Promotion Integrated Marketing Communication Assignment

Assignment Task

Topic Summary

Now that you have listened to the lectures and completed the activities, take a little while to reflect on the key learning points and actions which you will take from this topic. We have looked in-depth at two quite different aspects of the marketing mix – price and promotion.

We began by looking at methods of pricing, particularly market-orientated pricing, which is highly relevant to sports.

Then we moved on to dynamic pricing which, with improved technology and data, is enticing but comes with risks as well as benefits. Students should now be able to evaluate these different methods of pricing, explain how they are relevant to sports marketers and determine where they may be applicable to their own organisations.

In the second lecture, we explored promotion and, specifically, the promotional mix. Students should now have an understanding of the aspects of this promotional mix and an appreciation of the ways in which different elements are relevant to different marketing circumstances. Importantly, you should also be aware of the interplay between different aspects of the promotional mix and the benefits of integrated marketing communications.

We have touched briefly on some of the trends in marketing communications. It is easy to characterise these as a shift from ‘traditional’ and ‘mass’ channels to ‘digital’ and ‘personalised’ but the reality is more complex. The social media landscape is a good example of this. It is evolving and will no doubt have changed again a little between me recording this and you listening. That said, Kaplan and Haenlein’s frameworks are over a decade old but still provide a useful starting point when determining how to use this part of the promotional mix.

The promotional mix can be an interesting area to delve deeper into during your studies. Spending time considering the promotional activities of the teams, athlete and brands that you admire can be a really insightful supplementary learning experience. At the end of this topic, take some time to complete the final reflections and then we will move on to the next topic.

Script for Topic 5 Lecture 1

Slide

1. Hello and welcome to the first lecture of Topic 5 within the Sports Marketing, Sponsorship and Media module.

This is the first of two lectures on pricing and promotion in sports – two parts of the marketing mix for products and services.

2. In the first of these two lectures, I am going to focus on pricing.

You will recall that the previous topic began with an overview of the marketing mix and the ‘four Ps’ for products and expanded ‘seven Ps’ for services.

This is our opportunity to consider pricing in more detail so that hopefully by the end of this lecture you will be able to:

• Evaluate the different methods of pricing and what these mean for sports marketers
• Apply market-based pricing to your own organization
• Evaluate the benefits and drawbacks of dynamic pricing in sport.
• I will start with a general introduction to pricing methods.

3. It can be overwhelming trying to review the breadth of perspectives on pricing strategy. A brief internet search – for example - will throw up over 25 different approaches. But I want to start this lecture by looking at two broad approaches that begin to highlight important factors for the marketer to consider.

These are cost-orientated and market-orientated pricing

Cost-orientated is as simple as it sounds. Let’s consider it in the context of a producer of tennis rackets. The main driving factor in decision-making is the cost of production. They will take into consideration all of the manufacturing and distribution costs and then add a margin onto these – say 25% – to determine a price at which to sell to retailers. Simple, right?

But there are still a lot of subjective elements to the calculation – should they include a portion of research and development costs? And what portion of the business’s wider overheads should be attributed to this particular product? And then what about the range

of distribution channels? The racket may be for sale online from the producer’s website as well as through retailers. But the retailer needs to make a margin too, so inevitably this approach would lead to the racket being sold for a different price in stores to online.

Cost-orientated pricing also fails to take account of the wider market. Why would one producer sell its racket for significantly more or significantly less than rackets produced by its competitors? In the first scenario, they are potentially missing out on sales, in the latter they may miss out on profits.

This is why, intuitively, marketers tend to prefer a market-orientated approach to pricing. This is based on the perspective that consumers are prepared to pay for the value they receive.

4. Given the industry interest in market-orientated pricing, I’m going to look at this in a little more depth.

5. I will do this by working through a range of factors that will influence a marketer’s decision, depending on the product or service they are selling and the consumers they are seeking to attract. I will take these one-by-one over the coming slides.

Before I get into these, though, I just want to briefly introduce one important pricing concept. The price elasticity of demand. This is the manner in which demand responds to a change in price and is a critical concept to be aware of.

Elastic demand is when the percentage change in the quantity demanded exceeds the percentage change in price. Some products and services are very elastic, which means that – for example – a 5% change in price may have a 10% change in demand. However, others are said to be inelastic; classic examples being salt and prescription drugs, where demand will remain stable whether prices rise or fall. Sports tickets are very confusing in this context. A Superbowl ticket, for example, can be highly inelastic. People are prepared to pay thousands of dollars to watch this one-off game and there is no viable substitution. Compare this to other forms of tickets such as air travel on competitive short-haul routes. Here a change in price by one supplier can have a significant impact on demand for their flights versus those of the competition.

6. It may seem odd to start with costs when we are talking about market-orientated pricing, but it is always one of the first things that a marketer will consider. It may be, for example, that to drive out competition or gain rapid share, an organisation may seek to set an initial price for its product that is lower than the costs. A digital sports broadcast platform, for

example, may offer its service at a discounted rate for the first three months to encourage new subscribers before increasing the price to the level of competitors (or even above) once subscribers are on board.

The pricing of competitor products is highly relevant. If a cricket bat manufacturer, for example, wants to charge more for its products than its competitor then it needs to be able to demonstrate some additional ‘benefit’ or ‘value’. This may be an intrinsic element of the product (type of wood) or through enhanced brand equity that could be achieved, for example, through an endorsement from a high-profile player.

Tickets are a great example of the next point – the balance of supply and demand – and this is one of the most researched areas of pricing strategy. You may see many of the same tennis players playing at Eastbourne and Wimbledon but the prices for the latter are significantly higher, reflecting massively higher demand and the ability of the event organiser to set prices that take this into account. It’s a field we will return to when we discuss dynamic pricing.

7. The stage of a product’s lifecycle can also influence a market-orientated pricing strategy. Early-adopters are typically less price-sensitive. Think of the prices charged for the first iterations of the Apple Watch or Fitbit, for example, compared to how much these products cost now.

And there is definitely a relationship between price and quality with producers that can differentiate based on quality typically able to command higher prices.

How they use this advantage will depend on the strategy of the company. Both Peloton and Zwift have been regarded as innovative companies delivering high-quality experiences in the sphere of home exercise but their approach has been quite different. Peloton adopted a ‘price skimming’ strategy charging over $2000 for its bikes and a further $40 for monthly subscriptions whereas Zwift – a purely services company when it was launched – sought market penetration through a much lower monthly subscription and compatibility with third-party hardware.

8. As highlighted in the earlier cost-plus example, many products and services pass through intermediaries before they reach the final consumer. Every step of the chain will add a margin to the final price. As sports organisations weigh up direct-to-consumer approaches across ticketing and media services, this is a highly pertinent aspect of pricing. While intuitively the margins should be greater if they go direct-to-consumer rather than through intermediaries, what impact will it have on sales reach and what other costs may need to be incurred?

And finally, companies can’t always set the prices they want. In some instances, governments may introduce legislation to broaden competition or cap prices. An example

here are the rules around free-to-air broadcast of certain sports events in markets like the UK.

9. Market-orientated pricing may be the most common approach taken by marketers but sports is one of the sectors where a more variable approach to pricing may be possible. This last section of the lecture will introduce you to the most well-known of these variable approaches: dynamic pricing.

10. The starting point here is that, particularly when it comes to attending sport, there is a long history of different people being charged different prices to watch the same match.

Manchester City charges more for individual match tickets against Manchester United than they do for the same seats against Sheffield United. Formula One circuits charge more for race day than they do for the practice day earlier in the week. Fans will pay a lot more for ringside seats at a boxing match. But it’s not just about trying to squeeze more out of attendees. Clubs also like the security and positive cashflow of season tickets and so a season-ticket holder will pay less for a seat at that Manchester United game. And many clubs charge less for senior citizens and young people. In the latter case it’s often part of a strategy for securing the next generation of supporters and season-ticket holders. Before we move onto the next slide, take a moment to think about where else differential pricing applies in the sports world. Hopefully things like sponsorship and media rights spring to mind. How much does it cost to sponsor Manchester United? The answer is that, even for very similar inventory, the club has sponsors paying different prices. And how much does it cost to buy the right to broadcast a Premier League match? The reality is that, in the UK, Sky Sports, BT Sport and Amazon all pay different prices.

11. A very particular type of differentiated pricing is dynamic pricing. It’s an approach that was first pioneered in the airline and hotel industries and as technology and data has improved it has expanded to a number of other sectors, including sports.

Dynamic pricing is essentially the practice of varying the price for a product or service to reflect changing market conditions with a particular focus on charging a higher price at a time of greater demand.

This approach gained early interest from sports organisations accustomed to putting on sell-out events who noticed the significant mark-ups that were being charged by scalpers outside their venues and on secondary ticketing websites.

Kimes, a leading authority on ‘revenue management’, has identified seven factors that are required to implement this dynamic pricing approach. The first is the ability to segment markets – a subject we considered in the fanbase analysis topic. Then there is perishable inventory and product sold in advance, which are both definitely true for tickets. Next is low marginal sales costs; this is certainly true for bigger events that are expecting thousands of attendees High marginal production costs – stadiums typically have fixed capacity and adding an extra match is either not feasible or comes at significant extra cost and complexity.

Then there is fluctuating demand; as tickets are often on sale well in advance this can fluctuate between matches (depending on opposition) and over time for specific matches.

Finally, there is predictable demand. This doesn’t mean it has to be the same, just that reasonable predictions need to be made (for example, the impact of opposition and team performance, all of which can be modeled).

12. So, unsurprisingly, in their analysis of the sports sector, Drayer et al. are confident that the market for sports ticketing satisfies all of Kimes’ tests. You will have an opportunity to read about their approach in more depth in the essential reading for this topic. But just because dynamic pricing is possible and can potentially yield increased revenue for sports competitions and teams, it is not without its challenges. Unlike systems where a club charges more for different zones of a stadium – as they have different views – and a big price increase for hospitality – different levels of service – dynamic pricing can see two fans sitting next to each other who have paid vastly different prices. It can also be seen as a short-term approach. Increasing prices in the short run during a time of success or when a marquee opponent is in town may alienate long-suffering supporters who attended every week during tougher times.

It may also affect future decisions. If a fan has picked up a low price ticket at a time of very low demand will they be put off paying a higher price for future matches. What impact will it have on season tickets if prices for some matches fall below the regular season ticket price?

The reality in sport is that some elements of dynamic pricing have been introduced in some circumstances but this is usually balanced with an element of long-term relationship management with supporters. The approach really comes into its own for one-off high profile events that are being run primarily for short-term profit. That brings us to the end of this lecture. Hopefully it has started to get you thinking about approaches to pricing in your own organisation as well as the wider sports industry. We’ve looked at cost-orientated and market-orientated approaches to pricing and highlighted why marketers generally prefer the latter. We’ve also considered variable approaches to pricing, highlighting why differential pricing is relevant to sponsorship and broadcasting as well as the more obvious example of ticketing. And we finished with dynamic pricing, which is a topic that has intrigued and challenged sports marketers. The Drayer et al. reading will give you a more detailed insight into this topic and prompt further thinking about this aspect of pricing and the topic in general. Thank you for following this lecture and you will now have the background you need to tackle the topic’s first activity. nIn the next lecture we will look at another aspect of the marketing mix: promotion

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