Pricing HSS 5263 Sport Marketing Brian Turner What

Pricing HSS 5263 Sport Marketing Brian Turner

What is Price? • “… statement of value for a sports product” • Value is the central tenet of pricing • Price is a critical element of the sport marketing mix

Determinants of Pricing Internal Factors • Other marketing mix variables • Costs – Fixed Costs (FC) – Variable Costs (VC) – TC (total cost) = FC + VC

Determinants of Pricing Internal Factors • Costs – Cost vs. Price • Fan Cost Index (FCI) – – – – 4 average price tickets 4 small soft drinks 2 small draft beers 4 hot dogs Parking for 1 car 2 game programs 2 adult-size hats

Determinants of Pricing Internal Factors • Organizational Objectives

Determinants of Pricing External Factors • Consumer demand – Elasticity of demand = % change in quantity demand % change in price • Elastic demand • Inelastic demand • Unitary demand

Determinants of Pricing External Factors – Estimating Demand • Economy • Competition • Others – Legal issues – Technology

Differential Pricing Strategy • One of the most common practices • “… selling the same product or service to different buyers at different prices” • Second-market discounting

New Sports Product Pricing • Penetration pricing – “… pricing in the lower range of expected prices, in the belief that an elastic market exists and the lower price will increase the quantity purchased. ” • Skim pricing – “… pricing high in the expected range of prices, in the belief that demand is price inelastic”

New Sports Product Pricing • • • Production capacity Rate of technological change Barriers to entry Economic conditions Desired image

Psychological Pricing Strategies • • Prestige Pricing Reference Pricing Odd-Even Pricing Customary (or Traditional) Pricing

Cost-Based Pricing Strategies • Break Even Analysis – Fixed Costs (FC); Variable Costs (VC) – TC (total cost) = FC + VC TC = 100, 000 + (11. 50 X 4, 000) TC = 100, 000 + 46, 000 TC = 146, 000 Break Even Point 146, 000 4, 000 $36. 50 per soccer ball

Cost-Based Pricing Strategies – For 10, 000 soccer balls TC = 100, 000 + (11. 50 X 10, 000) TC = 215, 000 Break Even Point 215, 000 10, 000 $21. 50 per soccer ball

Cost-Based Pricing Strategies • Cost-Plus Pricing – Costs + Desired Profit = Price • Must have accurate FC and VC for costs $800, 000 (costs + profit) 800 members $1, 000 average annual membership • Target Profit Pricing

Price Adjustments • Price Reductions – Risky • May associate multiple price reductions with inferior product quality • May associate price reductions with price gouging • May “wake a sleeping dog” • Makes it more difficult for the consumer to establish a frame of reference for the true price of the product • Price increases – Cost inflation – Excess demand for the product

Price Adjustments • Price discounts – Quantity discounts – Seasonal discounts