PricingPricing

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