Revenue Management and Pricing Essay
Revenue Management and Pricing
Springfield Nor’easters was a new Class A minor league baseball team, which would start the first season in June 2009. The marketing director, Larry Buckingham, had to design the price scheme for the new season. Springfield was the third largest city in Massachusetts with 55,338 residents and around 60% of the households were families with children below 18.
However, Springfield offered few spectator opportunities for sports fans, the only way to attend a professional baseball game is to drive to other cities. Springfield Nor’easters, the first professional baseball team in the region, will compete in one of the 19 regional leagues under Minor League Baseball (MiLB). Each of the 30 teams in Major League Baseball (MLB) was affiliated with minor league teams and they funded players’ salaries as well as bat and ball expenses, while minor league teams were responsible for uniform expenses, league dues, office and travel expenses, etc.
Nor’easters’ financial goal for the first year is break even and their income will come from tickets sales, concession sales and sponsors from local institutions and organizations. To design his tickets offers, Buckingham found that it’s important to both analyze the remaining data from a survey done in 2005 by League Sports Association and conduct a more detailed survey specific to the local market. Buckingham then figured out that his primary research objectives were to know how many people would come to the games and how much to charge them, and he made several observations while interviewing some counterparts of other minor league teams.
First off, he needed to price seats on par with competition such as movies, bowling and other sporting events. Secondly, it’s important to have a well-designed mix of season tickets, group sales and individual tickets. Thirdly, he should consider promoting group sales with special promotions. Last but not least, concessions were critically important with at least a 39% profit margin.
Buckingham kept three criteria in mind while designing the survey questions: maximum information yield for management decisions, question clarity for respondents, and ease of data analysis. He decided to conduct this survey by mailing 10,000 postcards that would direct recipients to a website where they could complete a questionnaire and then get entered into a drawing. The online questionnaire was pretested three times and several questions were changed afterwards according to the feedback.
The mailing list for the postcard was drawn from two sources. One half was taken from Springfield census tracts of households with income above the poverty level and the other was obtained from the mailing lists of four sports-related organizations in Springfield. Ultimately, 625 responses were tabulated. Luckily, Buckingham found that the sample respondent characteristics were fairly representative of the Springfield market. Buckingham knew that his real goal was to maximize not only ticket income but also concessions.
He wanted to make sure the prices of different packages were set appropriately. Also, while calculating the concession sales, he was told to note that attendance would drop from around 100% (individual game) to 97% (5-game), 95% (20-game), 90% (38-game). With these things in mind, Buckingham started to analyze the survey data and calculated the optimal prices.
We found that the actual pricing policy is much more complicated, there are a wide variety of seats, and more games (full season = 70 games). To have a more-close-to-situation price for comparison, we exclude the special and upscale tickets. Then average the rest’s ticket price (“Diamond Boxes”, “Field Boxes”, “Dugout Boxes”, and “General Admission”), and come up with a result of $9.25 per game. To sum up, our proposed price ($10/game) is slightly higher than the actual price, and the reasons are as followed.
First, in the actual stadium, there are some high-class club and seat that will compensate for other cheaper tickets. Second, there may be more advertisement, sponsorship, and special event revenue which haven’t been counted in the case. Third, the actual stadium may have more seats (ex. grass seating), so the ticket price can be lower ours. Lastly, however, global recession may be a cause, but we do not consider it to take a great part. Though the ticket price per NBA game actually increases through years, taking into account the improving but still sluggish economy in 2012 and the difference in popularity, it’s not likely that Springfield Cardinals is able to set price high.