The NFL Starts to Play Defense
The NFL is the most popular sports league in the country. For years, it has been able to increase its revenues by selling television time, licensed products, and even tickets to games. This easy market came to an end with this recession. Three quarters of the NFL clubs have held ticket prices flat this year. Even then, only twenty clubs sold out the tickets for their home games. So, ticket sales revenues are likely to drop this season.
All is not lost, however. The Fan Cost Index measures the average price for a family of four to buy four tickets, parking, drinks, hot dogs, beers, programs and caps. In 2009, that index stands at $413. The Index is up 4% over the last year. While the Consumer Price Index is falling, the league still has found a way to raise prices.
Still, some in the league are beginning to become concerned about the fall-off in demand for tickets (see Video 8: Full Explanation of Future Direction of Margins on StrategyStreet.com). These people are taking the first tentative steps in defensive pricing, that is, reducing prices in a falling price environment.
When prices begin falling, a shrewd company will begin to increase the detail with which it prices. It will begin pricing in such a way that price-sensitive customers begin getting lower prices, or more benefits, while everyone else continues to pay the higher, regular, price. (See the Perspective, “Meeting Falling Prices with Creativity” on StrategyStreet.com) This increased detail in pricing does raise administrative costs, but it preserves even more revenues and, so, preserves margins.
A company increases the detail at which it prices by exploiting more of the potential components of a price. These price components include performance benefits, discounts, the basis on which it charges for its product, the period of price agreement and some optional components, such as fees, penalties, price caps and extended payment options. A company using these components is able to restrict the lower prices to selected customer segments and, thereby, reduce the loss of revenues and margins from a broader price decrease.
The NFL is just beginning to stick its toe into defensive pricing waters by using some of these components. The Detroit Lyons are creating an All-You-Can-Eat seating section this season, where fans can eat all the hot dogs, bratwursts, nachos, chips, popcorn and soft drinks they want for a fixed price. This is a change in the performance benefits of the product. The New Orleans Saints are allowing customers to pay their season ticket bills in installments. Of course, the fans have to pay a 1.9% transaction fee. Here, the Saints are using an extended payment option and then adding back a fee to recapture some cost. This approach reduced one component and increased another. The Kansas City Chiefs offered an extended payment option when it allowed its customers to spread their season ticket purchases over four payments. The New York Jets, the Chiefs and the Jacksonville Jaguars have changed the basis of charge for their season tickets. These clubs have introduced half-season plans to offer a cheaper alternative to full-season tickets.
If the recession continues, these will be just first tentative steps. (For more on pricing see, the Diagnose/Pricing section of StrategyStreet.) Pricing can get much more complex and precise as a market becomes more hostile. Consider the airline industry as an example of precision pricing.