Katie Wilson 1 Executive Summary The Nor easters are a new minor league baseball team whose first season will begin in about a year and a half. Larry Buckingham has been tasked with creating a pricing strategy for tickets, as well as taking care of the other marketing needs of the team. He has many factors he needs to consider as he creates his pricing strategy, including the following: Springfield has a minor league hockey team that is threatening to leave because they cannot sale enough season tickets. Springfield residents have a median income of $31,046, which means they do not necessarily have a lot of extra money to spend. However, Springfield is starting to experience some growth with many entrepreneurs, financial organizations, and health organizations moving to the area. From his research, Larry knows more than half of the team s revenue may have to come from ads and concession sales. However, to have strong concession sales, he must have solid ticket sales. His manager, Jimmy Mercante, wants to break even in the team s first year. This analysis will cover the issues Larry faces as he creates his pricing strategy; the important results he needs to consider from the survey he sent; what pricing strategy he should implement for the Nor easters and why; and what he can do to break even in the first year. This analysis will also recommend that Larry implement a fair pricing strategy that is not too high it turns people away from events, but is not too low that the Nor easters can t make a profit. It will recommend that Larry markets to families because this is the market that is most likely to come to games and buy items at the concession stands. Finally, it will recommend that Larry gets businesses around the area to purchase several ads because currently there is a small chance that he will have the strong ticket sales he needs to break even in the first year.
Katie Wilson 2 Analysis of the Nor easters and Their Pricing Strategy Larry Buckingham has many challenges facing him as he tries to create a pricing strategy for the Springfield Nor easters. To better figure out his pricing strategy, he utilized secondary research from the League Sports Association; however, this research applied to both major and minor league teams, so he decided to do his own primary research to better understand the city where the Nor easters will play. Larry knew he had to collect the right data because a minor league hockey team was also threatening to leave Springfield if they did not sale more tickets. Larry knew he needed this primary survey information to better analyze who would be willing to come to the games and how much they would be willing to pay. To develop the survey, he talked to his equivalents at other minor league teams. He focused on how these teams generated revenue so he would better know what to ask on his survey. Once he had developed the survey, he sent it through a pretest to see how he could better ask the questions to improve responses. He bought mailing lists from the Springfield census and from four sports-related organizations in Springfield. He got a random sample of the names in the database for each. He sent out 10,000 surveys and received 625 responses. Overall, Larry felt the respondent characteristics were fairly representative of the Springfield market (page 318 1 ). The most significant findings from the survey were as follows: Of the people who will attend a game, 21% (the highest percentage) are willing to attend one game, and 11% (the next highest percentage) would consider a 5-game package. When it comes to paying for one game, 31% are willing to pay $10, 27% are willing to pay $12, and 22% are willing to pay $14. This is important because the highest 1 All page references come from The Springfield Nor easters: Maximizing Revenues in the Minor Leagues case study in Duke, McGraw-Hill Customized Text with cases.
Katie Wilson 3 percentage of respondents is willing to pay $10 or more, which means that the Nor easters could comfortably charge more for one game. Those who would purchase a 5-game ticket package are willing to pay between $10 and $12. 48% are willing to pay 10% more for grandstand seats over bleacher seats. Finally, the majority of respondents (66%) have children living with them. When establishing a pricing policy, there are several important factors to consider. The first is that there is currently another minor league team that is considering leaving Springfield because they are not selling enough season tickets; in fact, they need to sell 300 or more season tickets for the team to remain viable in Springfield. This could impact the Nor easters as well, especially since in the survey, respondents were more willing to buy single or 5-game tickets over full-season tickets. While they want to be aggressive with their pricing to make a profit, the Nor easters also need to keep in mind that currently Springfield does not have the richest population and many have to be cautious of the money they spend. However, 60% of the population has families and many of these families are active in little leagues; this group of people will be more likely to attend a game. Springfield is also showing signs of growth with several small businesses, entrepreneurs, and health care and financial industries moving into the area, which could be a good sign for the Nor easters advertising sales. When creating the pricing strategy, there are two quotes to keep in mind: Most of the marketing directors emphasized the need to price seats on par with the competition movies, bowling, other sporting events. (page 316) Our prices should be high enough so that anyone who can and will pay a lot to attend will do so. At the same time, anyone who really wants to come shouldn t be put off by what they perceive as too-high prices. (page 318)
Katie Wilson 4 Based off the above information, Larry should implement the following ticket price options. Larry should offer both bleacher and grandstand seating options for single and 5-game tickets. He should do this because 48% of respondents said they were willing to pay 10% more for grandstand over bleacher seating. For 5-game tickets, the higher percentage of people were willing to pay between $10-$12; since the Nor easters still need to make a profit, Larry can make 5-game tickets $12 for grandstand and $10 for bleachers. Larry should offer 5-game tickets for bleacher seats because they aren t as comfortable as grandstand; however, they could offer an option for those who want to save money but want to attend more than one game. He can make 20-game tickets $10 for grandstand since the majority was willing to pay between $8-$10. He can make the full-season tickets $6 per game for grandstand seats. He should charge $6 per game for season tickets because most people were willing to pay between $4-$8. Based on the lower level of interest in season tickets, it is better to go significantly lower than the 20-game tickets to draw more people to these tickets, but not go too low that they can t be profitable. Finally, for single game tickets, he should charge $14 for grandstand and $12 for bleacher seats. Most respondents were willing to pay at or above $10, but since Larry wants to encourage season or multi-game ticket sales, he should charge the maximum people are willing to pay for a single game ticket. (See the Appendix for the Pricing Chart.) Larry also received good advice from his counterparts who suggested catering to families and little leagues. When looking at prices for other minor league teams, it appeared that offering group rates (that discounted by $2 or more) was an important strategy for minor league teams. To account for these groups, he should create a birthday group, a little league group, and a regular group set of tickets. He should charge $18 per person for birthday and little league groups because food will be provided so parents won t have to leave to get food for a bunch of kids (though they can still buy other concession items). These groups could use either the Birthday Party Zone or the Family Section. For the regular group tickets, he should offer a $2 discount from the $14 tickets.
Katie Wilson 5 This is on par with the 5-game tickets and encourages people to bring 10 or more people to the game. They would also have access to grandstand seats. Based on the expenses and revenues calculations provided in the Appendix, Larry can assume there is a slim possibility that the Nor easters will break even in the first year. If they sold only the highest priced tickets and sold out every game, they could break even from ticket sales alone; however, based on the troubles the minor league hockey team is having, it is very unlikely they will be able to sellout every game. If they sold 75% of seats at full price every game, they would still break even; however, if they sell less than 75% of seats every game, they will have to rely heavily on ad sales and concession sales to break even their first year. To break even, the Nor easters will have to use clever and aggressive marketing to get people to the games. This includes pushing family-friendly events and their group rates. They need to make it the place for families and groups to go any night of the week. Larry should focus on families because they will probably be the majority of who comes to the games and the Nor easters need to utilize this market. Larry could also enhance the team s relationships with the local businesses coming into town. The case mentions that several entrepreneurs, healthcare businesses, and financial businesses have started coming to the area. If he can get them to buy more ads for an aggressive cost, this could substantially help the revenues they bring in. He could also consider getting these businesses to purchase group tickets for their companies. From the case, it didn t sound like these were necessarily big businesses, so group ticket rates could be very viable for these businesses. Considering the troubles of the city, Larry should focus on enhancing ad and concession sales as much as possible since tickets sales may not be very strong. He should also create events that get families to the games since they have the best potential for attending games and buying concession items while they re there. If he can get this market and get them to buy concession items while they re there, he can increase the team s chances of breaking even.
Katie Wilson 6 Appendix: Pricing Chart Grandstand (all prices represent costs per game) Cost per Ticket Type of Ticket Single Ticket 5-game 20-game half-season 38-game season $6 $8 $10 $12 $14 Bleachers (all prices represent costs per game) Cost per Ticket Type of Ticket $10 $12 Single Ticket 5-game Extra Promotions Promotions Cost Notes Birthday Party Zone $18/person Includes food, drinks, and a special visit from the team Little League Teams Group Tickets $18/person $12/person mascot and two players Includes food, autographed souvenirs from the team, a visit from the mascot, and an introduction of the team on the field Valid for groups of 10 or more
Katie Wilson 7 Appendix: Expenses and Potential Revenues Expenses Fixed Expenses (excludes costs $1,051,879 covered by the major league) Mailings $3,800 Cost of lists (estimated) $680 Total $1,056,359 Revenues if the Nor'easters sold out every game Sold out bleachers at $24,000 full price (per game) Sold out grandstand at full price (per game) $22,400 Total (per game) $46,400 Total for the full $1,763,200 season To break even 0 If Nor'easters sold 75% of seats Sold 1,500 bleacher Sold 1,200 grandstand seats per game (full $18,000 $21,000 Total per game $39,000 Total for season $1,482,000 To break even 0
Katie Wilson 8 If Nor'easters sold 50% of seats Sold 1,000 bleacher Sold 800 grandstand $12,000 $11,200 Total per game $23,200 Total for the season $881,600 To break even (would need the following from concessions and ads) $174,759 If they sold 21% of seats (based on survey data) Sold 420 bleacher Sold 336 grandstand $5,040 $4,704 Total per game $9,744 Total for full season $370,272 To break even (would need the following from concessions and ads) $686,087