Noreaster First Season: Ticket Pricing

Noreasters first season will be very telling of the teams future success in Springfield, Massachusetts. Costs for running the minor league program are expected to total 1.76M, meaning in order to break-even, Noreaster must employ an optimal ticket pricing strategy that maximizes revenue opportunity and does not leave any money on the table (Cespedes, Winig & Lovelock, 2009).

The main factors Noreaster should take into account in establishing a pricing policy are (1) pricing objective, (2) consumer demand, (3) estimated costs, (4) competitors costs, prices and offers and (5) optimal pricing method.

Noreaster will employ a partial cost recovery pricing objective. In order to recover costs through concession revenue (an estimated 39% profit margin) (Cespedes, Winig & Lovelock, 2009) filling the maximum number of seats in the 3600 capacity stadium is imperative. Revenue from advertising and donations will also be a critical factor in cost recovery.

Determining the demand of Noreasters services cannot be underestimated. Survey results show 89% of respondents are willing to pay an average of $10 per game for 5 ticket packages, 68% are willing to pay an average of $10 per game for packages of 20 games and only 35% of respondents would be willing to pay $10 per game for the full 38 game season package. We can expect 78% of people are willing to attend roughly 12 games at a cost of $10 per ticket. 64% of respondents would purchase the season packages if the price drops to $5 per game.

It is important to note that the survey also showed only 7% of respondents would subscribe to a 20 or 38 game packages whereas 42% would attend a game or get 5 game packages. 48% would be willing to pay more for better seats; an average of $11 per game for 5 or 20 ticket packages, and $5.50 for the whole season package. More notably, 61% responded they would not attend a game at all (Cespedes, Winig & Lovelock, 2009).

Target market is very important. 40% of the survey respondents are between 36 and 55 years of age and 76% of respondents have annual household incomes between $22.5k and $74.9k . Overall, in Springfield, the average income of a household of 3 was $37.8k and median household in general was $31k. 60% of the families living in Springfield are traditional families with children under age 18. (Cespedes, Winig & Lovelock, 2009).

The survey results must be adjusted from the sample population to figures relative to Springfields actual population. 625 responses to the survey were gathered from the 10,000 sent out; meaning 6% of surveys were completed and the 10,000 survey targets represented 6% of the total population (153,000) of Springfield. (U.S. Census, 2010). Assuming we accept a 5% margin of error for the survey with a 95% confidence level, an appropriate sample size would be roughly 384 responses. Therefore, we can assume of the 625 responses, 95% (593) are accurate and roughly 5% (1 in 19) of the surveys will not provide accurate responses. Of the accurate responses, we can conclude that 355 (60%) respondents do indeed assume they would not attend a game at all leaving only 270 respondents, representative of .1% of the total population of Springfield would attend a game. Given the small representative sample size we can assume would attend a game from the survey answers alone, we must disregard this data and instead target the appropriate audience.

Families with children between 6 and 17 years of age are not only the most likely audience for the Noreaster games, but families within

those demographics, on average, spend the most amount of money on event concessions; $870 annually per household. (aareports.com). 66% of respondents have at least one child. 28.7%, the majority of survey respondents are parents of children involved in youth sports.

Noreaster should target the family demographic. After all, minor baseball is not selling baseball, they are selling entertainment (Case Study). With the closest professional sporting event a minimum of 90 miles away, families with young children and busy schedules would be optimal targets for a closer, family friendly entertainment alternative to other professional sporting events such as the Boston Red Sox major league baseball or Boston Celtics major league basketball. It is important to note that comparable alternatives (college games which average a cost of $5-6 per ticket, major league events which average $12-$325 per ticket and other minor league games which average $6-$26 per ticket) , can be attended for an average cost of $8 per ticket. However, it is important to note the ticket costs do not include the inevitable travel expenses associated with comparable alternatives. The Noreasters can capitalize on competitive advantage here. Support and pride for the home team, the excitement and attractiveness of the higher skill level necessary in minor league sports compared to college sports and the cost of travel when attending major league games will be three of the fundamental marketing basics of the tickets for the Noreasters.

Fixed costs for Noreasters first season in operation are 1.96 million. Variable costs such as concession inventory and memorabilia are assumed to average $4 per person in attendance. With an expected average of 94% attendance (3,384 tickets) concession costs are estimated at $515k for the 38 game season. Marketing and advertising fixed costs will however eventually decrease as popularity of the team spreads and loyal customers are secured. However, those savings cannot be assumed as revenue. Instead, a cost shift happens. As more people become aware and attend games, the money that is no longer needed for marketing and advertising will be

shifted into concession and memorabilia costs.

With $46k secured in revenue through local donations and advertising from local vendors plus the estimated concession costs, and roughly $190k of annual entertainment costs (moon bounces, games, families activities, etc.), a comfortable estimate of total costs of operations for the Noreasters is 1.76M in its first season.

A perceived value pricing approach will encompass the idea that the Noreasters deliver more value in their ticket price than alternatives. Differentiated pricing will occur. Channel pricing will be used to sell tickets to a variety of consumers; local families and individuals, vendors and ticket brokers. Time pricing will be used to vary ticket prices by purchase date. Product-mix pricing strategies will also be employed. Eventually, product-line pricing will delineate costs by the seating location but for the first year, a general admission strategy will encourage attendees to arrive early resulting in higher concession sales. Product-bundle pricing will be available for those who would prefer season ticket packages.

We will assume concession profit in line with the 39% industry average; roughly $200.8k annually. This expected revenue leaves the Noreasters with 1.56M necessary in order to break even. $41k needs to be generated in ticket and concession sales every home game of the Noreasters 38 game season; an average of $12.13 per person in attendance assuming the average 94% rate of attendance.

The attractiveness of the Noreasters games (as mentioned as competitive advantage) will be its perceived value. Comparable alternatives can be entered into at an average of $8/ticket, however travel expenses must be considered. The average U.S. automobile gets 21mpg, $3.62 is the average cost per gallon of gasoline fuel in Massachusetts, which means a 90 mile trip will add $16 in travel

expenses bringing the average ticket price up to roughly $24 (Road Trip America, 2012) (Gas Buddy.com, 2012). However, we must assume that every person attending an alternative sporting event will not be driving themselves and instead will attend such events in groups, we will reduce travel costs per ticket to $8 bringing the estimated costs of attending alternatives $16 per ticket.

Noreaster Ticket Pricing:

Timing | Single Game | 5 or 20 game packages | 38 game season ticket package | Pre-purchases (online, ticket brokers, etc.) | $12 | $10 | $7 |

** Single tickets purchased at the door will be $14 ** 15% of tickets will be saved and sold only to vendors and brokers at a flat rate of $7 per game for the whole 38 game package

With the above pricing and previously noted variables, we can expect roughly 78.5% of ticket sales to be pre-purchased for 5 or 20 game packages at $10 per ticket. That is an average of $120 per transaction ($10/game, average of 12 games) per person. The target 12 game average plus concession sales previously estimated at $870 per household resulting in $1230 per household of 3 or more annually. With 94% average rate of attendance, we will assume 70% of attendees will be households and the remaining 24% will be purchasers of individual tickets and bundle packaging for vendors and or ticket brokers. (70% of survey respondents are within the age average age range of parents).

Therefore, an estimated 2368 of attendees will be members of households (3 or more), so roughly 790 households can be expected at the games resulting in $687.3k in concession revenue annually. Broken down, that is roughly $18,087 per game. The remaining 24% (812) of attendees are broken down into the 15% of wholesale sales (vendors and brokers) and the remaining 9% of attendees will be assumed as day of purchasers at a ticket price of $14. Vendor and broker ticket sales will generate $135k annually, and day of purchasers can be estimated to generate $162k annually.

The estimated 790 households in attendance will generate $971k in ticket and concession sales annually plus the estimated amount generated from the remaining 24% of attendees results in an estimated $297k in ticket sales and an estimated 81% of the 24% of non-household ticket purchasers (812 attendees) will spend an average of $10.50 on concessions generating $324k annually. 1.27M in ticket sales plus estimated concession sales results in roughly 1.59M in total sales; $400k over the 1.56M needed to break even the first year.

References

Cespedes, F., Winig, L., & Lovelock, C. (2009). The Springfield nor'easters: Maximizing revenue in the minor leagues. Unpublished raw data, Harvard Business Publishing, Harvard University, Retrieved from http://cb.hbsp.harvard.edu/cb/web/he/product_view.seam?R=2510PDF- ENG&T=EDC&C=PURCHASED_MATERIALS&

Gas Buddy. (2012). Massachusetts gas prices. Retrieved from http://www.massachusettsgasprices.com/Prices_Nationally.aspx

Kotler, P., & Keller, K. (2009). A framework for marketing management. Upper Saddle River, New Jersey: Pearson Prentice Hall.

Road Trip America. (2012). Fuel cost calculator. Retrieved from http://www.roadtripamerica.com/fuel-cost-calculator.php