CHAPTER	12

Pricing concepts and strategies

If you were an executive of a sports franchise, what price would you charge your fans? What factors would you consider when making your pricing decision in a continually changing marketing environment? How would you estimate the demand for tickets? Will the financial benefit of increasing prices offset the negative fan relations?

In this chapter, we explore the subjective nature of pricing sports products. More specifically, we consider how factors such as consumer demand, organizational objectives, competition, and technology impact pricing. Also, we examine how pricing interacts with the other elements of the marketing mix and how effective pricing adjustments are made. Let us begin by developing a basic understanding of pricing.

What is price?

Price is a statement of value for a sports product. For example, the money we pay for being entertained by the Boston Celtics is price. The money that we pay for shorts featuring the Notre Dame logo is price. The money we pay for a personal seat license, which gives us the right to purchase a season ticket, is price. The money we pay to experience the Richard Petty Driving School is price. In all these examples, the price paid is a function of the value placed on the sports product by consumers.

Photo 12.1 To some, golf lessons may be priceless

Source: Shutterstock.com

The essence of pricing is the exchange process discussed in Chapter 1. Price is simply a way to quantify the value of the objects being exchanged. Typically, money is exchanged for the sports product. We pay $26 in exchange for admission to the sporting event. However, the object of value that is being exchanged does not always have to be money. For instance, Play It Again Sports, a new and used sporting goods retailer, allows consumers to trade their previously owned sports equipment for the store’s used or new equipment. This form of pricing is more commonly referred to as barter or trade. It is common for kids who exchange baseball cards to use this form of trade. Many golf courses hire retirees and pay them very low wages in exchange for free rounds of golf.

Regardless of how pricing is defined, value is the central tenet of pricing. The value placed on a ticket to a sporting event is based on the relationship of the perceived benefits to the price paid. Stated simply,

The perceived benefits of the sports product, or what the product does for the user, are based on its tangible and intangible features. The tangible benefits are important in determining price because these are the features of the product that a consumer can actually see, touch, or feel. For example, the comfort of the seats, the quality of the concessions, and the appearance of the stadium are all tangible aspects of a sporting event. The intangible benefits of going to a sporting event may include spending time with friends and family, feelings of association with the team when they win (e.g., BIRGing), or “being seen” at the game.¹

The perceived benefit of attending a St. Louis Cardinals game is a subjective experience based on each individual’s perception of the event, the sport, and the team. One consumer may pay a huge amount to see the game because of the perceived benefits of the product (mostly intangible), whereas another consumer may attend the game only if given a ticket. In either case, the perceived benefits either meet or exceed the price, resulting in “perceived value.”

For the high-involvement sports fan the Cardinals ticket represents a chance to be able to tell his grandchildren that he saw the 2001 Rookie of the Year and 2005, 2008, and 2009 MVP, Albert Pujols. To the no- or low-involvement individual, the same game may appear to be a complete waste of time. Again, it is important to recognize that the value placed on attending the sporting event is unique to each individual, even though they are consuming the same product (in this case, the Cardinals game). As researcher Valerie Zeithaml points out, “What constitutes value – even in a single product category – appears to be highly personal and idiosyncratic.”² Using a different example, a Ted Williams rookie baseball card in mint condition may be priced at $1500. A collector or baseball enthusiast may see this as a value because the perceived benefits outweigh the price. However, the noncollector (or the mom or dad who threw our cards away) may perceive the card as having barely more value than the cost of the paper on which it is printed.

In yet another example, professional sports franchises are assigned monetary values based on tangibles such as gate receipts, media revenues, venue revenues (e.g., concessions, stadium advertising, and naming), players’ costs, and operating expenses. Further consideration in the value of a professional sports franchise is brand equity, a highly intangible characteristic. Table 12.1 provides a list of the franchises having the highest values in each sport and the respective percentage change from the previous year.

The combination of revenue growth and investments in new, revenue-rich ballparks (for example the New York Yankees and the Dallas Cowboys moved into their new homes in 2010), fueled a 2 percent increase in MLB average team values from 2009, to an average of $491 million. The average NFL team is worth $1.02 billion. The average hockey team increased their worth to approximately $228 million, a 2 percent increase from 2009, while NBA teams are worth $367 million.³

Table 12.1 Top professional sports franchise values in 2014

Major League Baseball	Current in millions	1-Year Change
Yankees	$2500	+9%
LA Dodgers	$2000	+24%
Red Sox	$1500	+ 14%
National Football League	Current in millions	1-Year Change
Cowboys	$2300	+ 10%
Patriots	$1800	+ 10%
Redskins	$1700	+6%
National Basketball Association	Current in millions	1-Year Change
Knicks	$1400	+27%
Lakers	$1350	+35%
Bulls	$1000	+25%
National Hockey League	Current in millions	2-Year Change
Maple Leafs	$1150	+ 15%
Rangers	$850	+ 13%
Canadians	$775	+35%

Two important points emerge from the previous examples of value. First, value varies greatly from consumer to consumer because the perceived benefits of any sports product will depend on personal experience. Second, pricing is based on perceived value and perceived benefits. As such, consumers’ subjective perceptions of the sports product’s benefits and image are fundamental to setting the right price. In this case, image really is everything.

All too often, price is equated incorrectly with the objective costs of producing the sports product. Because many sports products are intangible services, setting prices based on the costs of producing the product alone becomes problematic. For instance, how do you quantify the cost of spending time with your friends at a sporting event or having the television rights to broadcast NFL games? How do sports organizations provide a quality experience for fans so they feel they are getting their money’s worth? Many event promoters believe the solution is to add more value via interactive experiences for the fan. For example:

The Tampa Bay Rays’ Tropicana Field is filled with fan interactive zones for fans of all ages to enjoy during the baseball season. Left Field Street consists of a 2k Sports Lounge to play Major League Baseball 2K10, Baseball Trivia Challenge game show, Custom Jersey Shop, Louisville Slugger Wood Shop, Mountain Dew Extreme Zone with batting and Topps Make Your Own Baseball Card. Right Field Street is geared toward the younger fans with the Rays Baseball Carnival, Raymond’s Art Studio and Raymond’s Room. Center Field houses the Rays Touch Tank, where fans can touch live cow nose rays for free during home games. In a similar vein, the NCAA created Hoop City for the men’s and the women’s Final Four. The interactive experience gives basketball fans a chance to participate in a number of hoop skills contests, get autographs, and share the excitement of the national championship.⁴

The stadium experience has also been jazzed up to enhance value. Many professional and collegiate teams are now choosing fans right from the audience to participate in promotions on court or on field during breaks in play. This allows fans to set foot on the playing surface, and provide audience entertainment. Small, in-seat video screens are also becoming popular at stadiums and arenas that want to offer the ultimate balance between watching the action live and on TV. Each seat is equipped with a video monitor that can offer game replays, other cable TV networks, stock market updates, and online service. Furthermore, the use of social media provides teams the opportunities to elevate and enhance the level of interaction with their fans. Utilization of portable smartphones enables teams to provide fans with an interactive experience, thereby enhancing value.

The ultimate question is whether these “extras” create value and add benefits for the fans. Sport Marketing Research Institute (SMRI) research has found that nine out of 10 fans attend sporting events out of a love for the game or team. So are these extras creating real fans or trying to buy their way into fans’ hearts? Do stadiums and arenas pay more for the interactive fan elements and end up receiving much less in the end – a fan that attends for the extras, not for the love of sports, the competitive element, the rivalry, the action; in other words – the game?

The determinants of pricing

Now that we have discussed the core concept of price, let us look at some of the factors that affect the pricing decisions of sporting marketers. Pricing decisions can be influenced by internal and external factors, in much the same way that the contingency framework for sports marketing contains both internal and external considerations. Internal factors, which are controlled by the organization, include the other marketing mix elements, costs, and organizational objectives. External (or environmental) factors that influence pricing are beyond the control of the organization. These include consumer demand, competition, legal issues, the economy, and technology. Figure 12.1 illustrates the influence of the internal and external forces on pricing decisions. Let us look at each of these forces in greater detail.

Figure 12.1 Internal and external influences on pricing

Source: Gary Armstrong and Philip Kotler, Marketing: An Introduction, 7th ed. 2005. Credit: “Kotler, Philip R; Armstrong, Gary, Marketing: An Introduction, 4th Edition, © 1997, pp. 471, 312.

Internal factors

Other marketing mix variables

Price is the element of the marketing mix that has been called a “pressure point” for consumers. That is, price can make or break a consumer’s decision to purchase a sports product. Although price is critical, the other marketing mix variables must be carefully considered when determining the price of a sports product. Pricing must be consistent with product, distribution, and promotional planning. For marketing goals to be reached, all the marketing mix elements must work in concert with one another.

How is price connected to other marketing mix variables? Let us begin by examining the relationship between price and promotional planning. Each of the promotional mix elements discussed in Chapter 9 (advertising, public relations, personal selling, sales promotions, and sponsorships) is related to price. Broadly, the promotion function communicates the price of the sports product to consumers. For example, advertisements often inform consumers about the price of a sports product. In comparative advertisements, the price of a sports product versus its competition may be the central focus of the message.

Many forms of sales promotion are directly related to price. For example, price reductions are price discounts designed to encourage immediate purchase of the sports product. Coupons and rebates are simply another way for consumers to get money back from the original purchase price. Moreover, premiums are sometimes offered for reduced prices (or for free) to build long-term relationships with consumers. For instance, kids can join the Pittsburg Pirates Bucaroos Kids Club for just $15 for the entire season. For this, kids receive the following benefits: ticket vouchers, Web-based newsletters and e-mails about other Pirates/Bucaroos special events, Pirates apparel, invitation to one autograph session, Front-of-the-Line privileges for Kids-Run-the-Bases, and an opportunity to be chosen to participate in select Kids Take the Field events.

The relationship between pricing and promotion also extends to personal selling. Depending on the sports product, sales personnel sometimes negotiate prices. Although not the case for most sports products, some prices are negotiable. The sale of boats, golf clubs, squash lessons, scalped tickets, and luxury boxes each represents an example of a sports product that has the potential for flexible pricing.

The public relations component of the promotional mix is also related to pricing in several ways. First, publicity and public relations (PR) personnel often stress the value of their ticket prices to potential consumers. For example, the Phoenix Coyotes public relations department may provide fans information about how the Coyotes have the lowest cost in the NHL for a family of four to attend a game. The Kansas City Royals may emphasize that they have the lowest average ticket prices in baseball, compared with other major league sports and teams.

Second, public relations are important in the launch of a new sports product. For example, the Dayton Dragons initiated a PR campaign to engage the public prior to naming the team and the onset of their first season. This PR strategy has helped the Dragons achieve record-setting attendance standards that consist of being the first and only team in minor league baseball history to sell out a season before it began. They have sold out every season since their inception in 2000. Media releases that alert the public to the features of the new product, as well as the pricing, are an important aspect of creating awareness. In addition, sources not only inside but also outside of the sports organization play roles in providing information about changes to the product. For instance, when a professional sports team raises its ticket price, you can bet that the story will generate “negative public relations.”

A final link between price and promotion is the cost of the promotion itself. The price of running a promotion may influence potential consumers. The price of a Super Bowl advertisement (upward of a record $4 million for a 30-second spot in 2014), upon becoming public knowledge, may shape consumers’ expectations and perceptions of not only the advertisement, but also the product and the company. Consumers’ expectations for advertisements featured during the Super Bowl are generally higher because of the hype and the advertisement’s high price tag. At the same time, the high levels of free publicity generated by Super Bowl advertisements, both prior to and after the event itself, can offset the exorbitant expense and render the advertisements cost effective.

The distribution element of the marketing mix is also related to pricing. The price of a sports product is certainly dictated (in part) by the choice of distribution channel(s). In a traditional channel (manufacturer of the sporting good to wholesaler to retailer to consumer), the costs of covering the various functions of the channel members are reflected in the ultimate price charged to consumers. In a more nontraditional channel, such as purchasing a product over the Internet, prices are generally reduced. For example, the Callaway FT-iz driver may cost $500 in a golf specialty store but is sold for hundreds of dollars less via the Internet.

The retailer is also a common member of the distribution channel that shapes pricing decisions. More specifically, the type of retailer selling the sporting good or facility where the sporting event takes place will affect price perceptions. For instance, consumers expect to pay more for golf equipment in a country club pro shop than they do at a local golf discount outlet. Likewise, consumers who attend a football game at Dallas’ new AT&T stadium, formerly Cowboy Stadium, which opened in 2010, paid a record average ticket price of $159.95 last season and would expect to pay higher ticket prices for the state-of-the-art facility than do consumers at an aging facility such as Arrowhead Stadium in Kansas City (built in 1972). A concern facing professional sports is that the new sports palaces being built around the country may drive the common fan out of professional sports markets.

A final element of the marketing mix related to price is the sports product itself. The price of attending a sporting event is related to expectations of service quality. The higher the ticket price being purchased, then the higher fan expectations of customer service. Likewise, the higher the price of the sporting goods, then the higher the consumer’s expectations of product quality are. In this way, price is used to signal quality to consumers, especially to those who have little or no previous experience using the sports product.

Pricing is also used to differentiate product lines within the sports organization. An organization will offer product lines with different price ranges to attract different target markets. For example, Converse still offers a canvas basketball shoe at a low price for traditionalists who prefer canvas over the more popular – and more expensive – leather style.

The product life cycle also suggests the strength of the price–product relationship. As illustrated in Chapter 8, pricing strategies vary throughout the stages of the product life cycle. For example, during the introductory phase, products are typically priced either low to gain widespread acceptance or high to appeal to a specific target market and to signal quality. Product prices are slashed during the decline phase of the life cycle to eliminate inventory and related overhead costs.

The design of sports products is the final factor that demonstrates the close relationship between product and price. Product design and pricing are interdependent. Sometimes, product design is altered during the manufacturing process to achieve a target price. For instance, a number of championship teams have dramatically dropped payroll in the year following winning the championship, causing fan dissatisfaction and poor performance on the field or court. In this case, the product design refers to the quality of the team; the manufacturing process is the team’s performance on the field. Unfortunately, the team and its fans may suffer from this move to achieve target price. Other times, prices must be adjusted (usually upward) to achieve the desired product design. New York Yankees late owner George Steinbrenner historically spent large sums of money to build a winning team (with a record high payroll of $206 million in 2010), with success as the team has appeared in the World Series Championships seven times between 1996 and 2010.

Research has been conducted to examine the relationship between team payroll and team performance in major league baseball from 1985 to 2002. The results indicated that the relationship has changed over time. Unlike the early years, there is now a much clearer relationship between payroll and performance. Specifically, in the latter part of the 1990s and continuing into the twenty-first century, the greater the team payroll and the more equally this payroll is distributed among team members, the better the on-field performance of the team. This is a problem of particular concern because of the growing disparity in team payrolls, which, in turn, affects the competitive balance of the sport.⁵

Clearly, price is closely associated with the rest of the marketing mix. Usually, there are two ways of coordinating the element of price with the rest of the marketing mix variables: nonprice and price competition. Let us look at these two distinctly different pricing strategies in greater detail.

Nonprice versus price competition

Nonprice competition is defined as creating a unique sports product through the packaging, product design, promotion, distribution, or any marketing variable other than price. This approach permits a firm to charge higher prices than its competitors because its product has achieved a competitive advantage. In turn, consumers are often willing to pay more for these products because the perceived benefits derived from the product are believed to be greater. Nevertheless, an element of risk is attached to using this nonprice competition approach.

Consider a commodity like a golf ball. Bridgestone may adopt a nonprice competition strategy for its brand of golf balls (Precept) by featuring the packaging, the product design, or something other than price. This can be a risky strategy for Bridgestone. What if consumers fail to recognize the superiority of the Precept golf ball? They may instead purchase a competitor’s lower-priced golf ball that offers the same benefits.

When adopting the distinctly different price competition strategy, sellers primarily stimulate consumer demand by offering consumers lower prices. For example, minor league franchises successfully use price competition to attract dissatisfied fans unable or unwilling to spend large sums of money to attend major league sporting events. In response to a price competition strategy, and to offset its own higher ticket costs, a major league franchise is likely to stress the greater intangible benefits associated with attending its more prestigious events. These benefits include the higher quality of competition, the more exciting atmosphere, and the greater athletic abilities of the stars.

Costs

Costs are those factors associated with producing, promoting, and distributing the sports product. Consider the cost of owning a minor league hockey franchise. To produce the competition or event, players are necessary. These players require salaries and equipment in order to perform. In addition, these players require support personnel such as coaches, trainers, equipment managers, and so on. Also, these players need a place to play, which includes the costs of rent, utilities, cleaning, and maintenance. These represent some of the basic costs for producing a hockey game. However, they do not tell the entire story.

In addition to these core costs, other costs can include advertising, game promotions, and the salaries of front-office personnel (secretaries, general managers, and scouts). Team transportation is another cost. All these costs, or the total cost of owning a minor league hockey franchise, can be expressed as the sum of the variable and fixed costs, as shown:

Fixed costs are the sum of the producer’s expenses that are stable and do not change with the quantity of the product consumed. Almost all costs associated with the minor league hockey team in the preceding example would be considered fixed. For example, rent on the arena, salaries, and transportation are all fixed costs. They do not vary at all with the amount of the product consumed (or in this case the team’s attendance). The bulk of the game promotions are determined prior to the season and, as a result, are also considered fixed costs.

Variable costs are the sum of the producer’s expenses that vary and change as a result of the quantity of the product being consumed. Advertising may represent a variable cost for the minor league hockey franchise. If advertising expenditures increase from one month to the next because the team is doing poorly at the box office, then the dollar amount spent varies. Similarly, advertising could represent a variable cost if additional advertising or promotions are used because attendance is higher than expected.

Although an athletic team experiences very few variable costs in the total cost equation, a manufacturer of pure sporting goods would encounter a significantly greater number of variable costs. Usually, variable costs for manufacturing a sporting good range between 60 and 90 percent of the total costs. For example, the cost of the packaging and materials for producing the good varies by the number of units sold.

Costs are considered an internal factor that influences the pricing decision because they are largely under the control of the sports organization. The minor league hockey team management makes decisions on player salaries, how much money to spend on advertising and promoting the team, and how the team travels. These costs loom large in the sport franchise because they affect the prices charged to the fans.

Obviously, the most visible and controversial costs incurred by professional sports organizations are player salaries. The Spotlight on Sports Marketing Ethics box discusses whether any athletes are worth the huge payday they are receiving.

Whether you agree or disagree with escalating player contracts, there is no dispute that the increasing cost of player salaries has been passed on, in part, to the fans. Table 12.2 shows an example of the Fan Cost Index (FCI) for the MLB. The FCI represents the total dollar amount that a family of four would have to pay to attend a home game. This total cost includes the price of four tickets, two small beers, four sodas, four hot dogs, parking, two game programs, and two twill caps. The other costs indicate the pricing of one unit. In other words, the cost of one beer at the New York Islanders game is $9.50.

Although cost is usually considered to be an internal, controllable factor for organizations, it can have an uncontrollable component. For instance, the league may impose a minimum salary level for a player that is beyond the control of the individual team or owner. The costs of raw materials for producing sporting goods may rise, representing a cost increase that is beyond the control of the manufacturer. Players’ unions for professional teams may set minimum standards for travel that are not under the individual team’s control. All these examples describe the uncontrollable side of costs that must be continually monitored by the sports marketer.

Organizational objectives

The costs associated with producing a good or service is just one factor in determining the final price. Cost considerations may determine the “price floor” for the sport product. In other words, what will be the minimum price that an organization might charge to cover the cost of producing the sports product? Covering costs, however, may be insufficient from the organization’s perspective. This depends largely on the organization’s objectives. As we have stressed throughout this text, marketing mix decisions – including pricing – must consider the broader marketing goals. Effective marketing goals should be consistent with the organizational objectives.

There are four categories of organizational objectives that influence pricing decisions. These include income, sales, competition, and social concerns. Income objectives include achieving maximum profits or simply organizational survival. In the long term, all professional sports organizations are concerned with maximizing their profits and having good returns on investment. Alternatively, amateur athletic events and associations are in sports not necessarily to maximize profits but to “stay afloat.” Their organizational objectives center around providing athletes with a place to compete and covering costs.

Sales objectives are concerned with maintaining or enhancing market share and encouraging sales growth. If increasing sales is the basic organizational objective, then a sporting goods manufacturer or team may want to set lower prices to encourage more purchases by existing consumers. In addition, setting lower prices or offering price discounts may encourage new groups of consumers to try the sports product. By doing so, the team may increase fan identification and, ultimately, fan loyalty. This will, in turn, lead to repeat purchases.

Table 12.2 An example of the Fan Cost Index (FCI) for the MLB

Source: http://www.teammarketing.com/fci.cfm?page=fci_nhi_06_07.cfm/

Another broad organizational objective may be to compete in a given sports market. An organization may want to meet competition, avoid competition, or even undercut competitive pricing. These competitive objectives are directly linked to final pricing decisions. Traditionally, professional sports franchises are the “only game in town,” so competitive threats are less likely to dictate pricing than they would in other industries.

A final organizational objective that influences pricing is referred to as a social concern. Many sports organizations, particularly amateur athletic associations, determine the pricing of their sporting events based on social concerns. For example, consider a local road race through downtown St. Louis on St. Patrick’s Day. The organizational objective of this race is to encourage as many people as possible to participate in the community and the festivities of the day. As such, the cost to enter the race is minimal and designed only to offset the expense of having the event.

Regardless of which organizational objective is established, each has a large role in setting prices for sports products. In practice, more than one objective is typically set by the sports organization. However, prices can be determined more efficiently and effectively if the organization clearly understands its objectives. Let us look at an example of how the MLS mission statement provides a direction for pricing.

Major League Soccer’s mission statement is:

To create a profitable Division I professional outdoor soccer league with players and teams that are competitive on an international level, and to provide affordable family entertainment. MLS brings the spirit and intensity of the world’s most popular sport to the United States. Featuring competitive ticket prices and family oriented promotions such as “Soccer Celebration” at the stadium, MLS appeals to the children who play and the families who support soccer. MLS players are also involved with a variety of community events.

As indicated in the mission statement, MLS is concerned with profitability for its league and teams. Moreover, the pricing of MLS games should be affordable so families who support soccer will be financially able to purchase tickets, reflecting a social concern. Finally, the mission statement reflects the competitive nature of pricing. The interaction of the organizational objectives of the MLS should exert a great influence on the price that fans pay to see U.S. professional soccer.

External factors

Thus far, we have described the internal, or controllable, determinants of pricing and factors believed to be under the control of the sports marketer. The uncontrollable or external factors also play an important role in pricing decisions. The uncontrollable factors that influence pricing include consumer demand, competition, legal issues, the economy, and technology. Let us turn our discussion to each of these major, external factors.

Consumer demand

One of the most critical factors in determining the price of a sports product is consumer demand. Demand is the quantity of a sports product that consumers are willing to purchase at a given price. Generally, consumers are more likely to purchase products at a lower price than a higher price. More formally, economists refer to this principle as the law of demand. To better understand the nature of the law of demand and its impact on any given sports product, let us examine the price elasticity of demand.

Price elasticity explains consumer reactions to changes in price. Price elasticity or price inelasticity measures the extent to which consumer purchasing patterns are sensitive to fluctuations in price. For example, if the St. Louis Cardinals raise their bleacher ticket prices from $19.80 to $23.00, will the demand for seats decline? Similarly, if the ticket prices are reduced by a given amount, will the demand increase?

Mathematically, price elasticity is stated as:

Consumer price elasticity may be described in one of three ways: elastic demand, inelastic demand, or unitary demand. Inelastic demand states that changes in price have little or no impact on sales. In the previous example, demand probably would have been inelastic, because even relatively large increases in the ticket prices would have had little impact on the number of fans attending each game. If demand is inelastic, then e is less than or equal to 1 (see Figure 12.2a). Because of the great demand for tickets, the Green Bay Packers, who have been sold out on season tickets since 1960, could probably raise their minimum ticket price to $300 and still sell out all their games.

Figure 12.2 Price elasticity of demand

Elastic demand refers to small changes in price producing large changes in quantity demanded. For example, if the average price of a ticket to a Miami Heat game is reduced from $58.55 to $48.00, and if the number of units sold increases dramatically, then demand is considered elastic, because e is greater than 1 (see Figure 12.2b).

Finally, unitary demand is defined as a situation where price changes are offset exactly by changes in demand. In other words, price and demand are perfectly related. A small change in price produces an equally small change in the number of units sold. Similarly, a large change in price causes an equally large change in the number of units sold. In a situation where demand is unitary, e is equal to 1 (see Figure 12.2c).

Estimating demand

The basic notion of demand allows sports marketers to explore the relationship between price and the amount of sports product that is sold. In practice, a sports marketer cannot continually change the price of a product and then determine the impact of this price change. Rather, the sports marketer must develop estimates of demand. The three basic factors that are used in estimating demand are consumer trends and tastes, availability of substitute sports products, and the consumer’s income. Let us briefly explore the three demand factors.

Consumer tastes

Consumer tastes, both as participants and spectators, play an influential role in estimating demand. For example, consumer demand (as spectators) for football is at an all-time high, which influences ticket prices (and the price of rights to televise football). In addition, as reflected in the 2013 NSGA Sports Participation Report (see Table 12.3), participation trends in flag football (6.8 million) and touch football (8.8 million) are on the rise while participation in tackle football encounter a slight decline 7.9 to 7.5 million, as compared with 2012 participation levels. These participation trends potentially affect the demand for specific “football” consumer products. Similarly, yoga, running/jogging, and archery (target) are the sports reflecting the largest participation rate increases from 2012, so demand for products in these growth categories may be higher than an activity such as camping that encountered a decline of 5.9 million participants. NSGA’s Sports Participation in the U.S. report provides participation trends and key demographic/geographic drivers of participation for 51 different sports and recreational activities. The 2013 report identified that participation in sports/recreational activities slowed in 2013, as only one-third of the sports/activities tracked by NSGA experienced participation growth vs. 2012.⁶ Fluctuation in participation often affects demand for these “popular” sports which will also affect pricing of equipment to consumers.

With sophisticated statistical techniques, sports marketers can understand what, when, and how factors are influencing consumer tastes and the likelihood of purchasing products. For example, demand for a new design of in-line skates in any given market may be expressed as a function of a number of factors other than price. These factors can include the number of consumers currently participating in this recreational activity, the desire of recreational skaters to have more technologically advanced skates, the amount that the new skates have been advertised or promoted, or the availability of the skates.

Table 12.3 2013 sport/recreational activity participation

Ranking	Sport	2013 Total Participation (in millions)
1	Exercise Walking	96.3
2	Exercising with Equipment	53.1
3	Swimming	45.5
4	Aerobic Exercising	44.1
5	Running/Jogging	42.0
6	Hiking	39.4
7	Camping (Vacation/Overnight)	39.3
8	Bicycle Riding	35.6
9	Bowling	35.2
10	Workout at Club	34.1
11	Weightlifting	31.3
12	Fishing (Fresh Water)	27.0
13	Yoga	25.9
14	Basketball	25.5
15	Billiards/Pool	19.5
16	Target Shooting (Live Ammunition)	19.0
17	Golf	18.9
18	Hunting with Firearms	16.3
19	Boating, Motor/Power	13.1
20	Soccer	12.8
21	Tennis	12.6
22	Backpacking/Wilderness Camping	12.2
23	Baseball	11.7
24	Volleyball	10.1
25	Softball	10.0
26	Table Tennis/Ping Pong	9.8
27	Dart Throwing	9.8
28	Fishing (Salt Water)	9.5
29	Football (Touch)	8.8
30	Archery (Target)	8.3
31	Kayaking	8.1
32	Football (Tackle)	7.5
33	Football (Flag)	6.8
34	Canoeing	6.7
35	Skiing (Alpine)	6.1
36	Roller Skating (In-line)	5.7
37	Hunting with Bow & Arrow	5.7
38	Mountain Biking (off road)	5.2
39	Gymnastics	5.1
40	Skateboarding	5.0
41	Paintball Games	4.8
42	Target Shooting (Airgun)	4.8
43	Snowboarding	4.5
44	Water Skiing	3.6
45	Cheerleadlng	3.5
46	Hockey (Ice)	3.5
47	Muzzleloading	3.2
48	Wrestling	3.1
49	Lacrosse	2.8
50	Scuba Diving (Open Water)	2.7
51	Skiing (Cross Country)	2.5

Source: National Sporting Goods Association.

Today, successful players in the sport and entertainment industry look to create innovative solutions utilizing marketing research. Marketing research as defined by the American Marketing Association is:⁷

A function that links the consumer, customer and public to its market through the information – information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyzes the results, and communicates the findings and their implications. The process allows for the generation, refinement and evaluation of marketing actions. It affords opportunity for the monitoring of performance and adjustment of strategy to improve marketing as a business process.

Plain and simple, marketing research is the process of objectively listening to the voice of the marketplace and then utilizing and conveying the information in an ascertainable manner. In the words of David Ogilvy,⁸ “if you’re trying to persuade people to do something, or buy something, it seems you should use their language, the language in which they think.” Whether it is simple customer comment cards or complex feasibility assessments the research process affords one the opportunity to enhance the fundamental marketing process; the process or function for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

Figure 12.3 Consumer pricing evaluation process

Marketing research (as discussed in Chapter 3) allows us to estimate demand for new and existing sports products. Firms conduct research to determine consumers’ past purchase behavior and the likelihood of their buying a new product. In addition, businesses rely on environmental scanning to monitor changes in the demographic profile of a market, changes in technology, shifts in popular culture, and other issues that may affect the size or tastes of the consumer market.

Environmental scanning and marketing research assist sports marketers in understanding what consumers expect and are willing to pay for sports products. Let us look at how consumers evaluate price (see Figure 12.3).

In the consumer pricing evaluation process, acceptable price ranges are determined by consumers’ expectations. These expectations are influenced by communicating with other consumers (i.e., word of mouth), promotions or advertising, and, to some extent, past experience in purchasing the products. If the gap between expectations and the actual price is too large, a problem arises for the sports organization. If prices are much higher than expected, the consumer will be much less likely to purchase. However, if prices are much lower, then the quality of the sports product may be called into question.

The sport of professional boxing provides an excellent example of the role past experience plays in determining an acceptable price range for consumers. Fan satisfaction with professional boxing has reached an all-time low because of the short length of heavyweight fights and the heavyweight prices paid by pay-per-view (PPV) customers to watch these fights. To combat this problem of short telecasts, Cablevision introduced a controversial pricing strategy. Consumers who wanted to view the historic title fight between Evander Holyfield and Mike Tyson paid a $10-a-round price with a $50 cap.

This innovative strategy apparently sparked a 200 percent jump in sales in Cablevision’s 1.9 million PPV homes (a PPV record). Equally important, the product quality was not called into question. Cablevision paid a flat fee (roughly $4 million) for the rights to the fight, and the boxers did not receive any additional money based on the fight’s length.⁹

Along with previous experience with pricing, expectations of future pricing also influence the acceptable range of prices a consumer is willing to pay. For example, when an innovative sports product, such as the Power Block Dumbbell System, is in the introductory phase of the product life cycle, little competition exists and start-up costs are high. Most consumers would expect the price of this product to drop over time, and some may be willing to wait for this to occur. However, sports fans may expect prices to continually rise in the future and purchase the new product immediately rather than waiting for the inevitable higher prices.

Along with expectations of current and future prices, a number of other individual consumer judgments will also play a role in determining the acceptable price range for any given sports product. As shown in Figure 12.3, these variables include consumer income, situational factors, price of substitutes, cost of information search, and perceptions of value.

Consumer income, one of the three demand factors, refers to the consumer’s ability to pay the price. Generally, the higher the consumer’s income, then the wider the range there is of acceptable prices. For example, a sports fan who has an annual income of $100,000 might perceive a $10 increase in ticket prices as still within his or her price range. However, the same $10 increase in price may be unaffordable to the fan earning $30,000 per year. Significantly, both fans may find the increase in ticket prices unacceptable, but only the latter finds it unaffordable.

The situational factors that may affect a consumer’s acceptable range of prices include the presence or absence of time, the usage situation, and social factors. Consider the following situations and how each might affect the price you would be willing to pay. First, you are getting ready for a much anticipated round of golf when you discover you only have one ball left in your bag. Typically, you purchase golf balls at your local discount store for roughly $6 a sleeve (package of three). Given the situation (absence of time), you are forced to “cough up” $12 at the pro shop for the three balls needed to get you through the round. This absence of time to shop for less expensive golf balls caused the acceptable price range to double in this situation.

The next scenario illustrates how your usage situation influences the range of acceptable prices. Imagine you are purchasing a new set of golf clubs that will be used only once or twice a month at the local public course. In this situation, the acceptable price range for this set of clubs might be from $250 to $400. It is likely that you may even purchase less expensive, previously owned clubs. However, if you are planning to use the clubs once or twice a week and are more concerned about their quality and your image, the acceptable range of prices would increase.

The final situation places you in the position of purchasing tickets for the Daytona 500. The cost of purchasing one ticket is approximately $105. You are not a huge car racing fan and the thought of spending $105 for a ticket seems disagreeable. However, a group of your best friends are attending the event and encourage you to “go along for the ride.” You agree and purchase the ticket because of the social situational influence.

Another interesting social situational influence is referred to as the “mob effect.” The mob effect (or the crowd effect) describes a situation in which consumers believe it is socially desirable to attend “special” sporting events, such as the NBA Finals, bowl games, or the World Series. Because these events constitute unique situations that can never be duplicated, consumers are willing to pay more than usual for the “right” to be a part of the mob (or crowd).

An additional consumer determinant of acceptable prices is the expected price range of substitute products. The prices of competitive products will have a major influence on what you deem acceptable. If a sports organization’s pricing becomes out-of-line (higher) versus competition, then consumers will no longer pay the price.

The cost of information search also determines what a consumer considers acceptable. A consumer wanting to purchase a series of tennis lessons has a relatively low cost of information search because information is easily obtained from friends or by calling various tennis professionals. In this case, the cost of the search is less than the benefit of finding the best value. Interestingly, in purchasing a sports product, the cost of information search may be negligible because fans may find the search itself to be intriguing.

Finally, as discussed previously, perception of value will dictate acceptable price ranges for sports products. Remember, perceptions of value will vary from individual to individual and are based on the perceived benefits. The greater the perceived benefits of the sports product, the higher the range of acceptable prices. Most people would consider $400 an outrageous price to attend a single pro football game. However, that cost might look like the bargain of a lifetime if that single game were the Super Bowl.

Availability of substitute products

Another demand factor, other than price alone, that may affect demand is the availability of substitute products. Generally, as the number of substitute products for any given sports product increases, demand for the product will decrease. Consider the case of almost any professional sports franchise and substitute products. Typically, there is no substitute product for the professional sports team. Therefore, demand remains relatively unchanged, even when ticket prices are increased (in other words, demand is highly inelastic). For example, there is no substitute product for the St. Louis Cardinals, although baseball is played in St. Louis at the collegiate, high school, and amateur levels. However, consumers may choose to spend their sports dollars on purchasing televised broadcasts of the Cardinals, rather than pay the price increase.

Consumer’s income

The final demand factor that influences the consumer’s ability to purchase the sports product is the consumer’s income. Simply stated, the more income a consumer realizes, the higher the demand for various sports products. This “income-related” demand factor is related to the cost of the sports product under consideration. That is, the higher the cost of the sports product, the more “consumer income” matters. Consider the case of San Antonio Spurs courtside seats that are priced at $3,400 per seat. For this “paltry” sum, fans get a small TV display and as much food and drink as they can ingest. Exponentially, that would equate to a whopping $139,400 for a 41 home game season, and obviously, these are not seats that most middle-income consumers would be able to afford.¹⁰

The potential consumer’s personal income and ability to purchase products is also highly related to the state of the economy, in general. The economy is one of the “other external factors” that influences pricing, which is discussed in the next section.

Economy

The current economic cycle, or economy, also influences pricing decisions. A recessionary period, for instance, is characterized by reduced economic activity. During these times, there is a reduced demand for goods and services. In addition, unemployment rates are typically higher. Although this sounds grim for consumers and sports fans, imaginative sports marketers might be able to take advantage of these slowdowns in the economy by holding or slightly reducing prices, while stressing the continued value of the sports product.

Periods of inflation also require a pricing review. During inflationary periods, the cost of inputs (e.g., supplies or raw materials) necessary to produce the sports product will rise and ultimately increase prices to consumers. Rather than increase prices, sports marketers may adopt a cost reduction strategy during inflation. Such a strategy necessitates reducing or stabilizing costs of producing the product so consumer prices need not be increased.

Whatever the phase of the economic cycle, it is important to understand the direct relationship between pricing and the economy. In the preceding discussion, prices were adjusted due to changes in the economy. The prices set by manufacturers and sports organizations equally have a tremendous impact on the demand for these products and services and, in turn, affect the economy.

Competition

As stated earlier, competition is one of the most critical factors in determining prices. Every sports organization must closely monitor the pricing structure of competing firms to successfully implement prices for its own products. One key to understanding the relationship between price and competition is exploring the sports organization’s competitive environment. These four competitive environments include pure monopolies, oligopoly, monopolistic competition, and pure competition.

Most professional sports organizations operate in a pure monopoly, which means they are the only seller who sets the price for a unique product. With the exception of New York, Chicago, and California, there are few areas large enough to support two professional sports franchises in the same sport (e.g., the Cubs and White Sox). As such, most professional sports are free to manipulate prices as they want. The same would hold true for many college athletic programs, where college sports may be “the only show in town.”

An oligopoly is where a small number of firms control a market. Conditions for an oligopoly exist when no one seller controls the market, but each of the few sellers has an impact on the market. In the sports industry, an example of an oligopoly is the sports news networks where ESPN and Fox have dominant control over the market.

In the case of many sporting goods, monopolistic competition is the norm. There are dozens of brands with identical products to sell. This competitive environment requires both price competition and nonprice competition. For example, all tennis balls are designed the same, but the many different brands compete based on lower prices and/or other marketing mix elements (promotions, product image, and sponsorships). The same holds true for golf balls, basketballs, and so on.

Pure competition is a market structure that has so many competitors that none can singularly influence the market price. The market conditions that must exist for pure competition include homogeneous products and ease of entry into the market. Although pure competition exists in industries selling uniform commodities such as agricultural products, it does not exist in the sports industry.

Legal issues

In addition to the other external factors, sports marketers must consider legal issues, such as constraints imposed on pricing. Several key laws that affect sports marketers were presented in Chapter 2. Table 12.4 presents U.S. legislation that specifically affects the pricing of sports products.

Table 12.4 Laws influencing the price of sports products

• Sherman Act, 1890 – Establishes legality of restraint/price of trade and fixing. It also restricts the practice of predatory pricing to drive competition from the marketplace through pricing.

• Clayton Act, 1914 – Restricts price discrimination.

• Robinson-Patman Act, 1936 – Limits the ability of firms to sell the same product at different prices to different customers.

• Wheeler-Lea Act, 1938 – Ensures pricing practices are not deceiving to consumers.

• Consumer Goods Pricing Act, 1975 – Eliminates some control over retail pricing by wholesalers and manufacturers. It allows retailers to establish final retail prices in most instances.

One of the most notable legal issues that the sports industry has been wrestling with for years is the secondary ticket market, or as it is more commonly known, ticket scalping (see the following article).

Technology

Without a doubt, all sports products are becoming more and more technologically advanced. The trend toward technology can have an indirect or direct influence on pricing decisions. Experience tells us that greater technology costs money. the high cost of research and development, as well as the higher costs for production and materials, drive up the price of the sports product. for example, if our stadiums are equipped with mini-screen monitors at every seat, the consumer would be expected to pay the price for this technology in the form of higher ticket prices. In this case, an advance in technology has a direct impact on the pricing.

Although technology and higher prices are typically believed to go hand in hand, as illustrated in the following article, technology does not always have to increase pricing. A consumer may be able to buy a King Cobra titanium driver for $299 using electronic commerce (in other words, purchasing it through the Internet). The same driver may cost $125 more if purchased in a traditional retail outlet. In this case, technology is having an indirect influence on pricing, happily reducing the price of goods to consumers.

Price adjustments

As we discussed in the preceding sections, initial prices are determined by a variety of internal and external issues that are continually changing with new market conditions. For instance, more or less competition may provide the impetus for price changes.

Also, price adjustments may be made to stimulate demand for sports products when sales expectations are not currently being met. Finally, prices might be adjusted to help meet the objectives that have been developed. The next section explores some of the ways in which price adjustments are implemented by sports marketers, and as the accompanying article illustrates, there may be new approaches to pricing of traditionally priced products, like season ticket packages.

Price increases and reductions

As with most things in sports marketing, prices are dynamic and decisions are continually being made about whether prices should be increased or decreased based on a number of internal and external facors.

Price increases represent an important adjustment made to established prices. In recent years, many sports organizations have had to increase prices for a variety of reasons, even though consumers, retailers, and employees discourage such actions. One of the primary reasons for increasing prices is to keep up with cost inflation. In other words, as the cost of materials or of running a sports organization increases, prices must be increased to achieve the same profit objectives. Another reason for implementing a price increase is because there is excess demand for the sports product. For example, if thousands of fans join the season-ticket waiting list in the week that a Hall of Fame coach returns to a team, then slight increases to these ticket prices may be acceptable.

A winning season may have a huge impact on the decision to raise prices. For four consecutive years, the Chicago Bears increased their ticket prices after gaining a trip to the Super Bowl in 2007. The 2009 season was the only recent year in which the Bears froze their ticket prices; they resumed increases in 2010. The increase is for all except the most expensive seats in Soldier Field, according to a report in the Chicago Sun-Times.¹¹ Non-club-level seats, which make up about 85 percent of the stadium, will cost $68–125 a game, while club seats will cost $265–365, according to the report.

Because of the negative consequences of raising prices, sports organizations may consider potential alternatives to straight price increases. These alternatives include eliminating any planned price reductions, lessening the number of product features, or unbundling items formerly “bundled” into a low price.

If there are no viable alternatives to increasing prices, it is important to communicate these changes to fans and consumers in a straightforward fashion to avoid potential negative consequences. Remember, much of pricing is based on consumer psychology. If fans or consumers of sporting goods are told why prices are being increased, they may believe price increases are justified. Typically, price reductions are efforts to enhance sales and achieve greater market share by directly lowering the original price. In addition to the direct reductions in price, rebates or bundling products are other types of price breaks commonly employed. After a mediocre 2010 season, the New York Mets announced a restructured ticket pricing program for 2011 that includes a reduction of ticket prices by an average of more than 14 percent from the previous season. Mets’ Executive Vice President of Business Operations, Dave Howard, is quoted as saying “The Mets are committed to providing quality and value to our fans.”¹²

After just their fourth year in the league in 2008, the Charlotte Bobcats reduced their season ticket prices to stimulate demand and attendance. While the Bobcats had been successful by the standards of NBA expansion team, their attendance numbers left them in the bottom of the league, averaging just over 15,000 fans per home game. The concept seemed to work, allowing the Bobcats to raise prices 4 percent to 21 percent on 2,500 seats in the lower level at Time Warner Cable Arena for the 2011–12 season. Regardless, to keep demand high, at the same time, prices for all tickets in the upper bowl – nearly 9,000 seats – were reduced 13 percent to 43 percent for the 2011–12 season. “This was a continuing evolution to get the building priced right for every seat,” Bobcats President Fred Whitfield said. “We’re trying to make sure we’re offering the right value-proposition”.¹³ Although teams commonly reduce or increase prices after the season, sports organizations rarely reduce or increase the price charged to consumers during the course of the season to stimulate demand. It is much more common, however, for marketers of sporting goods to reduce and increase prices. Simply said, the Los Angeles Dodgers will probably never have an end-of-the-season sale of tickets. You will, however, be able to find any number of sales of baseball equipment at the end of the summer.

Whatever the form of price reductions, they are frequently risky for sports organizations for a number of reasons. First, consumers may associate multiple price reductions with inferior product quality. Second, consumers may associate price reductions with price gouging (always selling products at a discount so the initial price must be unreasonably high). Third, price reductions may wake a sleeping dog and cause competition to counter with its own price decreases. Finally, frequent price changes make it more difficult for the consumer to establish a frame of reference for the true price of sports products. If tennis balls regularly sell for $4.99 for a package of three, and I conduct three sales over the season that offer the balls for $2.99, then what is the perceived “real” price?

An important concept when making price adjustments (either up or down) is known as the just noticeable difference (JND).¹⁴ The just noticeable difference is the point at which consumers detect a difference between two stimuli. In pricing, the two stimuli are the original price and the adjusted price. In other words, do consumers perceive (notice) a difference when prices are increased or decreased? The following examples illustrate the importance of the just noticeable difference.

Dick’s Sporting Goods may sell Wilson softball gloves at a regular price of $49.99 (note the psychological price strategy of odd pricing being used). With softball season right around the corner, Dick’s decides to reduce prices and sell the gloves for $44.99. Does this $5 reduction surpass the difference threshold? In other words, does the consumer believe there is a noticeable difference between the regular price and the sale price? If not, then the price reduction will not be successful at stimulating demand.

Suppose that because of the increasing cost of raw materials needed to produce the gloves, the price has to be increased from $49.99 to $54.99. Again, the sports marketer has to determine whether consumers will notice this increase in price. If not, then the price increase may not have negative consequences for the sale of Wilson softball gloves.

Price discounts

Combined with straight price decreases, price discounts are other incentives offered to buyers to stimulate demand or reward behaviors that are favorable to the seller. The two major types of price discounts that are common in sports marketing are quantity discounts and seasonal discounts.

Quantity discounts reward buyers for purchasing large quantities of a sports product. This type of discounting may occur at all different levels of the channel of distribution. Using the previous softball glove example, Wilson may offer a quantity discount to Dick’s Sporting Goods for sending in a large purchase order. Consumers hope that Dick’s Sporting Goods will pass the savings on to them in the form of price reductions. The purchase of group ticket sales is another common example of quantity discounts in sports marketing.

Seasonal discounts are also prevalent in sports marketing because of the nature of sports. Most sports have defined seasons observed by both participants and spectators. Seasonal discounts are intended to stimulate demand in off-peak periods. For example, ski equipment may be discounted in the summer months to encourage consumer demand and increase traffic in skiing specialty stores. Ski resorts also frequently offer seasonal deals. For instance, the Hunter Mountain Ski Resort in New York offers multiple value passes each season. From March 1–May 2 they offer a discount package for $229; full season packages purchased in September providing unlimited skiing and riding on non-holiday midweek days are offered at $349. It also includes a 30 percent discount on weekend and holiday dates during the season.¹⁵

Web 12.1 Loveland Ski may use seasonal discounting

Source: http://skiloveland.com

In addition to sporting goods, seasonal discounts are often offered for ticket prices to sporting events. The former Kroger Senior Classic (Champions Tour golf) event provided discounts for customers purchasing tickets in advance during the winter months for this summer event. The Holiday Badge promotion allowed consumers to purchase an all-week ground badge for $55 and get the second one free.

Summary

The pricing of sports products is becoming an increasingly important element of the sports marketing mix. Price is a statement of value for a sports product, and understanding consumers’ perceptions of value is a critical determinant of pricing. Value is defined as the sum of the perceived benefits of the sports product minus the sum of the perceived costs. The perceived benefits of the sports product, or what the product does for the user, are based on its tangible and intangible features. Each consumer’s perception of value is based on his or her own unique set of experiences with the sports product.

A variety of factors influences the pricing decisions for any sports product. Similar to the internal and external contingencies that affect the strategic sports marketing process, pricing influences can be categorized as internal or external factors. Internal factors are those under the control of the sports organization, such as the other marketing mix elements, cost, and organizational objectives. External factors are those factors beyond the control of the sports organization that influence pricing. These include consumer demand, competition, legal issues, the economy, and technology.

Marketing mix elements other than price must be carefully considered when determining the price of the sports product. Promotional mix elements (e.g., advertising and sales promotions) often communicate the price (or price reductions) of the sports product to consumers. The channel of distribution that is selected influences the price of sports products. For instance, consumers expect to pay higher prices (and are charged higher prices) when purchasing tennis equipment from a pro shop versus directly from the manufacturer. Product decisions are also highly related to pricing. Simply, price is used to signal product quality. Generally, the higher the price that is charged, then the greater the perceived quality of the product is.

Two distinct pricing strategies that emerge based on the emphasis of marketing mix elements are price and nonprice competition. As the name suggests, nonprice competition tries to establish demand for the sports product using the marketing mix elements other than price. Price competition, however, attempts to stimulate demand by offering lower prices.

In addition to other marketing mix variables, costs play a major role in pricing decisions. Costs are those factors that are associated with producing, promoting, and distributing the sports product. The total cost of producing and marketing a sports product is equal to the sum of the total fixed costs and the total variable costs. The fixed costs, such as players’ salaries, do not change with the quantity of the product consumed, whereas variable costs change as a result of the quantity of the product being consumed. Today, the costs of running a professional sports franchise are skyrocketing because of players’ salaries.

A final internal factor that influences pricing is organizational objectives. The four types of pricing objectives include income, sales, competitive, and social objectives. Typically, a combination of these four objectives is used to guide pricing decisions.

External factors, which are beyond the control of the organization, include consumer demand, competition, legal issues, the economy, and technology. Demand is the quantity of a sports product that consumers are willing to purchase at a given price. Price elasticity measures the extent to which consumer purchasing patterns are sensitive to fluctuations in price. For some sports products, such as a ticket to the Super Bowl, demand is relatively inelastic, which means that changes in price have little impact on game attendance. However, when demand is elastic, small changes in price may produce large changes in quantity demanded. Sports marketers try to estimate the demand for products by examining consumer trends and tastes, determining the number of substitute products, and looking at the income of the target market.

One of the most critical factors in determining pricing for sports products is to examine the prices charged for similar products by competing firms. Most professional sports franchises operate in a monopolistic environment in which no direct competitors exist. Because of this market condition, the price of attending professional sporting events is continually increasing. In fact, many “average” fans believe they are being priced out of the market and can no longer afford the cost of admission. In addition to competition, laws influence the pricing structure for sports products. For example, the Sherman Act was designed to protect freedom of competition, thereby freeing prices to fluctuate subject to market forces. The phase of the economic cycle is another important consideration in pricing. During periods of inflation, prices may rise to cover the higher costs, and during periods of recession, prices may be lowered. Finally, advances in technology are related to pricing decisions. Typically, consumers are willing to, and expect to, pay more for “high-tech” sports products. However, this is not always the case, as sometimes technological change can reduce pricing by facilitating marketing of the sports product.

Once the price of the sports product has been determined, adjustments are constantly necessary as market conditions, such as consumer demand, change. Price reductions or increases are used to reach pricing objectives that have been determined. Generally, price reductions are used to help achieve sales and market share objectives, whereas increases are used to keep up with rising costs. Regardless of whether adjustments are made to raise prices or lower prices, an important consideration in pricing is the concept known as the JND, or just noticeable difference. The JND is the point at which consumers can detect a “noticeable” difference between two stimuli – the initial price and the adjusted price. Depending on the rationale for price adjustments, sports marketers sometimes want the change to be above the difference threshold (i.e., consumers will notice the difference) and sometimes it will be below the difference threshold (i.e., consumers will not notice the difference).

Key terms

  availability of substitute products

  competition

  competitive objectives

  consumer demand

  consumer income

  consumer pricing

  evaluation process

  consumer tastes

  cost of information search

  costs

  economy

  elastic demand

  estimating demand

  expected price range of substitute products

  external (or environmental) factors

  fixed costs

  income objectives

  inelastic demand

  internal factors

  just noticeable difference (JND)

  law of demand

  legal issues

  marketing mix variables

  mob effect

  monopolistic competition

  nonprice competition

  oligopoly

  organizational objectives

  perception of value

  price

  price adjustments

  price competition

  price discounts

  price elasticity

  price increases

  price inelasticity

  price reductions

  pure competition

  pure monopoly

  sales objectives

  situational factors

  social concern

  technology

  total cost

  unitary demand

  variable costs

  quantity discounts

  seasonal discounts

Review questions

1.  Define price, perceived value, and perceived benefits. What is the relationship among price, value, and benefits?

2.  Discuss the advantages and disadvantages of personal seat licenses from the consumer’s perspective and the sports organization’s perspective.

3.  Outline the internal and external factors that affect pricing decisions. What is the primary difference between the internal and external factors?

4.  Provide examples of how the marketing mix variables (other than price) influence pricing decisions.

5.  Define fixed costs and variable costs and then provide several examples of each type of cost in operating a sports franchise. Do you believe costs should be considered controllable or uncontrollable factors with respect to pricing?

6.  What are the four organizational objectives, and how does each influence pricing? Which organizational objective has the greatest impact on pricing?

7.  What is meant by the law of consumer demand? Explain the difference between elastic and inelastic demand.

8.  Describe, in detail, how sports marketers estimate the demand for new and existing sports products. What are the three demand factors, and which do you believe is the most critical in estimating demand?

9.  What laws have a direct impact on pricing? Briefly describe each law.

10.  How do advances in technology influence pricing? How does the economy influence pricing decisions?

11.  Describe the different types of competitive environments. Why is competition considered one of the most critical factors influencing pricing?

12.  What are the risks associated with reducing the price of sports products? Describe two common types of price discounting.

Exercises

1.  Interview five consumers and ask them, “If a new athletic complex was built for your college or university basketball team, would you be willing to pay higher seat prices?” Summarize your results and discuss the findings in terms of perceived value and perceived benefits.

2.  Interview five consumers and ask them to describe a sports product they consider to be of extremely high value and one they consider to be of extremely poor value. Why do they feel this way?

3.  Find two examples of sports products you consider to compete solely on the basis of price. Provide support for your answer.

4.  For any professional sports franchise, provide examples of how the rest of its marketing mix is consistent with its pricing.

5.  Provide two examples of sports organizations that have (either in whole or in part) a social concern pricing objective.

6.  Interview five people to determine whether demand could be characterized as elastic or inelastic for the following sports products: season tickets to your favorite basketball team’s games, golf lessons from Greg Norman, and Nike Air Jordans.

7.  Provide examples of how technology has increased the ticket prices of professional sporting events. Support your examples from a cost perspective.

8.  Interview the organizer of a local or neighborhood road race (e.g., 5k or 10k) and determine the costs of staging such an event. Categorize the costs as either fixed or variable. Assess the role of cost in the price of the entry fee for participants.

Internet exercises

1.  Using the Internet, find three examples of promotions for sport products that provide consumers with pricing information.

2.  Find an example of a sports product that is being sold via the Internet for a lower price than offered via other outlets. How much cheaper is the sports product? What does the consumer have to give up to purchase the product at a lower price over the Internet?

3.  Using the Internet, find an example of price bundling sports products.

4.  Using the Internet, find an example of product line pricing for the pricing of a sponsorship package (i.e., sponsorship levels at different prices).

5.  Searching the Internet, find an example of a sports product that uses prestige pricing. Comment on the construction of the Web site itself. Is it consistent with the prestige pricing?

Endnotes

1  Robert B. Cialdini, Richard J. Borden, Avril Thorne, Marcus R. Walker, Stephen Freeman, and Lloyd R. Sloan, “Basking in Reflected Glory: Three (Football) Field Studies,” Journal of Personality and Social Psychology, vol. 34, no. 3 (1976), 366–375.

2  Valarie Zeithaml, “Consumer Perceptions of Price, Quality, and Value: A Means-End Chain Model and Synthesis of Evidence,” Journal of Marketing, vol. 52 (1988), 2–21.

3  http://www.forbes.com/sites/mikeozanian/2013/11/25/the-nhls-most-valuable-teams/; http://www.forbes.com/sites/mikeozanian/2013/08/14/the-most-valuable-nfl-teams/

4  Kurt Foss, “NCAA March Madness 2004: PDF Hoop Dreams.” Planetpdf.com (April 14, 2004). Available from: http://www.planetpdf.com/enterprise/article.asp?ContentID=596.

5  Frederick Wiseman and Sangit Chatterjee, “Team Payroll and Team Performance in Major League Baseball: 1985-2002,” Economics Bulletin, vol. 1, no. 2 (2003), 1-10.

6  National Sporting Goods Association (NSGA), “Insights” (June 2014). Available from: http://archive.constantcontact.com/fs119/1101981701899/archive/1117660475100.html, accessed June 24, 2014.

7  http://www.marketingpower.com/AboutAMA/Pages/DefinitionofMarketing.aspx. Credit: American Marketing Association

8  Goodreads Inc. (2014). Available from: https://www.goodreads.com/author/quotes/25181.David_Ogilvy, accessed June 25, 2014.

9  Rudy Martzke, “SET Expects Pay-Per-View Recordbreaker,” USA Today (1996), 2C.

10  Johnny Ludden, “Spurs Mailbag: For Right Price, Watch Parker Hog Ball up Close,” Spurstalk.com (April 12, 2006). Available from: http://www.spurstalk.com/forums/showthread.php?t=55121.

11  “Coast to Coast – Chicago,” Street & Smith’s Sport Business Journal (March 12, 2007). Available from: http://www.sportsbusinessdaily.com/Journal/Issues/2007/03/20070312/Coast-To-Coast.aspx, accessed June 25, 2014.

12  “Press Release: Mets Reduce Ticket Prices for 2011,” New York Mets (November 3, 2010). Available from: http://newyork.mets.mlb.com/news/press_releases/press_release.jsp?ymd=20101103&content_id=15970796&vkey=pr_nym&fext=.jsp&c_id=nym, accessed June 25, 2014.

13  Erik Spanberg, “Bobcats Raise, Lower Ticket Prices,” Charlotte Business Journal (January 14, 2011). Available from: http://www.bizjournals.com/charlotte/blog/queen_city_agenda/2011/01/higher-prices-for-some-bobcats-fans.html?page=all.

14  BusinessWire. (2010. “Atlanta Hawks, Atlanta Thrashers, Houston Rockets and Utah Jazz Select Qcue to Power Dynamic Ticket Pricing,” Businesswire.com (August 16, 2010). Available from: http://www.businesswire.com/news/home/20100816005210/en/Atlanta-Hawks-Atlanta-Thrashers-Houston-Rockets-Utah.

15  Huntermtn.com (2014), http://www.huntermtn.com/huntermtn/tickets-passes/season-passes.aspx, accessed June 25, 2014.