Transcript Pricing
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