Ticket Pricing Strategy for the new Wembley Stadium 1 Introduction OBJECTIVE To maximis e profits from ticket sales at Wembley Stadium KEY ASSUMPTIONS 1. Wembley has a monopoly on certain types of match 2. Wembley is run by profit maximis ing managers selling tickets to utility maximis ing buyers STRATEGY Set prices for seats as close to the willingness to pay as possible using price discrimination KEY CHOICES What type of seating to sell and at what price? 2 Scope This strategy is limited to the following football matches: o England home matches – competitive and friendly Major cup semi-finals and final Lower league play-off finals Wembley has a monopoly on these matches due to Football Association (FA) policy 2. Theory states that Wembley should charge as close to the willingness to pay of its customers as possible to maximis e its profits 1. The ability to do this depends on demand and the ability to price discriminate between market segments. 3 Absolute Demand Absolute demand for tickets will be high due to several factors: o Football is England’s national sport o Watching live matches is popular Wembley Stadium is the ‘home of football’ with a long and distinguished history There is good evidence for assuming high demand: o The last three competitive England home games were sold-out 2 o Attendance figures for club matches are consistently high 3 o Recent cup finals at Cardiff Millennium Stadium were sold-out 4 Actual demand varies between market segments but can be found from market research, e.
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g. membership schemes and studying events at similar grounds. 4 Market Segmentation The table below shows the range of customers that buy tickets for football matches. Elasticity of demand is shown for each category and explained below: Market Segments Elasticity of Demand Reason for Elasticity 1 Adults High Loyal but can choose to watch on TV instead Children High Guardians are paying and have other options Families High Have other options for family entertainment ‘Special treat’ groups High Has alternatives including main seating 2 Corporate hospitality – open Low High status product, few alternatives Corporate hospitality – private Low High status product, few alternatives 4. 1 Segment 1 Demand Elasticity is relatively high (I I > 1) because these buyers have attractive alternatives – they can watch the game on TV or in a pub with friends.
Demand is still high though because of the quality of the games. Wembley can therefore charge a premium, but not over-charge to the extent that alternatives become dominant: ‘Special treat’ customers are those who are willing to pay more because they are buying an experience rather than just wanting to see a match. They still have a high elasticity because there are alternatives – they will be put off if prices are too high. 4.
2 Segment 2 Demand Elasticity is relatively low (I I < 1) for corporate customers because of the monopoly that Wembley has on high status England home games. For this segment, the product is the whole event rather than the football match. Standard seating is not an alternative because they do not provide the same level of service or privacy. The main factor effecting demand curves is the attractiveness of substitutions, which are complex for events at Wembley.
5 Price Discrimination 5. 1 By Type of Seating Wembley can offer customers a choice between ‘standard stadium’ and ‘luxury box’s eating that allows self-selection of product and price (second degree price discrimination 1).
This allows customers with a high willingness to pay to purchase a higher quality product at a much higher price than the difference in marginal cost. Wembley can also ‘scale the house’ by charging extra for better views, e. g. pitch-side.
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5. 2 By Type of Customer Within segments, Wembley can execute third degree price discrimination 1 on the basis of observable buyer characteristics that correlate to willingness to pay. One characteristic is age, i. e. child tickets are typically half price. Discrimination is also possible between corporate customers who wish to guarantee a box over a long period and ‘special treat’ customers who may only go to one match.
Advantage can be taken by selling long term ‘licences’ made up of an initial fee plus an annual renewal fee. 5. 3 By Type of Match Wembley can also discriminate according to the ‘quality’ of the match as this also correlates to willingness to pay, e. g. charge more for high quality opposition, and competitive matches. 6 Maximising Profit from Seating Types Wembley’s managers need to choose what proportion of the stadium to fill with luxury seating because this generates the most revenue and profit, as shown below: Profit can be assumed to follow a similar pattern.
The quantity that maximis es revenue (QL ) depends on demand, which varies for different customers and matches. An example calculation is provided below: Let ‘standard seating’ = 1 and ‘luxury seating’ = 2 Price: P 1 = a 1 – b 1 Q 1 P 2 = a 2 – b 2 Q 2 Profit: 1 = (a 1 – b 1 Q 1) Q 1 – F 1 2 = (a 2 – b 2 Q 2) Q 2 – F 2 P = ticket price = number of seats a = size of market = related to elasticity of demand = fixed costs Maximum profit is when d / dQ = 0 If b 1 = 2. 0 and b 2 = 0. 5 (based on indicative demand curves above), d / dQ 1 = a 1 – 2 b 1 Q 1 = 0, a 1 = 2 b 1 Q 1, Q 1 = a 1 / 2 b 1, Q 1 = a 1 / 4… 1 d / dQ 2 = a 2 – 2 b 2 Q 2 = 0, a 2 = 2 b 2 Q 2, Q 2 = a 2 / 2 b 2, Q 2 = a 2…
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2 Stadium capacity gives Q 1 + Q 2 = 90, 000, Q 1 = 90, 000 – Q 2, substitute Q 1 in 1: a 1 / 4 = 90, 000 – Q 2, substitute Q 2 in 2: a 1 / 4 = 90, 000 – a 2, a 1 + 4 a 2 = 360, 000… 3 Equation 3 is plotted below for varying ratios of a 1 and a 2: Different matches have different elasticizes of demand (b), which changes the profit maximis ing Q 2. Ideally Wembley would be able to analyse market size and provide flexible seating arrangements, but this will be costly. 7 The Impact of Marginal Cost The marginal cost of one extra seat being filled by one extra customer is approximately zero, especially for standard seating.
Profit maximization therefore requires selling all seats for all matches. For the most popular matches, evidence suggests that matches will sell out. For less popular matches Wembley should discount tickets to stimulate demand. There is a risk though, that customers will wait for lower prices if this practice becomes common. 8 Ticket Prices This strategy argues relative prices rather than absolute. Research into similar events 6 suggests the following: Seating Type Customer Type Match Type Ticket Price (lb) Main stadium seating Adult 1.
Competitive internationals and FA Cup final 60 2. Friendly internationals, League Cup final, play-offs 50 3. Others 30 Child As above Half adult price Family As above Double adult price Luxury seating Exclusive box As above ^ 400, 350, 250 Hospitality suite As above 300, 250, 150 ^ Sold as a whole box rather than per seat Three prices for three types of match 9 Strategy Limitations o FA policy gives Wembley the market power it needs to carry out price discrimination. Any change, e.
g. legislation, would make this strategy invalid. o Price discrimination requires the absence of resale to prevent arbitrage 1. This strategy assumes that it is illegal to re-sell tickets and that this is enforced. o Pricing by ‘quality’ of match is risky.
Lower quality matches will not sell out if prices are too high. This can be overcome by bundling 1 different quality matches. 10 Competition For monopoly matches, Wembley’s main competition is television. TV is an attractive substitute for fans unwilling to pay high ticket prices.
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Competition for other events includes: o Athletics – purpose built stadiums with smaller capacity o Rugby – Twickenham is near by for rugby union and league Pop concerts – outdoor arenas are alternatives with similar capacity There are a wide range of substitutes available for these that affect willingness to pay. 11 Other Event-Related Income Stadiums contain much more than just an arena to watch sport including: o Refreshments and merchandise o Broadcasting right so Advertising o Car parking o Other events, e. g. conferences Income for the above would be approximately proportional to the number of people in the stadium. 12 References 1. Cabral, Luis.
” Introduction to Industrial Organization”, MIT Press, 2000. 2. web 3. web 4.
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