Research Proposal on "Pricing Decisions"

Research Proposal 8 pages (2161 words) Sources: 6 Style: APA

[EXCERPT] . . . .

Pricing Decisions

Identification of strategic problems and issues

The nor'easters are a new baseball team in the Baseball Minor League of Springfield and they are dealing with several strategic decisions that need to be made, most notably that of pricing. The team can be regarded, in fact, as a new product penetrating the market of Springfield, rivaling different other products and having to decide what is the best price at which to offer its product (the ticket to a game, in its different forms -- individual, collective etc.) so as to maximize its profits.

The need to maximize its profits is perhaps the main constraint of the team, with the many implications that derive here from. One of the implications is the fact that a proper pricing strategy will need to also consider the expenses of the team and keep these under control. Indeed, the expenses are limited, as the team will be trying to financially survive in the first years of activity. The plan is to break even during the first year, however, with about $2 million in expenses and the fact that the team is yet to play a game for the next year and a half, this is a desiderate that is going to be difficult to reach without a proper pricing strategy that will maximize the revenues from tickets and concessions.

This leads to some of the options that the company has, which will be detailed in the analysis further below. As it shall be pointed out, the company needs to achieve the proper balance between the price of the tickets and the money it can make on the concessions. At the same time, the price of the tickets have to be in the exact price range: too high, and the potential consumers will prefer to either stay at home or drive to Boston to see some of the Red Sox games there. Additionally, if the price is too high, it is also likely to affect the revenue from concessions. Too low, and the consumers are likely to miss games, because the financial impact this would have on the household income is not that high.

2. Analysis and evaluation

The analysis should focus, first of all, on the market and the buyer behavior. The market in which the nor'easters will play is Springfield. The town had undergone in the past decade the evolution of many other industrial towns from the past: a declining manufacturing sector drove down the average household revenue and about 25% of families lived below the poverty line. With a median income of $37,800 for a family of three, one needs to take into consideration how much of this the family is likely to allocate for its leisure time and, out of that leisure time, how much it is likely to invest in baseball for the games of the nor'easters.

To these market figures, one should also add the distribution of the market in terms of age and behavior. 60% of the households in Springfield was made up of families with children 18 years and younger, 10% senior citizens living alone and 25% single men or women under 65 years old living alone. This is important, because researched had shown that families with children with school-age children were three times more likely to go to a baseball game than the other categories mentioned previously. This means that the nor' easterners would primarily target 60% of the total number of households in Springfield and not even that in its entirety, but primarily those families with school-age children. This is something to be considered in the decision on the pricing strategy.

Despite the decrease in the medium income of households in Springfield, one should take into consideration the fact that the prospects for the future are likely to improve as new entrepreneurs come to the area to develop new businesses. This means that the baseball team can also consider a phased pricing strategy by which its prices can gradually increase over a medium and long period of time to correlate with the increasing income of households.

In terms of the local sport market, this is quite fragmented among the preferences of the consumers and the different teams playing in different sports. In Springfield, there is no rival baseball team in the minor league and the only other professional sports team is one activating in the minor ice hockey league. However, the general manager of that team has announced that the team is likely to leave unless it sells 300 more season ticket for the upcoming season. This is important, because, if the team stays, then the nor' easterners would compete for local leisure time with the local ice hockey team, assuming that the consumers will be choosing between the two sports. If the hockey team stays, the nor' easterners would also need to consider in their pricing strategy the fact that it would need to be conceived so as to take away some of the Falcons's consumers and also protect its own.

The nor' easterners are also competing for the people's leisure time with the professional teams in Boston. Certainly, there were two elements protecting the business of nor' easterners: the distance to Boston and the much higher price for the games there. Nevertheless, one should consider that the sporting fans are also likely, occasionally, to celebrate a certain anniversary and drive to Boston for a professional game, taking away some of the income of the local team. Some of the citizens of Springfield (one can assume that not many) may also prefer to go once a month to see a professional game in Boston rather than attend the games of the local Springfield team.

The nor' easterners are also competing on the market with other sporting events in the town, notably with school baseball games. In this case, it is also the same segment of consumers that the team is targeting, the families with school-age children. In assessing competition on the market, one should also consider alternative leisure activities in the town, like cultural or artistic shows, theatres, spending time in the outside etc. All these can be considered as potential threats to the developing business of the nor' easterners.

The opportunities that the market presents also need to be considered. As the case study has shown, there are several connected submarkets to the main market, namely that of concessions, products sold during the games or in connection with the activity of the team. From that perspective, the company will need to analyze the degree to which those products can contribute to the overall revenues of the organization. Expansion into these submarkets will come naturally, during the game, but further investment along the way in this venture can maximize profits from that direction.

For further analysis, one also needs to look at the internal situation of the nor' easterners, in order to understand some of the strengths and weaknesses that can affect the further development of the business. Beyond the opportunities and threats that the market offers and that have been previously presented, one of the most important strengths seems to be the management team.

The owner is a Springfield businessman, which is important because he is a local and the inhabitants of Springfield are likely to link differently to a team that is owned by someone whom they see as one of them. At the same time, following the case study and the discussion within the management, he doesn't seem to be involved in the team activities other than with the financial support. This is also important, because it shows he has delegated managing activities to competent individuals and prefers to let them do their job.

At the same time, the marketing director has proven his expertise and capacity by the approach he has taken towards analyzing the market and consumer preferences and deciding on the best option. Professionally, he uses a survey to obtain the relevant data on customers, although public information already existed and could be used. He seeks to expand the research and better understand the market he is targeting.

One of the potential weaknesses of the team is the financing structure. The expenses for the first year are around $2 million and the team is not going to pay for another year and half. This basically means that the team has about $3 million in expenses even before it can begin producing any revenue and attain its objective of breaking even in the first year of operation.

At the same time, some of the financing sources are not directly linked with the expenses in the first year. For example, the team will be able to use the Springfield College stadium in exchange for the parking leasing fees, but this does not cover the equipment, managerial expenses or other team-related expenses. These need to be covered from sponsorships, but those are still small in proportion as compared to the sum that needs to be paid during the first year. The… READ MORE

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