build value chapter 6 case study to understand the pricing principles in chapter 6, we examine the...
TRANSCRIPT
Build Value
Chapter 6
Case Study
To understand the pricing principles in Chapter 6, we examine the case of the Charlotte Bobcats. Review the next four slides and
review the Bobcats ticket information on their website. http://
www.nba.com/bobcats/Bobcats_Tickets_main.html
Bobcats cut season-ticket prices
Charlotte Business Journal - February 22, 2006 by Erik SpanbergIn response to sluggish demand for season tickets, the Charlotte Bobcats unveiled
plans to slash prices by an average of 14 percent for the 2006-07 season. The lower prices are for season-ticket buyers only. Individual game tickets will remain the same.
Majority owner Robert Johnson described the price-cutting as the first step in an ongoing reassessment of team operations, from food quality to in-game entertainment and even perks offered to season-ticket holders. Although the team declines disclosing sales figures, Johnson acknowledges a decline in season tickets sold this season -- the team's first in the $265 million uptown arena -- compared with the expansion club's debut season of 2004-05 played at Charlotte Coliseum.
For 2006-07, prices for season tickets will decrease by 38% in the arena's upper level. Overall, the lower prices affect 70% -- or 11,581 seats -- of capacity. The arena has capacity of 19,026, but excluding premium seating such as luxury suites, the number of seats is 16,596.
The move comes as the Bobcats begin sending out renewal notices to season-ticket buyers this month. For new season-ticket buyers, the team is offering free tickets to six games during the remainder of the current season.
After finishing 28th in the 30-team NBA in attendance last season, the Bobcats currently rank 20th. Still, as Johnson and other franchise investors have made clear, season-ticket sales are a vital revenue source and the strongest barometer of a team's health. The price reductions illustrate the owners' discomfort with season-ticket sales to date.
Bobcats on the Prowl
By Ellison Clary, excerpted from http://www.greatercharlottebiz.com/article.asp?id=658 (December 2006; update on fan response to ticket price cuts by the Charlotte Bobcats)First, the Bobcats cut season ticket prices by about 17 percent for the 2006-07 season.
Then Whitfield added some additional incentives. In conjunction with the NBA, he initiated a $199 full-season package.
“These were for seats in the far corners of the building that we weren’t going to sell anyway,” Whitfield explains. “We sold 1,100 of them. That’s $5 a game per season. If we can just get people to test our product, see what an exciting event it is, then those are the people hopefully we can upgrade to higher priced tickets.”
Then there’s the $999 full-season ticket package that Hinchey came up with. Buyers sit in first level seats except for games against the best 12 NBA teams – Cleveland, Miami and the Los Angeles Lakers among them – when crowds are naturally larger. Then they move to the first few rows of the upper level.
How are these efforts working? Speaking just before the season started, Whitfield says the Bobcats have sold 2,600 new full-season ticket packages, ranking them fourth in the NBA. For the 2005-06 season, the team sold only 461 new season ticket plans.
Overall, the Bobcats had 5,100 season tickets last year. Whitfield says his goal is 10,000 season tickets, but admits he might not get there this year. As many as 8,000, plus a healthy number of partial season packages, would be acceptable for now, he says.
Bobcats 2006-07 Promotional Giveaway Nights
WEDNESDAY, NOVEMBER 1 vs. INDIANAOpening Night T-Shirts to all fans in attendancePresented by Lowe’s Home Improvement
SATURDAY, NOVEMBER 4 vs. CLEVELANDSchedule Magnets to all fans in attendance
FRIDAY, NOVEMBER 10 vs. SEATTLESchedule Posters to all fans in attendancePresented by Charlotte Copy Data
SUNDAY, DECEMBER 3 vs. DETROITBobcats Car Flags to first 10,000 fans
THURSDAY, DECEMBER 14 vs. ORLANDOBobcats Growl Towels to all fans in attendance
FRIDAY, DECEMBER 22 vs. UTAHHoliday Hoopla Jersey Ornaments to first 10,000 fans
WEDNESDAY, DECEMBER 27 vs. WASHINGTONBobcats Blue Jerseys to first 10,000 fans
SATURDAY, JANUARY 13 vs. PHILADELPHIANASCAR Night
MONDAY, JANUARY 15 vs. MILWAUKEEMartin Luther King Jr. Day
SATURDAY, JANUARY 20 vs. ATLANTAEmeka Okafor Jersey Basketballs to first 10,000 fansPresented by Sprite
WEDNESDAY, JANUARY 24 vs. DETROITGerald Wallace Bobbleheads to first 10,000 fans
SATURDAY, FEBRUARY 3 vs. GOLDEN STATEMini Basketball Hoop Sets to first 10,000 fansPresented by Charlotte Metro Credit Union
SATURDAY, FEBRUARY 24 vs. TORONTORaymond Felton Kids Jersey to first 5,000 fans 14 and underPresented by Presbyterian Hospital
SATURDAY, MARCH 10 vs. MEMPHISAdam Morrison Bobbleheads to first 10,000 fans
SATURDAY, MARCH 24 vs. NEW JERSEYReversible Bucket Hats to first 10,000 fans 21 and overPresented by Bud Light
FRIDAY, APRIL 6 vs. INDIANATeam Posters to all fans in attendancePresented by Tathwell Printing
WEDNESDAY, APRIL 18 vs. NEW YORKFan Appreciation Night T-Shirts to all fans in attendancePresented by Sprite
What aggregate factors drive attendance in sports?
Findings from MLB attendance data Conclusion
Fans are attracted to those teams that are currently performing well.
Winning increases attendance.
Player payroll acts as a surrogate for the presence of star players. Teams with higher payrolls have higher attendance.
Star players increase attendance
Post-season appearances have a lagged effect on attendance. The team’s winning percentage is likely to have an effect during the current season. However, since knowledge of playoff performance is after the season’s conclusion, it’s greatest effect is on attendance for the coming year.
Prior postseason success increases current attendance
Large metro areas are likely to have increased competition for sports and leisure dollars. In particular, the largest metro areas have more than one MLB team (Chicago, New York, Los Angeles, Oakland/San Francisco Bay area). So, larger populations have a negative effect on attendance.
Largest metros (with increased competition) decrease attendance
Attractive stadiums (vintage or newer) lead to higher attendance. Attractive facilities increase attendance
What is the Bobcats’ situation?
Factors Driving Attendance Situation
Winning increases attendance. Are the Bobcats winning?
Star players increase attendance
Do the Bobcats have true marquee star players?
Prior postseason success increases current attendance
Have the Bobcats been in the playoffs?
Largest metros (with increased competition) decrease attendance
How should the size of the Charlotte metro area help the Bobcats?
Attractive facilities increase attendance
How attractive is the new arena?
What is the Bobcats’ situation?
Situation Answer
Are the Bobcats winning? No.
Do the Bobcats have true marquee star players?
Morrison, Okafor & Wallace are good, not great.
Have the Bobcats been in the playoffs? No.
How should the size of the Charlotte metro area help the Bobcats?
It should help. The city is the 20th largest in the U.S. and is growing (+33.6% 1990-2000). Sports competition is limited (NFL, minor league baseball & hockey).
How attractive is the new arena? Should be positive. It’s convenient & well-designed.
Attendance & Pricing
How does understanding the factors that drive attendance help
teams understand the proper
approach to price setting?
1. The quality of the facilities limits or enhances the ability to charge premium prices.
2. Star players can draw fans even when the team isn’t winning—allowing for higher ticket prices.
3. Winning & getting to the play-offs allow teams to charge more.
4. Direct competition can drain sports fans’ (and sponsors’) pocketbooks and limit price escalation.
Attendance & Pricing
1. Given the Bobcats situation, do you agree or disagree with the team’s cutting season ticket prices?
2. Why did they have to cut them in the first place? What does cutting prices say about the initial price levels?
3. In 2006-07, the Bobcats have 8000 season tickets and the goal is 11,000. If the team begins winning and get to the playoffs, should they increase season ticket prices the following year? What happens if they win one year and then lose the next?
Who offers discounts?
Why do teams offer discounts?• If teams are able to charge
higher prices when they have quality venues, star players, winning teams, post-season appearances, and limited direct competition, then what teams are charging lower prices?
• What is the team saying when it offers frequent discounts (or always have free tickets available)? What are they telling fans?
Pebble Beach Golf
Price lining.
How have the Bobcats employed price lining in terms of:
1. Seats• View• Comfort• Amenities• Service
2. Participants• Opponents
Ticket discounts
Risks of discounting• May alienate customers
who are paying full price.
• The discounts may become permanent (in the minds of consumers).
• Discounts generate a negative connotation for your brand.
The Bobcats offer a $5 ticket discount for those that have loyalty cards from a local grocery store (Harris Tweeter). Does this build value for customers? Should they continue the discount?
Situational Price Sensitivity
Situational Variable
Context
How would these situations affect fans’ willingness to pay for Bobcats’ tickets?
Answer
Antecedent State
Mood: Bad vs. Good Condition: Out of money vs. Just got paid
Physical Surroundings
Weather: Rainy/Cold forecast vs. Clear/Pleasant forecastFacilities: Unattractive stadium vs. Attractive stadiumEvent promotions: Boring vs. Exciting game day activities
Social Surroundings
Social setting: Alone vs. With othersSales setting: Online vs. Salesperson
Task Definition
Purpose: Buy for self vs. Buy for othersUtility: Functional (necessity) vs. Hedonic (pleasure; luxury)
Temporal Perspective
Season: First game vs. Midyear game vs. Last gameTime constraint: 5 minutes vs. 2 days to decide on ticket Opponent: Last place team vs. Archrival
Situational Price Sensitivity
Situational Variable
Context
How would these situations affect fans’ willingness to pay for Bobcats’ tickets?
Answer
Antecedent State
Mood: Bad vs. Good Condition: Out of money vs. Just got paid
Less PS
More PS
Physical Surroundings
Weather: Rainy/Cold forecast vs. Clear/Pleasant forecastFacilities: Unattractive stadium vs. Attractive stadiumEvent promotions: Boring vs. Exciting game day activities
More PS
Less PS
More PS
Social Surroundings
Social setting: Alone vs. With othersSales setting: Online vs. Salesperson
More PS
Less PS
Task Definition
Purpose: Buy for self vs. Buy for othersUtility: Functional (necessity) vs. Hedonic (pleasure)
Less PS
Less PS
Temporal Perspective
Season: First game vs. Midyear game vs. Last gameTime constraint: 5 minutes vs. 2 days to decide on ticketOpponent: Last place team vs. Archrival
Depends
Less PS
Less PS
Price discrimination
1. Is a given ticket (e.g., a box seat) worth the same amount to everyone all the time?
2. Is a given ticket (e.g., a box seat) worth the same amount to the same person all the time?
3. What do your answers to 1 & 2 imply for the practice of price discrimination?
Price discrimination
Table 6.2 Conditions for Effective Price Discrimination
Issue Price discrimination works when segments:
Sensitivity have different levels of price sensitivity that motivates some fans to search for lower prices.
Large are large enough to warrant different prices.
Identifiable are identifiable so that they can be priced differently.
Confusion are not confused by the different prices.
Economics are economically profitable segments.
Separation are separate enough so that those who pay one price can’t exchange the product (or ticket) with those who paid higher prices.
What is the most effective tool to identify & contact price sensitive segments without confusing other segments? (p.128)
Price discrimination
Table 5.3 Conditions for Effective Price Discrimination
Issue Price discrimination works when segments:
Sensitivity have different levels of price sensitivity that motivates some fans to search for lower prices.
Large are large enough to warrant different prices.
Identifiable are identifiable so that they can be priced differently.
Confusion are not confused by the different prices.
Economics are economically profitable segments.
Separation are separate enough so that those who pay one price can’t exchange the product (or ticket) with those who paid higher prices.
The Bobcats offer a $5 discount for fans who have a Harris Tweeter card. How could they know if this was an economically profitable form of price discrimination?
Price discrimination
Table 5.3 Conditions for Effective Price Discrimination
Issue Price discrimination works when segments:
Sensitivity have different levels of price sensitivity that motivates some fans to search for lower prices.
Large are large enough to warrant different prices.
Identifiable are identifiable so that they can be priced differently.
Confusion are not confused by the different prices.
Economics are economically profitable segments.
Separation are separate enough so that those who pay one price can’t exchange the product (or ticket) with those who paid higher prices.
If cheaper or better tickets are available outside the arena than what are available at the box-office, what might this say about the
team’s ability to effectively set ticket prices and employ price discrimination?
Add value—avoid price cuts
• Review the promotions offered by the Bobcats.
• Do these promotions add value?
• What are the advantages of offering promotions on weekends and holidays as the Bobcats have done?
Add value—avoid price cuts.
Successful sports organizations strategically plan to build value by adding even more entertainment bang-for-the buck for their best events. The idea is to make the big nights so big that it creates excess demand that flows over into the other nights.
How do the Memphis Redbirds maintain attendance in the top two of all minor league baseball—despite mediocre performance on the field? (2003: 64-79 ; 2004: 73-71; 2005: 71-72; 2006: 58-86)
Make big games even bigger with added-value promotions.
Offer great customer service and facilities.
Provide convenient areas for socialization and fan interaction.
Provide entertainment for children and less-involved fans
Strategy without tactics is the slowest route to victory. Tactics without strategy is
the noise before defeat.
~Sun Tzu (Chinese general, 500 BC)