Johnkingsley Obasi AMBA650-The Springfield Nor’easters Case Analysis. Introduction. The city of Springfield, Massachusetts were blessed with the basing of a baseball minor league franchise in their city. But the class A team is faced with great revenue generation challenges that will make or mar the organization. The new team might likely take advantage of the fact that closest sports franchised teams are all located 90 miles away from Springfield. This might create a ticket and concession boom for the team and other benefits like employment and taxes for the city.
The city has a considerable moderate family income and a recent growth index in the healthcare, financial, and other small and medium enterprise sectors is an advantage to the team’s marketing and pricing strategies. The process of designing and implementing an effective and strategic pricing structure needs a deep understanding and knowledge of the consumer psychology and a successful pattern of setting, adapting and changing prices (Kotler & Keller, 2009). As a center to develop upcoming younger players, the franchise owner has an objective of making money from his baseball operations in the city.
By having a successful financial breakthrough, the team will be able to finance itself and grow in a sustainable form to be competitive and profitable. The main task of this analysis is to present the best possible marketing and pricing strategies that will enable the baseball team make profit. As this organization struggles to with the pricing decisions, they embarked upon a survey to obtain an optimal pricing that will be based on the market response and reactions. Respondents will give them a helpful insight about the marketplace and possible consumer behaviors.
Unfortunately, low number of respondents and inaccurate data posed another challenge. The Strategic Issues, Problems, And Other Factors Nor’easters Need To Consider Before Price Establishment. Demand considerations is critical to pricing tickets for a base price. To begin with, management needed to build a demand for ticket sales based on extensive research. This will entail asking how many fans and non-fans would buy the teams ticket at a certain price. This exercise need to be done for various prices.
Also, this survey or research could be done by doing a survey among the target tickets market. The best option, especially for a large business organizations like the Nor’easter is to employ the services of a marketing firm to carry-out the research for them. It is an imperative factor that companies must set a pricing structure when they are offering new products or services ( Kotler ; Keller, 2009). The demand price elasticity is an important factor to consider it simply states that consumers will play a role in determining how responsive to price the demand for the product is.
Accurate figures can be obtained by research and mathematical calculations through simple steps. Under this situation you ask the effect of slight change in prices. If prices are offered at discount rates, then, price is increased then demand will expected to fall significantly as a result of that action. If luxuries goods are been sold, then demand will not respond that much to changes in price. The higher we see demand elasticity grow, the greater the growth volume will be as a result of possible 1% price reduction.
When Nor’easters ticket demand goes elastic, that might warrant price-cutting to boost sales, especially cost of tickets productions and operating cost have not gone up in a disproportionate manner. Factor Number 3 that must be considered is cost. Cost here will include the cost of all borrowed capitals that have been invested in the business. Another cost to be considered will be operating cost. Every organization need to consider cost of their products or services are crucial. The issue is that a lot of small and medium business owners and managers have many times failed to do accurate price calculations.
It is expected that price calculation should be done in order to work out the accurate cost of the entire process of offering a service or product to the marketplace. Every individual cost is expected to be calculated in relative terms to any type of cost. Fixed cost is cost occupies a larger magnitude in an organization’s financial books and therefore, has very well defined value if you are producing or selling a product. To offer an intelligent pricing structure, Nor’easters and their management need to understand how their costs variations in different departments of their business works( Kotler & Keller, 2009).
Environmental factor is another factor that Nor’easters must consider-Every business must take the environment factor into account for price policy establishment. They are in the category of constrictions that are carried out by the overall supervising office. Here, the commissioner for baseball has the regulatory powers and he can overrule some certain internal policies of any minor team that is in conflict with the core business objectives of the Major Baseball League (MLB). I strongly urge Springfield Nor’easters to consider this factor in the pricing policy and establishment of their organization. . A well defined problem is literally believed to be half solved. The minor baseball team in the Class A category is faced with the problem of earning reasonable revenue from sales of ticket that will empower their sound operations in Springfield. The issue of poor ticket sales could come alive with as a result of what happened to one of the minor league ice hockey teams that left the city. The team is constrained by the fact that only their players salaries, bats, and ball expenses paid by the major league teams. The minor league teams have to offset their other operating costs.
In the event of failure to break-even and generate funds to pay for their other expenditures, the team would have to relocate to another city with better market opportunities. Concession sales would generate funds that will help offset the estimated $1. 96million operating budget, while the main partner- The Major League will contribute funds, the ticket sales is the key revenue generating source for the team. How to sell these tickets is the major problem for the team. A loyal fan base makes successful minor league baseball team(Cespedes, Winig, and Lovelock, 2009). . Analysis and evaluation. The SWOT Analysis: The city has two market segments for the sports ticketing business- namely-Loyal sports lovers that are willing to drive 90 miles to city of Boston to watch games and the second segment includes: Families, College Students, Little Leagues, and other sports lovers that do not commit absolute loyalty to any team but would love to watch games in their home city. Research shows that the market buyer behavior shows that game watchers need to be entertained in every games, thereby making the sports as an entertainment source.
The act of the game providing a source of entertainment will surely draw fans repeatedly to the stadium for many season games if not all. Many families with minors are assumed to more likely attend many professional games in their home town. The case brief showed that about 23% had viewed baseball games on TV so it was an easy task to estimate a ticket sale from this segment. According to the survey provided in the case brief, 61% of the respondents in the city of Springfield had said that they might likely not attend a baseball game played by the minor league team.
A high percentage rate of 31% indicated interest of being willing to pay $10 to see a game. Survey shows that the past 2 or 3 years, about 76% of the people interviewed had paid to watch a major league baseball game. Strengths: The target team segment of the team are the household with children of school-age under 18 years and other sport fans with loyal tendency. The team, according to survey had received positive responses from residents of the city, if those are authentic, the team will surely generate revenue that will keep them off the red zone.
Springfield College has offered the team their stadium to use in exchange of package fees revenues. This has eliminated the cost of leasing a stadium . Another strength addition, $21,000 pledge from the city college and of $25,000 in sponsorship. The team has no product-market competitor in the city of Springfield. Weaknesses: There is a fundamental demographic issue as the city population is out-numbered by a working-class population that has no culture or tradition of going to the stadium to watch minor league baseball games. Ability to generate enough revenue to keep the team alive. expenses.
Opportunities: The recent growth in the healthcare, financial, and entrepreneurship might create an new market and segment for the team. It is assumed that new opportunities will follow the new economic uplifting witnessed by the city in recent times would attract a new audiences and followership to professional sport games like minor league baseball. There is no existence of any competitor in the city that will share the market with the team , with this, any sports lover would be compelled to visit the matches of Nor’easters. Threats: Survey showed that 61% of respondents residing in the city would pay to see a game.
There is a strong assumption that this huge number might influence many others. This is a potential threat that may cause the team ticket sales. Springfield is a city with poor tradition of going to see games. If this culture and tradition is not changed, it might pose a great threat to the existence of the team. Designing a pricing plan for Nor’easters . As marketing Director of the organization, Larry Buckingham embark on a market research with the intention of insightful outcome about the market and to explore and exploit ways of selling large number of tickets.
The research was to enable him also to have a knowledge of who his possible and potential customers will be based on segmented ticket structure. The survey results and other information from various sources empowered Mr Buckingham to design a strategic pricing policy and establishment for his organization’s concession and ticket sales. Based on data provision in the case brief, I have established from market research information show that two alternative pricing strategies that both offer strengths and weaknesses. Also some recommendations are offered based on the pricing strategies.
From the survey data, assumptions made based on information from the case brief, more than 50% of the city population need to buy tickets for at least one game doing the season to enable Nor’easters generate revenues that can keep them on the break-even column. Even though 39% of the Springfield population exhibited interest to seeing baseball games as shown in the survey, this cannot be authenticated because of size of the sample used in the survey. By engaging communication and marketing, Nor’easters can increase the percentage of residents willing to watch live games to more than 50%.
However, considering to move to another city with high ticket-sales potential is a viable option, right? I personally do not think so. As Nor’easter and its management is faced with the process of designing the right pricing for all ticket levels and seats, the marketing director must take into consideration the fact that he is faced with very ”price sensitive” customers. According to Baye et al (2005), “the application of innovative pricing strategies coupled with innovative management best practices is a perfect recipe for success in the marketplace”.
As Nor’easters is seeking to hone in on an optimal prices for their seats, it is vital for them to watch the price sensitivities of their customers all through the seasons, as that will enable them adjust the dynamics of their ticket’s markup from time to time. Data show that the median house income is low because majority of the city’s residents are working class citizens. Survey data shows that more than 93% of residents interviewed have a household income of less than $75, 000 per annum.
This means in simple grammar, single ticket do not have to be high and ticket discounts need to be incorporated in the pricing strategy for students, senior citizens and handicapped customers. Nor’easters’ marketing plan has a key objective is to bring value-added entertainment to their baseball fans in the city of Springfield. This can only happen when the conducive atmosphere is provided during games. Such an electric atmosphere can mainly be provided by young energetic students with great enthusiasm for sports.
Therefore, Larry Buckingham must consider this target group seriously and bring them to the games. With the students and families coming to watch games, concession sales will definitely increase reasonably. The appropriate price for Nor’easters regular season ticket will be very ideal at $10. The group will include families with good income earning comparable to target groups like students and senior citizens. It is assumed that the set price level will not be a factor that could discourage target segment from going to watch baseball games (Kotler & Keller, 2009).
As the most potential and lucrative target segment since the electrify the arena and thereby providing a fun atmosphere, their limited funds will be considered a weakness and need to enjoy large ticket discounts to retain their fan-base. I suggest that $6 will be appropriate price establishment for students. The appropriate price establishment for children will be $4 based on the fact that families coming to watch games with children will purchase a lot of concession items. This group is a potential target segment for Nor’easters.
Section 3. The marketing director Buckingham, who is tasked with making the break-even of the total analysis while establishing a fan base that is loyal. Based on SWOT and STP analysis, Nor’easters key target ticket segment will be households with school-age children of 18hyears and below and other sports lovers with consistent loyal. Based on this assumption, these alternatives have been designed. Nor’easters must establish the following: Pricing quantity, Pricing leader and discount markdowns.
I suggest they participate in product ticket only, ticket bundling and ticket combinations. Larry Buckingham should carryout ticket promotions in schools backed by direct mail public media commercial. In consideration of the evaluation criteria which has ticket and concession sales as components, it is assumed that the markdown pricing strategy, ticket combination with products and direct mail in promotions will offer Nor’easters an economy that will add value goal of generating enough revenue.
As all these facts have been carefully considered, adults tickets in the range of $6-$10, and half priced-tickets for children, family ticket’s sale, free tickets and two coupons for concession products for customers on the mailing list, and a multiple game discount ticket and an efficient and effective monthly sales review and price adjustments are my recommendations. An Attempt to Calculate break-even point Cost is [email protected] 3,150,000 70x + 3,150,000 = 160x 3,150,000 = 90 To calculate the individual break-point will be, X = 35,000 35,000 * 160 = 5,600,000.
That is how the breakpoint revenue is obtained @ 60 load of the field -= 90*0. 6 = 54 Estimated Break-even point per each game= 35,000/54 = 648 approx Ticket [email protected]$10 $10x = 70x + 3,500,000 X = 58,333 When the load is 60% level, 90*0. 6 = 54 Estimated Break-even people = 26, 250/54 = 486 based on approximation Incorporating new cost for 90 people will be: 160x = 90x + 3,150,000 Break-even persons will be X=45 [email protected]% load capacity = 90*0. 7 – 63 Based on assumption, Break-even point here will be is 45,000/63 = 714 Profits after tax = 750,000
Gross profit will be y: y-0. 3y=750,000 y = 1,071,429 approximated to be gross profit 1,071,429 = Sales of ticket – operational cost 1,071,429 = 205x-(85x+3,600,000) 1,071,429 = 205x-85-3,600,000 120x=4671,429 X = 38,929 capacity Assuming all ticketed seats occupied by 70% fans = 50x90x0. 7 = 3,150 Assumed seats occupied by extra loads= 50x90x0. 1 = 450 Estimated revenue earned per game (3,150×160)+(450×120) = 558,000 Variable cost incured per day = 70*36000 = 252,000 Income earned on daily basis = 558000-252000 = 306,000
Income Generated per month = 306,000*30 = 9,180,000 My estimated profit earning = 9,180,000- 3,150,000 – 180,000 = 5850000 If load per car is 60%, it gives 90×0. 6 = 54 Break-even per month for fans will be, 175x = 70x +250,000 X represents fans. Therefore, X from the above equation will be = 2380 fans. Price adoption could be established based on a possibility of more than 2380 fans attending Nor’easters game on a given day. Recall, 120,000 = 175x – 70x -250,000 X = 3524 fans. At 60% capacity 90×0. = 54. References: Baye, M. , Gatti J, Rupert J. , Kattuman P, & Morgan J. (2007, Fall). A dashboard for online pricing. California Management Review, 50(1), 202-216. Retrieved September 23, 2009, from Business Source Complete. Cespedes, F. , Winig, L. , & Lovelock, C. , (2009) The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues. Harvard Business School Kotler, P. , & Keller, K. (2009). A framework for marketing management (4th ed. ). Upper Saddle River, NJ: Prentice Hall.
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