9.1 Supply and Demand 9.2 Pricing Strategies 9.3 Market Conditions The Economics of Supply and Demand Chapter 9

Winning Strategies Wheaties cereal discovered by accident Wheaties cereal discovered by accident First featured star was fictitious First featured star was fictitious Lou Gehrig was first actual star featured Lou Gehrig was first actual star featured many athletes make it a career goal to be featured on the box many athletes make it a career goal to be featured on the box in 1999, women in sports were featured in 1999, women in sports were featured 2 Cereal Stars

Lesson 9.1 Supply and Demand Goals Explain the relationships between supply, demand, and price. Explain the relationships between supply, demand, and price. Discuss the government’s influence on pricing. Discuss the government’s influence on pricing. 3

THE LAWS OF SUPPLY AND DEMAND demand demand –the relationship between the quantity of a product that consumers are willing and able to purchase and the price –Consumers conduct research and talk to friends & family to select goods/services that satisfy their needs. 4

producers producers –businesses that use resources to develop products and services supply supply –the relationship between the quantity of a product that producers are willing and able to provide and the price –Producers conduct research to gather info about types of goods/services that customers are likely to purchase 5

Price-Demand Relationships Major Challenge Major Challenge –Find balance between what producers are willing to produce & what customer are willing to buy. –Must consider the marketing mix elements law of demand law of demand –an inverse relationship  when the price goes up, demand goes down  when the price goes down, demand goes up 6

Price-Supply Relationships Sports Event or Motion Picture = Business – –Goal of any Business = Make Money – –Willing to invest resources ( Time, Money, Materials ) if it is likely to be profitable. law of supply law of supply –price goes up: supply produced goes up –price goes down: supply produced goes down 7

Price-Supply Relationships Marketers help to balance the impact of the laws of supply and demand by: – –Providing consumers information – –Making products conveniently available Consumers decide where to use their limited resources Producers watch for profitable prices and quantities and adjust accordingly 8

Scarcity scarcity scarcity –consumers have limited money to spend –producers have limited resources to use for production Consumers and producers must decide how to use their limited resources to meet unlimited wants and needs. Consumers and producers must decide how to use their limited resources to meet unlimited wants and needs. 9

Equilibrium equilibrium equilibrium –the point where the supply and demand curves intersect –indicates the best quantity and price for goods and services –Supply Curve = Producers –Demand Curve = Consumers 10

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Concerts in the Spotlight Concert prices can be set high. Concert prices can be set high. – limited supply – high demand If demand is high enough, supply can be increased by adding a second show. If demand is high enough, supply can be increased by adding a second show. 12

How does price affect demand? How does price affect demand? 13

GOVERNMENT INFLUENCE ON PRICING private-enterprise system (FREE) private-enterprise system (FREE) –based upon independent decisions made by consumers and businesses –Gov plays a limited role –The U.S. government has an influence on prices charged for merchandise directly and indirectly through antitrust laws, taxation, and various consumer protection laws. 14

Benefits of Competition monopoly monopoly –where one business controls the entire market Antitrust laws encourage competition and help avoid monopolies. Antitrust laws encourage competition and help avoid monopolies. Laws of Supply & Demand set prices Laws of Supply & Demand set prices Businesses stay fresh and innovative to keep up with competitors Businesses stay fresh and innovative to keep up with competitors 15

Taxation Taxation can be used by the government to encourage or discourage sales. Taxation can be used by the government to encourage or discourage sales. –Increase tax on alcohol and cigarettes causes prices to rise  Discourage purchases  Provides more revenue to government –Tax breaks = encourage production and sales 16

Illegal Pricing price fixing price fixing –when related businesses conspire to charge high prices (illegal in U.S.) –i.e. All Fast Food Restaurants formed a cartel that decided to charge $12 for a Hamburger 17

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bait and switch bait and switch –when a product that is advertised at a great price is “out of stock” –salesperson tries to sell customer a higher-priced alternative –advertised prices cannot be misleading/deceptive price discrimination price discrimination –occurs when one individual, group, or business is charged a higher price than others purchasing the same product or service 19

List three ways the government influences pricing. List three ways the government influences pricing. 20

Lesson 9.2 Pricing Strategies Goals Discuss pricing strategies used by businesses to increase sales. Discuss pricing strategies used by businesses to increase sales. List five steps for determining price. List five steps for determining price. 21

PRICING CONSIDERATIONS Price Price –the amount that customers pay for products & services Pricing Pricing –the process of establishing and communicating the value of goods and services to customers Considerations: Considerations:  Cost of Merchandise  Operating Expenses  Desired Profit  Supply & Demand 22

cost of merchandise cost of merchandise –Amount paid to the manufacturer for goods operating expenses operating expenses –all the costs associated with running your business –i.e. utilities, salaries, federal income taxes markup markup –the amount that is added to the cost of an item to  cover operating expenses and  allow for a profit 23

Supply & Demand Supply & Demand –higher prices for high demand products pure competition pure competition –many companies offering the same product –customers do not recognize major differences in brands –the market (consumers) will drive the prices low as businesses compete for consumers’ business market price market price –determined by laws of supply and demand –if not sufficient to cover costs and allow for a profit, the business will cease production of the product 24

Pricing Policies one-price policy one-price policy –all customers pay the same price for a product –i.e. sneakers, burgers, t-shirt, etc. flexible pricing policy flexible pricing policy –allows customers to negotiate a price within a set range –i.e. auto dealers (sales negotiation) –eBay bidding 25

price lines price lines –distinct categories of merchandise based upon price, quality, and features –Ralph Lauren  Polo: high-end price line  Chaps: next best alternative at lower cost geographic pricing geographic pricing –allows pricing variations based upon geographic location –Factors: distribution costs, local competition, local taxes and/or other restrictions –Closer you are to manufacturer – lower the costs 26

A Variety of Pricing Strategies (6) Retailers use a wide variety of pricing strategies in an effort to increase total sales Marketers must motivate customers to buy. 1. Psychological Pricing –creating an illusion for customers  odd-even $9.99 vs $10.00 – illusion of paying less than next higher dollar – even though it’s only a penny. 27

2. Prestige Pricing –higher-than-average pricing –targets customers seeking status and quality –Specialty stores - superior quality & service 3. Volume Pricing –when a supplier provides a lower price to a customer; buys at high volume of product –i.e. Walmart can pass savings on to consumers 28 A Variety of Pricing Strategies

4. Promotional Pricing –Limited Time Sale:  five-hours only/ 50% off sale offering customers an incentive to get them in the store –Loss-Leader Pricing  willingness to take a loss on the reduced prices of selected items in order to create more customer traffic  Customers will likely buy additional items while there –Special event promotion  associates a special sale with a major event  Thanksgiving / March Madness –Rebates  coupons on products that customers can mail in for a refund  depends upon further action by the customer 29

5. Quantity Discounts –multiple-unit pricing –a volume based discount –Shirts: $10 each or 2 for $16 –Theme Park: 1 Day Pass $60 or 3 Day pass $120 30

6. Trade-in allowance –giving a store your old product when purchasing a new product –usually results in a discount on the new product purchase  i.e. sports gear – need advanced/higher quality (athlete excels)  i.e. baby gear – need next level of product (baby ages) 31

List and describe the six pricing strategies to increase sales. List and describe the six pricing strategies to increase sales. 32

DETERMINING THE PRICE There are five steps to determining the price to charge for a product or service. There are five steps to determining the price to charge for a product or service. 1. Establish the price objectives.  Decide % of profit you want to earn 2. Determine the cost of the product/service.  Initial cost, operating cost, advertising / promotions  Cover TOTAL cost and allow for a profit 33

3. Estimate consumer demand for your product or service.  Higher enough to ask for higher price?  Low price generate enough additional demand to move merchandise and make comfortable profit? 4. Study the competition.  Distinguish your products from competitions 5. Decide on a pricing strategy.  Evaluate product for appropriate pricing  Base decisions on good marketing info 34

List the five steps for determining price. List the five steps for determining price. 35

Lesson 9.3 Market Conditions Goals Define the business cycle and describe its impact on sports and entertainment. Define the business cycle and describe its impact on sports and entertainment. Discuss the importance of monitoring consumer trends. Discuss the importance of monitoring consumer trends. 36

IMPACT OF THE BUSINESS CYCLE business cycle (economic cycle) business cycle (economic cycle) – the ups and downs of the economy –Chart on next slide… –Sports & Entertainment planners should be aware of the market conditions they are facing as they make their plans 37

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Expansion expansion expansion –the upside of a business cycle –Growing demand for goods and services –great potential for profit –Competition encouraged to enter peak peak –highest point of growth in the economy 39

Contraction contraction contraction –the downside of a business cycle –recession or depression – economy slows down –Unemployment goes up – consumers demand less inflation inflation –when prices for goods and services rise faster than consumer income How consumers feel about economy influences money spent on Sports & Entertainment items. How consumers feel about economy influences money spent on Sports & Entertainment items. –Tighten budgets, reserve spending, TV rather than LIVE 40

Business Reaction Sports & Entertainment industry hit hard in a recession Sports & Entertainment industry hit hard in a recession trough trough –lowest point of contraction recovery recovery –economy shows signs of improving –Encouraged to add staff back and increase production prosperity prosperity –the period of business expansion following recovery 41

Business Reaction Travel & Tourism Example: Travel & Tourism Example: –Rising costs of fuel and airline prices –Hotels adjust promotions to encourage consumers and maintain occupancy rates –Families still take vacation but pull back on extravagant –Extend business trips to include family fun (cut cost) –Competing attractions have to win consumer dollars  Theme Park vs. Movie Theater vs. Ball Game 42

Seasonal Cycles For some businesses, demand fluctuates with the seasons. (Ski Resort vs Theme Park) For some businesses, demand fluctuates with the seasons. (Ski Resort vs Theme Park) high season high season –the season with the highest demand low season (off season) low season (off season) –the season with the lowest demand shoulder periods shoulder periods –periods of moderate demand 43

Sports and entertainment marketing strategies must be developed to help even out the fluctuations created by changing seasonal demands. Sports and entertainment marketing strategies must be developed to help even out the fluctuations created by changing seasonal demands. –Special promotions for Holidays –Special promotions for Schools: Senior Days, Prom, Marketing Career Days, Physics Day, etc. –Student Organization Trips:  FBLA trip to Hershey Lodge ( & Hershey Park)  Sophomore Class Trip to Dorney Park 44

What is inflation and how does it contribute to recession? What is inflation and how does it contribute to recession? 45

IMPACT OF CONSUMER TRENDS Trends in sports and entertainment are dictated by: Trends in sports and entertainment are dictated by: –television revenue –sponsors –consumer demand –Trends are reflective a consumers wants and needs (demand). –Businesses aim to satisfy those needs. 46

Retro Television Retro show fans like to relive the good old days and recall positive memories of growing up watching the stars in the sitcoms. Retro show fans like to relive the good old days and recall positive memories of growing up watching the stars in the sitcoms. Popular show reruns are inexpensive to show on television. Popular show reruns are inexpensive to show on television. 47

Game Shows There are game show channels that rerun old favorites. There are game show channels that rerun old favorites. New game shows are being produced to meet demand. New game shows are being produced to meet demand. 48

Audience Ratings Speak New TV shows are introduced with great expectations. New TV shows are introduced with great expectations. Flat ratings = pulled from network Flat ratings = pulled from network Television networks cannot afford the risk of having viewers switch channels to watch a more exciting show on a competing network. Television networks cannot afford the risk of having viewers switch channels to watch a more exciting show on a competing network. TV Cancellation Watch: Renewal Odds for Remaining Bubble Shows TV Cancellation Watch: Renewal Odds for Remaining Bubble Shows 49

Audience Ratings Speak 50

Socio-Culture Issues Socio-culture issues include trends in Socio-culture issues include trends in –customer attitudes –Lifestyles (eating out frequency, discretionary spending) –Opinions (important in product design) –demographics (market characteristics, age, income) Assessing consumers’ ever-changing wants and needs is the bottom line for the success or failure of a product or service. Assessing consumers’ ever-changing wants and needs is the bottom line for the success or failure of a product or service. 51

Why must sports and entertainment marketers pay careful attention to consumer trends? Why must sports and entertainment marketers pay careful attention to consumer trends? 52