Pricing – The Ultimate Profit Maker – Jake Jones
March 20, 2015
Last month Wales played England in a Rugby International in Cardiff where match tickets cost around £65.
In just 5 months’ time the two teams will meet again in a World Cup group match at Twickenham where tickets on average are up to 5 times as expensive.
Two Circles’ Jake Jones looks at pricing, how to get it right and just how important it is to the bottom line.
So what makes the cost of tickets for a World Cup match so much higher than a Six Nations game? Pricing is very often the marketing discipline that is the last to be considered.
Many marketers are more interested in the dynamic and exciting elements – branding, promotions, targeting – as the easiest way to unlock value, as opposed to a complex subject like pricing.
Simply said, of the three profit drivers – Price, Cost, Volume – pricing yields the biggest impact. The right price strategy has longer-lasting impact than cost reductions, is easier to implement than volume growth and has an immediate impact on profit.
This is as relevant for the sport industry as any other. There is a price component to all aspects of a sport’s strategy, whether it’s finding the balance of price points between season ticket and match day ticket prices, setting revenue targets for a membership product offer, or growing hospitality sales.
Handle this poorly in today’s digital era and your customers will tell you quicker than your balance sheet, giving you opportunity to get it right before it’s too late.
The challenge is maintaining sustainable margins in an ever-changing market, with high competition for a share of the customer’s wallet, whilst maintaining a healthy business, and ultimately a happy customer.
Da Vinci Delight – Art & Science United
Good pricing capability needs a blend of left and right brain application, creative and scientific, to deliver sustainable value.
The skill is to manage the tension between what is ‘Value’ and what is ‘Price’. Two Circles believe that competing on value derives a greater long-term return than implementing a short term tactical price change.
‘Value’ gives the customer what they want, at a price that they feel reflects the quality of the experience they are receiving. ‘Price’ is the transactional mechanism to put a financial number on this value exchange.
A deep-dive of customer behaviour using the right analytical capability is required to understand value.
This creates insight and evidence to determine the drivers of perceived value, allowing for creativity in determining the relevant customer offer. Technology can then be an enabler of providing this customer offer at a personal level.
Customers subconsciously create their perception of what is good value. Guiding them to the right offer is the responsibility of the organisation.
Being transparent by offering the customer clear minimum and maximum prices (in essence a price corridor), understanding the relationship between price and demand, and testing pricing scenarios signals that guidance to the customer, and creates the opportunity to deliver real value.
The blend of left and right brain comes to play here. Left brain for the deep-dive analysis, right brain to help educate and communicate the value to the customer. They need to work in harmony to ensure the customer is satisfied.
Further value can be unlocked at a customer level. Creating a bundled offer that’s relevant to individuals, derives opportunity to monetise with further value-add packages.
If this understanding can be successfully built, sports organisations can use pricing to deliver sustainable value to themselves, and their customers.
Deliver The Value
Data Driven Pricing is a not a new concept, but to do it well requires customer insight, data analysis and ownership of value by the customer relationship holder.
The uniqueness of a Rugby World Cup in the UK coupled with an in depth knowledge of rugby fans is the key to the pricing of the tickets for this event.
It is this knowledge and insight that maintains the balance between long-term value and short-term pricing, ensuring the customer stays happy.
Jake is Lead Consultant at data driven sports marketing agency, Two Circles, leading projects which include International and National Governing Bodies. Prior to Two Circles, Jake worked for 14 years at BP, developing expertise in strategic pricing, process improvement, and relationship & change management across its downstream business, culminating in managing the strategic relationship between BP and its Athlete Ambassadors at the 2012 Olympic & Paralympic Games. Jake has participated in triathlons for the past 14 years, and is a qualified coach in both triathlon, and running.