Sports and
Entertainment
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Markets – communication among
buyers and sellers for the purpose of
trading
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Consumer Theory
– Purchasing Rule
» If MUa/Pa > Mub/Pb, buy product “a”
» If MUa/Pa = Mub/Pb, stop
– Changes
» Utilities
» Incomes
» Prices
» Stores
» Products
• Demand
– Definition – various amount of a good people
are willing and able to buy at various prices
• Needs – must have
• Wants - optional
– Law of Demand – Price increases, Qd
decreases
• Diminishing marginal utility – as you consume
additional units of the same item you enjoy them
less
– Demand Curve
– Market Demand – sum of the individual
demand curves
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Determinants of Demand – shift the demand
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Willingness
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Tastes and Preferences
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Fads and Fashions
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Advertising
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Technology – new and replacement products
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Conspicuous Consumption
Number and composition of buyers
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Population
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Age
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Gender
Prices of related goods
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Substitutes – Pa rises Qda falls, Demand for b rises
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Complements - Pa rises Qda falls, Demand for b falls
Expectations
Ability
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Income
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Normal – income rises, demand rises
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Inferior - income rises, demand falls
Wealth
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Expressed as Qd = f(Price, Tastes, Number,
Expectations, Price of others, Income)
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Qd = f(P, A, I, Pop, Pc, Ps)
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P = price
A = Advertising
I = Income
Pop = Population
Pc = Price of Complements
Ps = Price of Substitutes
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Demand vs Quantity Demanded
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Demand is the whole curve
Quantity demanded is one price and point on the
curve
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Elasticity – measure of consumers response
to a change in prices or income
Price Elasticity of Demand
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Formula: % change in Qd/% change in Price
Interpretations
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Ed = 0, Perfectly inelastic
Ed < 1, Relatively inelastic (Necessities)-Medical care,
food, utilities, public transportation
Ed = 1, Unitary
Ed > 1, Relatively elastic (Luxuries)-Restaurant meals,
vacations, soft drinks, sports and entertainment
Ed = , Perfectly elastic
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Total Revenue = P x Q
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Elastic: Price falls, TR rises
Inelastic: Price rises, TR rises
Cross Price Elasticity
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Formula: Exp = % change in Qd of A/ % change in P of B
Interpretations
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Substitutes: Ex > 0
Complements: Ex < 0
Independent: Ex = 0
Income Elasticity
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Formula: Ey = % change Qd/% change Income
Interpretations
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Normal goods: Ey >0
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Luxury: Ey > 1
Necessity: Ey < 1
Inferior goods: Ey <
Sports Demand
– Has grown dramatically in the last 40 years
» Basketball: 905%
» Hockey: 680.7%
» Football: 290.5%
» Baseball: 251.7%
• Strong correlation between economic and athletic
performance
• Demand and Sports Revenue
– Scarcity in Sports
• Athletic prowess
– Beauty
– Impossibility
• Quality of Teams and Competition
– Absolute – difference between leagues
– Relative – difference between teams in a league
» Uncertainty of Outcomes
• Commonality – common bond among people
• Winning
– Demand Determinants
• Price
• Tastes and Preferences
– Fan interest
– Quality of the Team
• Disposable income – Income that can either be
spent or saved
– Discretionary income
» Normal goods
» Inferior goods
• Price of Other Goods
– Complements
» Parking
» Souvenirs
» Concessions
– Substitutes
» Other sports
» Participation
» Spectator
» Movies
» Opera
» Concerts
• Fan Expectations
– Future prices
– Winning
• Population
• Demand Issues
– Demand for Women’s sports is less than Men’s but
growing faster
– Large-market teams win more than small market teams
» Larger population base
– Teams in high drawing potential have stronger teams
– Teams in low drawing areas sell players to stronger
drawing teams
• Consumer Surplus = Reservation Price – Actual
Price
High elasticity fans receive lower prices
» Elderly
» Children
» Daytime games
» Weekday games
• Multiple Ticket Packages
• Personal Seat Licenses
• Revenue
– Within league variations
– Between League variations
– Music Customers
• Albums: ages 12 to 49
• Singles: ages: 12 to 19
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Demand
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Determinants
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Tastes and preferences
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Income: Follows the business cycles of the Economy
Technology: Format
Consumer demographics: Age is dominant factor
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What’s in style?
» British rock 60’s
» Heavy metal: early 70’s
» Disco
» Punk
» Alternative
» Rap
Advertising
» MTV
» Videos
» Special Appearances
» Superbowl
» TV shows
» Radio
» Film
Race
National origin
Region of the country: There are no country music radio stations in L.A.
Record charts such as Billboard measure the demand
Elastic demand: luxury
Movies
• Movie Customers
– 16 – 50 73%
– Demand
• Issues for movie going or home video rentals
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Story type
Stars
Director
Promotional Budgets
Demographics
Ratings
Awards
Reviews
• Price inelastic
– Price elastic with complimentary goods
» Babysitter
» Restaurant meals
» Parking
• Demand falls from first week
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Fashion
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Target market (general)
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Females
Young
Target market (high end)
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Female
High income
Demand issues
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Trends
Price elastic
Social events
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Marketing: creation and maintenance of
exchange relationships
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Marketing mix
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Product
Distribution
Price
Promotion
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Core Standards
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Distribution
Marketing information management: customer information
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Demographics
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Age
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Marital status
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Gender
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Income
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Education
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Ethnic background
Pricing
Product/Service management
Promotion
Selling
Financing
Sports Marketing: Using sports to sell products
Entertainment marketing: influencing people to spend time and money on
entertainment
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Viewing rather than participating
Ratings = number of viewers
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Sports and Entertainment Economics
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Government
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Taxation
Illegal pricing
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Price fixing
Bait and Switch
Price Discrimination
Pricing strategies
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Markup: MR = MC
Price lines
Psychological pricing: $.99 rather than $1.00
Prestige pricing
Volume pricing: buy bulk from suppliers
Promotional pricing
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Loss-leader
Quantity discounts
Trade-in allowances
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Price determination
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What is the percentage of profit?
What are the costs?
What is the demand?
What is the competition?
Determine the pricing strategy
Profits
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Breakeven: what is needed to cover costs
Utility
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Form: physical characteristics
Time: time it is accessible
Place: location
Possession: price
Risk
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Human: theft, dishonesty and incompetence
Economic: changes in the economy
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Ethics: deciding what is right and wrong
Financial Analysis
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Rate of return
Balance sheet: assets and liabilities
Income statement: revenue and expanses
Industry: group of firms selling a product
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Industry standards: guidelines and goals of an industry
Economic market: all the consumers who may purchase the product
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Target market: specific customers
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Market segmentation
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Market segment: consumers in a large group that char a characteristic
Geographic
Demographic
Psychographic: values, interests and lifestyle
Behavior based: attitudes
Market share: percentage of the market
Customer service
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Marketing Game Plan
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Strategies
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Marketing plan
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Analysis
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Mission statement
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Marketing information
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Tactics
Strategy
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Product/service
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Distribution system
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Pricing
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Promotion strategies
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Financing
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Risk management
Implementation
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Timeline
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Assignments
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Internal communication system
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Selling
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Review and evaluation
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Product
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Product mix
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Product: brand name
Product extensions: warranties
Product enhancements: extras
Product line: group of similar products
Packaging
Brand
Product life cycle
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Introduction
Growth
Maturity
Decline
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Drop the product
Sell or license the product to another
Discount
Regionalize
Modernize/alter
Recommit
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Distribution Channels
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Types
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Live
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Via media
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Venue: place
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Stadium
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Arena
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Theater
Radio
TV
Internet
Delivery
Market conditions
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Business cycles
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Peak
Contraction: unemployment
Trough
Expansion: inflation
Entertainment trends
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Retro TV
Game shows
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Sports and Entertainment Promotion
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Elements
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Advertising
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Goal
Budget
Theme
Media
Message
Schedule
Measure effectiveness
Publicity
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Goodwill
Damage control
Grass roots: common man
Image
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Sales promotion
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Consumer sales
» Price reductions
» Price pack deals
» Coupons
» Special gifts
» Contests or games
» Rebates
Trade sales
» Allowances
» Contests
» Point of purchase displays
» Employee sales
Personal selling
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Promotional Planning
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Promotional Plan
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Identify target customers
Set promotional goals
Budget
Promotional mix
Measure the results
Sponsorships and endorsements
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Sponsorship: underwriters
Endorsement: expression of approval
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Celebrity
Events
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Selling Sports and Entertainment
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Sales process
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Preapproach
Approach
Demonstration
Answering questions
Closing the sale
Follow up
Skills
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Know the product
Know the customer
Know the competition
Entertainment demand
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Ticket brokers: legal
Ticket scalpers: illegal
Ticket frenzy
Group and Corporate Sales
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Group packages
Special privileges
Special seating
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Luxury boxes
Club seats
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Fashion Marketing Concepts
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Fashion Cycle
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Introductory Phase
Peak Phase
Decline Phase
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Product Mix: all the goods an organization sells, in fashion it is styles, prices and
classifications
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Retailers for fashion
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Styles
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Classic: traditional with long product lifecycle
Trendy: current style
Young Designer: garments created by designers just starting out
Designer: high quality, high fashion sold under the designer name
Couture: Original one of a kind high quality garment
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Haute couture: high fashion individually designed handmade original
Classifications
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Department stores: Dillard’s and Macy’s
Discount stores: Target and K-mart
Off-price stores: T.J. Maxx
Chain stores: The Limited and The Gap
Boutiques: Tootsie’s
Sportswear: jeans, sports wear
Activewear: worn while participating in sport
Careerwear: workplace
Eveningwear: special occasion or formal wear
Social apparel:
Lingerie
Accessories
Trend: the direction fashions take
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Basics of Fashion
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Terms
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Knockoffs: copies that appear in about two weeks
Softlines: items made of fabrics or leather
Forecasters: predict trends
Merchandisers: plans styles, pricing and amount to be produced
Channels of distribution: path a product takes from production to
sale
Economies of scale: large volume production lowers prices
Private labels: Neiman-Marcus only
Brand names: sold by licensing to stores
Brand building: establishing an identity
Just in time inventory
Vendor managed inventory
Visual merchandising: displays, dummys etc.
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Pricing
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Wholesale: to the retailer
Retail: final customer price
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markdown: price reduction to speed up sales
Retail price = Wholesale price + Markup
» Markup = operating expenses + profit
» Markup % = (Retail – Wholesale)/Retail
Categories of price
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Discount
Budget
Value-priced
Moderate
Better
Bridge
Designer
Couture
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Fashion Economics
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Overruns: manufacturer has produced too many
Venture Capitalists: invest in risky startups
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IPO: Initial Public Offering
Fashion Centers
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US
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Places
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Brands
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New York
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Runway shows
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Invitation only
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Collection Opening
Los Angeles
Chicago
Atlanta
Dallas
Tommy Hilfiger
Calvin Klein
Donna Karan
Peter Som
Daphne Gutierrez
Sean Combs
Europe: Versace
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London
Milan
Paris
Asia
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China
Japan
Madagascar
Vietnam
Korea
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Promoting Fashion
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Media
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Print
Broadcast
Direct Mail
Cyber
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Organizing the fashion show
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Determine the purpose
Determine the theme
Develop a written plan with timeline
Schedule location, date and time
Develop a guest list
Find
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Develop and send invitations
Develop and promotional plan
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models
photographers
hair
makeup
music
lighting
sound system
props
Press kit
Develop a script and program
Schedule and rehearse
Make the audience welcome and comfortable
Gather data and evaluate
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Other Events
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Trunk shows
Fundraisers
Fashion awards
Infomercials
The sale
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Preapproach
Approach
Determine the need
Demonstrate
Answer questions
Close the sale
Suggest
Follow up