Given the surveys results, design a pricing scheme for the Springfield Northeasters’ first season in order for a financial break-even. Explain how you derived the pricing scheme and list all assumptions made. According to the surveys results and data analysis, the pricing scheme we launched was as follows (Table 2): Scheme Game to attend 1 -Game 5-came 20-Game 38-Game Price Per Game for Bleacher Seat $10. 00 $8. 00 $6. 00 $4. 00 for Grandstand Stand $1 1. 00 $8. 80 $6. 60 $4. 40 Table 2: price The analyzing process was based on some fundamental assumptions: The attendees do not have specific preference between these 38 games.
The price hey pay for admission do not relate to they consumption in premium ticket and concession. The weighted average of concession represents the actual preference in concession consumption. In terms of a price range, we select the median to simplify the analysis, for example, we use SSL 3 to represent the price range $11-$15. 1. Price Determination The first priority principle to determine the specific price is this kind of price is able to drive the maximal revenue to the Northeasters, and the basic logic to design the prices for different segment is the same, so we just take the example of 5-game Ticket to show that.
Exhibit 1&2, 3&4, 5&6, and 7&8 reveal the determination logic of one-game ticket, 5-game ticket, 20-game ticket, and 38-game ticket, respectively. Total revenue consists of two parts: tickets and concessions consumption. To begin with the ticket income, refer to the Exhibit 3. The first step is calculate the number of audience, the total population in the city of Springfield is 55,338 in 2008, and the Question 7 in the survey shows that if a minor league baseball team came to the city, there is 1 1% of them probably would subscribe to a 5-game package, in other words, there are 6,087 audiences may attend (55,338 times 1 1%).
Then, in Question 9, we investigate the targeted audiences’ preference and sensitivity on different price segments, the result is, for instance, if we set the price at $8, 94% of our spectators could accept and afford at this price level. There is another assumption, there are always going to have some percentage of no-shows on advanced sales tickets, and from one-game ticket to season ticket, the attendances are assumed as 100%, 97%, 95%, and 90%, individually. Thus, the actual number of people to show up the 5-game ticket is 5,550 (6,087 multiples 94% and multiples 97%).
The third step is to calculate the total venue from tickets, which is quite straightforward, simply use the attended population (6,087) times the proportion of audience at $8 segment (94%), and times the show-up percentage (97%) and the game number (5), so the total ticket revenue is $228,878 if the 5-game ticket price is $8. The second part in the total revenue is the income from concessions profits. The Question 13 in the questionnaire reveals that 24% of the spectators expect to spend nothing on snacks, souvenirs, and arcade games.
While 1 1 % want to spend less than $8, 45% wiling to consume $6-SO 0, and 36% would spend $11-$15 on recessions. There are two assumptions here: Number 1, in terms of a price range, we select the median to simplify the analysis, for example, we use $13 to represent the price range $1 1-$15. Number 2, the weighted average of concession represents the actual preference in concession. Hence, the weighted average dollars spent on concessions is $8. 55. Another constrain is Bucking must receive a no less than 39% profit margin from the concessions operation.
Next, the identification of total concessions revenue is to use the actual number of people will attend a certain match, also take the example of the price segment $8, 5,550 audience ill actual go, times the weighted average concessions expenditure ($8. 555), and multiples the 39% profit margin, so the revenue from concessions is $92,591 for the price level $10. The last stage is to sum the revenue from ticket sales and concessions ($321 ,469), which is the total revenue if you set the 5-game ticket at $8.
In Exhibit 4, the bat chart directly demonstrates the different revenue based on different price segment. The optimal price for 5-game ticket should be set at $8, which could bring the largest revenue compared with other price segments. The same logic could also be applied to other ticket types. So, again, our bleacher seat price scheme is (10% more grandstand seat): One-game Ticket: $10 per game 5-game Ticket: $8 per game (package ticker price $40) 20-game Ticket: $6 per game (package ticker price $120) 38-game Ticket: $4 per game (package ticker price $152) 2.
Revenue Analysis Because Larry Bucking is going to determine the pricing scheme for the Springfield Northeasters’ first season, so the priority for him is not to gain a plentiful of profits, instead, achieve financial break-even in the first year is also acceptable. Exhibit 9 lists the revenue information. More specifically, the total revenue driven from tickets sales is $799,305, and the concessions revenue is $334, 717 (Note: A little difference between the previous exhibits just result from rounding). Besides, Springfield Northeasters also supported and sponsored by other organizations, total sponsorship here is $46,000.
Add these sub items, we will get the Total Revenue: $1, 180,022. Exhibit 10 describes the Total Fixed Expenses paid by Springfield Northeasters, that is $1 Comparing the revenue and expenses, we could find that, under our price scheme, the revenue is greater than the expenses. The profit is 1 28, 143 ($1 , 1 80,022 minus $1 ,051,879), which means Bucking could achieve the break-even target. SQ. Research the actual pricing of tickets for the Springfield Cardinals or an equivalent minor league baseball team today.
How does this compare to your proposed pricing scheme for the Springfield Northeasters? For the differences in pricing, what reasons could possibly account for the pricing decisions today? We researched the actual pricing of tickets for the Springfield Cardinals on its official website, and the information is shown blow (Table 3), much more information could be found at Exhibit 11&12: Table 3: Springfield Cardinals actual prices Game to attend One-game 18/quarter season 35/half season 70/full season Price per game for grass (General Admission) $6. 0- $5. 78- $5. 94 $5. 81-$5. 90 $5. 86 Price per game for bleacher seat (Field/Dugout Box) $9. 00 $14. 00 $7. 78- $10. 94 $7. 81 0. 90 $7. 86/$10. 86 Price per game for grandstand seat $15. 00-$17. 00 $13. 78-$13. 94 $13. 81-$13. 90 $13. 86 Price per game for PILL/Expedite $25. 00-$49. 00 $23. 28-$43. 44 $23. 31-$43. 40 $23. 36/$43. 36 According to the real price table, we could find that, for one thing, the price for Field Box is around $10, which is very similar to our price set for bleacher eats.
The other actual prices are a bit higher than what we estimated, especially for grandstand seat tickets and season tickets. For another, in fact there are much more levels/layers of prices, which vary complicatedly by individual or group, season or single, purchase time, day of the week, seat areas and promotions. The reasonable explanations for the price discrepancy could be stated from the better operation strategies that Springfield Cardinals launched, which could attract more audiences to attend.
Quoted from the Demand-supply Theory from microeconomics that more demand, higher price. Also, with the covers of the LIST economy from financial crisis, the citizens’ disposable income increased significantly, which lead to a higher price. What is more, inflation is another reason could not be neglected. Reason 1 Excellent Operation Strategies Compared to actual pricing our price scheme is a little bit lower. We found excellent operations strategies that the Springfield Cardinals launched operation contributes a lot.
Referring to the data of the baseball team, they have gained more winning games than before. The fans Of the team are more willing to see the competitions. According to the Demand-supply Theory from ceremonious (See Graph 1): the demand increases, the demand curve will shift to the right (D to D’), and the price goes up, too. Reason 2: Recovery of the IIS economy By pretty much any measurement, the year of 201 0 has been the best of the recovery.
Although, a large group of Americans claim that they haven’t yet reaped the benefits of recovery, economic figures tell (Exhibit 13). Consumer spending is up, the house market back to track, Americans starts to miss baseball – once a mainstay but became a luxury activity during financial crisis. Therefore, the economy recovery has driven up the sales of tickets of sport vents. The league teams see the huge demand for games – people who once sacrificed baseball for the sake of reality are back with strong and committed minds.
To catch up economy recovery and balance ticket supply and demand, league teams designed variable ticket package to cater to different groups. Not surprisingly, for all the reasons above, today’s average ticket price is higher than Larry Backing’s time (2008) Reason 3: Inflation Rate Another reason could be the influence of worldwide inflation, which can be traced as the fluctuation of Consumer Price Index (ICP). After researching on he ICP of United states from 2009 up till now (see Table 4), Exhibit 14 also shows the line graph. E could discover that after year of 2009, the price of goods increased largely indicating a worldwide inflation, even though falling on a small scale afterwards, but still higher than that of 2009. As a result, operating a club would be more difficult these days due to the increased price of uniform, food, power, and even labor cost, which means the club can only raise the ticket price accordingly in order to break even, so the actual ticket price now in Feb., 201 5 would be slightly higher than the optimal price we included on the basic of data from May, 2009.
Table 4: The ICP of American Year 2007 2008 2009 201 0 201 1 2012 2013 ICP 2. 85 3. 84 -0. 36 1 . 64 3. 16 2. 07 1 . 46 Besides, we also researched the price tendency of movie tickets (Table 5) and US National Hockey League (Graph 2), which could be regarded as the substitutes of baseball game. Price (in U. S. Dollars) 3 Table 5: National Average Ticket Graph 2: National Average Hockey League Ticket Prices From the chart above, we can find that: firstly, both cinemas ticket and national ice hockey team’s tickets were raised nationwide from 2008 to 2015.
It is make sense that the price of baseball, as the substitute of cinemas and ice hockey, also raised from 2008 to 2015. Secondly, as the second most popular sports in United States, baseball really has a good atmosphere in the whole nation. Therefore, it is much easier for this baseball team to gain their potential customers in Springfield. This may be another reason the baseball ticket can rise this much within 7 years. In a nutshell, due to the better operation strategies, economy recovery, and inflation, the actual ticket prices are a little bit higher than our price scheme.