London Olympics Pricing Essay Sample
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- Category: olympic
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London Olympics Pricing Essay Sample
In 2004 London won the rights to host the 2012 Summer Olympics and it became the London Organizing Committee of the Olympic Games’ (LOCOG’s) contractual responsibility to plan and manage the 17 days of Olympic events in the city. 12,500 athletes from 205 countries are expected to participate in the London Olympics, competing in 26 sports and 300 events. With a projected 7.9 million tickets to be sold the 2012 Olympics will be the biggest ever. It is the LOCOG’s responsibility to manage the pricing, sale and distribution of the tickets. This report describes and justifies the LOCOG’s proposed pricing strategy for the upcoming 2012 Olympic Games 2. Proposed Pricing Plan
Table 1 – Proposed prices for London 2012 Olympic Games Tickets Events Seat Prices ($) Available Tickets Total Revenue ($) Tier 1 Tier 2 Tier 3
Non Sporting Events
Ceremonies 1500 1000 100 120,000 103,896,000
Other Events 60 40 20 365,000 12,397,590
Preliminary 80 50 30 944,000 42,751,872
Finals 300 200 80 944,000 154,975,536
Preliminary 70 45 25 2,301,000 91,181,727 Finals 175 100 50 2,301,000 211,671,866
Preliminary 45 30 20 498,000 13,391,096
Finals 80 50 25 498,000 21,848,630
Total 7,971,000 652,114,316
Table 1 shows the proposed ticket prices. Th
Each sporting event is also divided by perceived value into one of 3 categories (1 having the highest and 3 having the lowest perceived value). Popularity and categorization of each sport is summarized in Appendix 1. For the purpose of this exercise, each category’s ticket prices are calculated by means of weighted average price block encompassing pricing for all sports falling within a tier.
2. Pricing Strategy
Although ticket sales will not necessarily form a large part of the Olympic revenues, it is vital that the LOCOG get the ticket pricing policy and distribution right. To do so we will use a 6-step price setting procedure described in Kotler et al (2012). The procedure can be seen below in figure 1, each of the steps will be considered in the rest of this section. Figure 1 – 6 Step Pricing Setting Procedure
Figure [ 1 ] – 6 Step Pricing Setting Procedure
2.1. Pricing Objectives
The LOCOG has 4 main objectives that we will consider when setting ticket prices. The first objective is to maximise revenues, much media attention has been given to the escalating cost of these Olympics which provides increased motivation to hit or even exceed the £650 million mark that has been predicted by the budget. The second objective is to maximise attendance. Previous organizing committees have come under some scrutiny for the less than optimum attendance. Maximising attendance will give something back to the UK, improve the atmosphere, improve the presentation for the broadcasters, create memorable images and provide an audience for the sponsors. However, most importantly maximising attendance will boost the focus on the sports and athletes themselves. As well as having filling seats or third objective is to fill these seats with the right people, informed sport- lovers who will help create the right sort of atmosphere at the events. The final pricing objective is to make the Games accessible to the average person; this means making the distribution channels simple and keeping prices affordable to ensure these Games that have been branded “the people’s Games” is perceived to be just that. The LOCOG recognises that some of these objectives appear to be conflicting: it would be easy to maximise attendance but revenues may suffer and vice versa. The difficultly exists in striking a balance to ensure that we meet all four objectives described.
2.2. Determining Customer Demand
The London Olympic Games has a total of 7,961,000 tickets which consists of 7,476,000 athletic event tickets, 120,000 opening and closing ceremony tickets and 365,000 tickets to other non-sporting events. To be able to achieve the projected revenue targets set by LOCOG and to develop our pricing strategies, it is imperative that we are able to determine the price sensitivity of demand. Price Sensitivity of Demand:
Price sensitivity reflects the change in quantity demanded for each $1 change of price and plays an important part in determining the changes in overall revenue at each price level. Broadly speaking, the Olympic Games when seen as a single entity have low price sensitivity as it: a) Presents a very rare opportunity
b) Offers a distinct product with no direct competition
c) Is perceived to be of quality, prestige and exclusiveness
However it would be too broad a generalization to look at the Olympic Games as one complete entity with single constant price sensitivity and singular perceived value. Rather it is a culmination of many groups of events and customers each having their own levels of demand and price sensitivity. We have pinpointed two other critical sub-factors which play a big part in determining the overall price sensitivity and therefore pricing. 1. Difference in income groups
2. Difference in perceived value of events
With the overall higher perceived value of the Olympics, they are generally attractive to all income groups. However as observed from data from previous games, different income groups have different income spending priorities and therefore different price sensitivity. * Tier 1 seats targeted to higher income groups generally have low price sensitivity and therefore is charged a much higher price and a wide range of prices * Lowest tier seats targeted to lower income groups generally have higher price sensitivity therefore pricing has been restricted *
* Based on this, the following ticket prices were adopted: * Tier 1 – premium price – targeting high income groups * Tier 2 – middle
price – targeting middle income groups * Tier 3 – low price – targeting low income groups *
Perceived value of events:
The LOCOG acknowledge that not all events and event stages have the same perceived value. * The Olympic ceremonies have the highest perceived value due to the prestige it offers and attendance are expected to be affected much by large price changes, which is why it is much higher than any other event. * Sports popular all over the world such as athletics and aquatics generally tend to have a higher perceived value and therefore charged a higher ticket price than sports such as table tennis which tend to have lower perceived value and therefore have been priced lower * Popularity of the sport also depends on the country in which the Olympics are being held. Sports popular in the UK either inherently (such as football) or due to its recent successes (such as cycling)contributes to an increase in perceived value of the sport and therefore a higher price * Ticket prices of particular sports also depend upon the stage of the sport, with the preliminary stages having an overall lower perceived value and therefore a lower ticket price than the finals.
* Each sporting event is therefore divided into one of 3 categories (1 having the highest and 3 having the lowest perceived value). Popularity and categorization of each sport is summarized in Appendix 1. For the purpose of this exercise, each category’s ticket prices are calculated by means of weighted average price block encompassing pricing for all sports falling within a tier.
2.3. Estimating Cost
The LOCOG’s budget for the 2012 Olympics is estimated to be $3 billion. This includes the cost to stage the sporting events and the opening and closing ceremonies; housing and feeding the athletes; transportation to and from the Olympic venues; media; and security. Since LOCOG and IOC are non-profit organizations, our primary objective will be to generate enough revenue to cover the $3 billion costs. Both LOCOG and IOC are responsible for generating the revenue to meet these costs. The IOC is expected to provide LOCOG approximately $1.2 billion dollars from broadcast revenues and international sponsorships. For the remainder, the LOCOG plans to generate $1.8 billion. This is from approximately 60 domestic sponsors, $150 million in licensing fees and finally $650 million which has to be raised from ticket sales. 2.4. Analysis of competitor’s costs/prices/offers
LOCOG considered the OCOGs of the previous Olympic Games as competitors and the pricing strategy from both previous Olympics and other major sports events. In the past, each Olympic Games host OCOG have used different pricing strategies and prices to meet their own objectives. The results are shown in Table 1. The Sydney Olympics had the highest sales rate (selling 88% of available tickets) and subsequently obtained the highest revenues of the last 20 years. Interestingly the average ticket price was also highest among previous Olympics in 20 years. Olympic Games Available Tickets
[in millions] Tickets sold[in millions] Sales Rate Total Revenue[in millions] Average price per ticket[US dollar]
1984 Los Angels 6.9 5.7 83% 156.0 27.4
1988 Seoul 4.4 3.3 75% 36.0 10.9
1992 Barcelona 3.9 3 77% 79.0 26.3
1996 Atlanta 11 8.3 75% 425.0 51.2
2000 Sydney 7.6 6.7 88% 551.0 82.2
2004 Athens 5.3 3.8 72% 228.0 60.0
2008 Beijing 6.8 6.8 100% 200.0 29.4
Table 2 – Ticket data from previous Olympic Games
LOCOG aims to attain $650 million sales for 2012 Olympics. The unit price is to achieve the revenues. The target unit price was therefore decided to be as follows: The target unit ticket price = $650 million ÷ 7.9 million tickets = $82.30 /ticket This figure is similar to the average price per ticket of the 2000 Sydney Olympics. An analysis of the last 3 Olympic Games can be seen below. The 2000 Sydney Olympic Games pricing strategy was the best in terms of meeting the LOCOG’s current objectives, the Sydney Games prices could therefore be used as a benchmark for the LOCOG to base its own prices on. The other 2 Olypmic Games (Athens and Beijing) would not necessarily be suitable benchmarks due to the fact that Athens had small venues and Beijing’s OCOG created artificially low prices. The Sydney Games are most representative to those that will take place in the UK. Australia, similar to the UK is home to a number of sports fans and large sporting venues, so demand and availability for tickets is expected to be similar. Table 3 – Comparison of Olympic Games according to LOCOG’s 4 objectives Olympic Games Sydney 2000 Athens 2004 Beijing 2008
Revenue High$551M Low$228M Low$200M
Attendance Good (unknown) Low
Right people Good (unknown) Not good
Accessibility &Affordability Good (unknown) Good
2.5. Selecting a pricing method
Table 1 below examines the 6 main, widely-used price-setting methods: cost plus pricing, target return pricing, going-rate pricing, auction type pricing, perceived-value pricing and value pricing. Table 4 – The strengths, weaknesses and suitability of the main pricing methods Pricing Method Description Strengths Weaknesses Suitability for London 2012 Cost-plus pricing Price is set at the production cost plus a given profit margin. ● Sellers earn a return on investment● Simple to apply● Transparent for consumers ● Ignores demand● Does not consider competitors’ pricing● Ignores perceived value ● Includes sunk costs – driving up price● Does not give the opportunity to maximise profits This pricing method would not be suitable for the Games.
The ticket revenues cannot be expected to cover the cost of the entire Olympic Games, or even the LOCOG budget. This strategy ignores the final 3 objectives and therefore would not be appropriate Target-return pricing Determine the price based on what would achieve the target return on investment ● Helps sellers meet financial objectives● Particularly useful for firms with high capital investment ● Does not consider competitors’ pricing● Better for market leaders or monopolists only ● Sellers have to change price according to demand in order to achieve the desired return Again, this method is only useful in achieving our first objective – to maximise profits. It could be used broadly but to maximise attendance and participation for each different sport other pricing methods could also be used.
Going-rate pricing Price is based largely on competitors pricing ● Useful for firms trying to maintain market share ● Costs have to be similar to your competitors in order to make profit.● Could initiate price-wars which drives down profits This could be suitable for London 2012, if LOCOG considered previous Olympics Games as competitors. The LOCOG could examine and evaluate the pricing of the other Games, being careful not to make the same errors in judgement made by previous committees. Auction-type pricing In an English auction: many buyers bid for one item, the item goes to the highest bidder ● Producers can sell items at a minimal cost as physical stores are not required●For high demand products sellers are able to maximise their profits ● This pricing style only works for certain products/services and is more suitable for one-offs● Sellers may not be able to make large profits or even cover cost if the perceived value is lower than the actual cost to manufacture the product. This would not be a suitable method.
If used we could run the risk of meeting none of our objectives. For more popular events tickets prices would be driven too high causing accessibility to suffer. Perceived-value pricing Pricing based on value for customer and not on the cost of the product ● Generally prices are likely to be higher than when cost-based pricing is used which can maximise profit for the seller● Forces seller to consider vale to customers which is useful in developing the product ● Different values are held by different customers ● Costs of product may not be recovered● Difficult to implement This method could also be suitable in pricing the Games tickets, the first objective to maximise profits may not be met, however Value pricing Giving relatively low prices for high-quality offering ● This method can help win customers and increase market share ● Low prices may be mistaken for lower quality offerings● Require firms to lower production costs in order to make profit● Customers gained may not be loyal● May encourage price wars with competitors which in turn can drive down profit margins This method could also be suitable for the Games. The latter 3 objectives could be met with this strategy. However maximisation of revenues is not likely to be achieved.
As can be seen in the table above the most suitable strategies for ticket pricing considering our pricing objectives are going-rate pricing, target-return pricing and value pricing. 2.6. Selecting a final price
Internal and External Factors Influencing the Final Ticket Prices (customers, and likely reactions)
The tickets were priced in the following way, using Sydney
(likely problems – plans to overcome, areas of potential disagreement 4.2. SWOT
8. Rebuttal Strategy
Our rebuttal strategy is to assume the identities of the different stakeholders with the regulatory review group. Each of the stakeholders has a distinct view of the objectives of the pricing strategy. The stakeholders, their view points and their preferred ticket pricing strategy are listed in the table below. Stakeholder Objectives Preference Worst Case Scenario Politicians Manage public perceptions. Host a successful Games – full attendance.Enough tickets to Londoners Lower prices for the UK community to ensure maximum participation Lower prices for tickets for the international community.Tickets that are less accessible for the UK IOC Maximise revenueMaximise attendanceGet the right sort of attendanceAccessibility to locals Sporting bodies Full attendanceSupport for athletes London community Attendance for Londoners
General UK community Attendance for UK population LOCOG Maximise revenueMaximise attendanceGet the right sort of attendanceAccessibility to locals Sponsors Full attendance – larger audiences Cheaper tickets to ensure maximum attendance and a diverse audince International community Accessible ticket sales for everyone Boris Johnson Manage public perceptions
The second facet of our rebuttal is to use the evaluation of the general pricing methods that can be seen in table 1. The table is an evaluation of the main pricing strategies some of which may be suggested by the other team.
Thirdly, there are some Olympic specific strategies that have not been considered in our report at all. These strategies are listed below as well as the reasons for their omission from our report. Strategy Reason for omission
A percentage of free tickets
Concessions for the elderly/students/young people
Tickets of different prices for different countries
No tickets or fewer tickets for the IOC/sponsors
Tickets to schools
All high price tickets
All low price tickets Brit taxpayers in general will be picking up a larger share of the tab for the Olympics, a result which flies in the face of user-pay public finance policie All free tickets Brit taxpayers in general will be picking up a larger share of the tab for the Olympics, a result which flies in the face of user-pay public finance policie Allowing ticket resales
Exhibit A The Breakdown of the income
Estimated Costs (excluding cost of infrastructure) $3 billion * Staging the Opening Ceremony, Closing Ceremony, and sporting events * Housing and feeding the athletes and officials
* Anticipating and solving potential transportation problems * Meeting the needs of the media
* Providing security to ensure a safe and peaceful Olympics Estimated Revenues (Total $3 billion)
* IOC ($1.2 billion)
* $1.2 billion – share of broadcast revenues and international sponsorships * LOCOG ($1.8 billion)
* $1 billion – domestic sponsors
* $150 million – licensing fees
* $650 million – ticket sales
We studied about the pricing strategy for the following football and tennis events. Football
English Premier League Football: British professional football league. England Football Friendly: an exhibition match between the English national and another country’s national team. England Under-21 Football: a game between English national team who are under 21 years old and another country’s national team. 2008 European Cup Football: annual event to determine the best team in Europe. Tennis
Wimbledon Tennis: an annual tournament held in UK.
As for football, the price depends on the stage of event and age. On the other hand, the price of table tennis ticket depends on seat. Table 5. Pricing policy for various sports events in Europe
Price setting depending on stage Price setting depending on Age Price
setting depending on seats’ position Price setting depending on team English Premier League Football No No Yes Yes
England Football Friendly No Yes Yes? Yes?
England Under-21 Football No Yes No No
2008 European Cup Football No No Yes? Yes?
Wimbledon Tennis No No Yes No
1.1 Price Range
The following figure shows the price range for football events in Europe. The price is different depending on events, but most of prices are from $40 to $100.