Even as the first baseman squeezed the ball in his glove from the ground out that ended the Ocelots seasonthe third without postseason playOlivia was thinking about next season. Although the team was financially solvent, attendance had declined for the past three seasons. With the new hockey team in town, consumers had another professional sport alternative in the fall, winter, and spring, to go along with football in the fall and winter, to say nothing about the three museums, aquarium, and zoo. Seventeen thousand fans had come to the September night game pushing attendance over 1.8 million; not bad for a team whose chance of post-season play ended four weeks ago. She wondered how many would come back next season. Especially since next years lineup, except for a rookie or two making the team, would be very similar to this years. The owners just did not have the money for high-priced free agents. Even so, the team had a good possibility of making the playoffs next year, and that was enough for fans in this town. Lowell is a blue-collar, western town geographically isolated in the middle of the state. Although the Dodgers sold every delicacy in the world at its park, Lowell was a meat and potatoes crowd. The concession stands were limited to traditional favorites, such as burgers, franks, and fries.

Olivia, as marketing vice president, spent her time thinking about marketing: promotional events, local advertising, social media, pricing; however, the latter consumed the most time lately. Back in her office, Olivia tried to formalize her pricing decision.

Pricing was divided into four tiers: luxury suites, box, mezzanine, and bleachers (highest to lowest priced, respectively, and each represented a different segment). The price of bleacher seats had not been changed in six years and only twice in 27 years. It was affordable for all. Luxury suite and box seat pricing had been set last year and has been remarkably successful. The challenge was in the mezzanine, a formidable challenge.

Olivia reviewed a research firms report that estimated elasticity for mezzanine season tickets. The sample, from her primary target market: white males ages 30 to 45, household incomes 40 thousand and above, family size of three or more, a total of 1.9 million within 30 miles, was then extrapolated to the entire population to estimate mezzanine season ticket purchases. Fans discretionary income was limited and she needed a price that would garner a large portion of it for baseball now and in the future. Although 1.9 million seemed like a lot, Olivia had a 49,240 seat stadium to fill on 81 nights for a total of 3,988,440 possible patrons, and 6,000 seats are in the mezzanine. (Please see the PowerPoint slides for an example.)

TICKET PRICES TICKETS SOLD (concessions purchased per person ¹)

$8 4,000 (30)

$10 3,500 (20)

$12 3,000 (15)

$15 2,500 (10)

$20 2,000 (7)

¹ Includes, for example, food, memorabilia, drinks, parking (variable cost for concessions is 50 percent of concession revenue)

ESTIMATED COSTS

I) Fixed ²

Players salaries and benefits $47,500,000

Executive salaries and benefits 3,000,000

Staff salaries and benefits 2,000,000

Mortgage (team owns the stadium) 10,000,000

Depreciation 500,000

Insurance 500,000

Minor league operations and scouting 5,000,000

Promotion 1,000,000

Parking 500,000

Concessions 500,000

TOTAL $70,500,000

II) Variable (per game per fan) ³

TOTAL $3

² Three percent of fixed costs must be covered by mezzanine season ticket sales. Note: The team also receives revenue from: television and radio broadcasts, and stadium advertising, other seating sections, minor league teams, and other major league teams when it travels to them to play, although you do not include those sources.

³ Includes, for example, lighting, security, attendants when entering and being seated

1) What price (per game) would you set for mezzanine seating if maximizing profit was Olivias goal (your analysis includes only season ticket holders and excludes concessions)?

You must justify your answer which must include at a minimum elasticity estimates, demand curve, marginal cost and revenue, and breakeven for your selected ticket price. Note: Only use the five ticket prices given (see Profit Maximization slide for an example), and use an Excel spreadsheet for calculations, which must be attached and labeled. Show calculations.

2) Recalculate your pricing decision using ticket prices and concessions. What price would you set for mezzanine seating now? (Note: You complete the same calculations as question one, except elasticity and breakeven.

Excel: