(SM) Springfield Norester Maximizing Revenue in Minor League PDF

The Springfield Noreasters:
Maximizing revenue at Minor

League
Harvard Business School Case
Sameer Mathur, Ph.D. (Carnegie Mellon)

Marketing Professor, IIM Lucknow
Quiz: Springfield Noreaster

1)
2)
3)
4)
5)
6)
7)
How many games were Noreasters scheduled to play at home?

What was the total capacity of the Springfiled College stadium?
What was the population of Springfield, MA in 2008?
What was the profit margin from concession sales at the statdium?
What was the expected game attendance by full season ticket holders?
How much stadium rent did Noreasters pay Springfield Colleage?
How many total responses did Buckinghams survey generate?
THODI SI MATHS
8) How much money is needed from ticket sales and net concession income to cover
fixed costs? (Hint: Review Page 3 & Exhibit 1)
9) What is consumers cumulative willingness to pay (WTP) by price and ticket type?
(Hint: Prepare a pricing matrix, similar to Exhibit 6)
10) Calculate the expected revenue from snacks, souvenirs and arcade games, per
person? (Hint: Review Exhibit 5)
2
Quiz: Springfield Noreaster

1)
2)
3)
4)
5)
6)
7)
How many games were Noreasters scheduled to play at home? 38 (p.2)

What was the total capacity of the Springfiled College stadium? 3600 (p.2)
What was the population of Springfield, MA in 2008? 55,338 (p.2)
What was the profit margin from concession sales at the statdium? 39% (p.4)
What was the expected game attendance by full season ticket holders? 90% (p.6)
How much stadium rent did Noreasters pay Springfield Colleage? 0 (p.2)
How many total responses did Buckinghams survey generate? 625 (p.5)
THODI SI MATHS
1) How much money is needed from ticket sales and net concession income to
cover fixed costs? (Hint: Review Page 3 & Exhibit 1)
2) Calculate the expected revenue from snacks, souvenirs and arcade games, per
person? (Hint: Review Exhibit 5)
3) What is consumers cumulative willingness to pay (WTP) by price and ticket
type? (Hint: Prepare a pricing matrix, similar to Exhibit 6)
3
What are
Noreasters?
Who is
Larry Buckingham?
4
Who are the Players?

Larry Buckingham
oMarketing Director for Noreasters

Jimmy Mercante
o Owner of the Noreasters

Bob Cortez
o President and GM
What is the present

situation?
6
Situation Analysis (1/3)

A class-A minor league baseball team has started
up in Springfield, MA, a year and a half advance of
the first game
Game dates have already been determined, but
pricing decisions remain
A survey has been run with the expectation of
getting insights to help in pricing season and
single game tickets
Ancillary issues of concession sales also need
evaluation
The Springeld Noreasters: Maximizing Revenue in Minor League
Situation Analysis (2/3)

Entertainment Industry: Sports
Stadium (3/3)
Why study this

case?
10
Objectives of this Case (1/3)

Illustrate the design, implementation, and interpretation of
research surveys
o Evaluate primary research studies,
o Setting research objectives,
o Questionnaire design,
o Data analysis and interpretation.

11
Objectives of the Case (2/3)

To use quantitative analysis methods to develop a
"scaled" pricing strategy for a

perishable service that reflects constant
costs per production unit (in this case, stadium seats)
12
Objectives of the Case (3/3)

Understand the relationship between
pricing and its impact on the sales of

auxiliary products.
13
We will focus on
THREE inter-related
issues
14
Three Issues
1
Evaluate the
research surveys
undertaken by the League Sports Association and by

Larry Buckingham:
customer profile?
pricing?
single versus season tickets
15
Three Issues
2
optimal pricing policy?

16
Three Issues
3
Can Noreasters
breakeven?
17
Three Issues
1
Evaluate the
research surveys
undertaken by the League Sports Association and by

Larry Buckingham:
customer profile?
pricing?
single versus season tickets
18
Insights from the

League Sports
Association
survey?
19
Attendance / Exposure (1/3)

A. Total Percent Exposed During Past Year by Educa:on

Baseball Football
Basketball Hockey
College graduate 2
7 5 2
Some college 12 5 2
2
High school graduate 23
14 6 7
Some high school 39 26 11 13
20
Income-level of Audiences (2/3)

B. Income ComposiFon of Audiences

Baseball Football Basketball Hockey
$75,000 and over 13% 12% 15% 20%
$45,000 to $74,999 40% 37 34 32
$22,500 to $44,999 33% 34 32 30

Up to $22,499 14 17 19 18
100% 100% 100% 100%
21
Education-level of Audiences (3/3)

C. EducaFonal ComposiFon of Audiences of Four Professional Sports

Baseball Football Basketball Hockey

College graduate 18% 21% 20% 18%
Some college 26 18 18 16
High school graduate 23 24 24 26
Some high school 33 37 38 40
100% 100% 100% 100%

Source: League Sports Associa1on.
22
But..
These insights were 3 years old,

anecdotal, limited
I want to be able to tailor the teams offerings based on
knowledge of the local market
23
Insights from
Telephone
Interviews?
24
Telephone Interviews (1/3)

Larry Buckingham conducted
Telephone interviews of six

minor league baseball team Marketing
Directors across USA
25
Insights from Interviews (2/3)

Price Seats on par with the competition
movies, bowling, other sporting events
Season ticket versus Individual ticket

buying
26
Insights from Interviews (3/3)

Promote group ticket sales to Little League
teams, summer camps, promote family
days out
Concession Sales are crucial

27
Online Survey by
Larry Buckingham?
28
Design Objectives? (1/5)
29
Design Objectives (1/5)

Maximum Information Yield for DecisionMaking
Clarity in questions asked
Ease of data analysis
30
Questions on (2/5)
oPrice Sensitivity
oSports attendance patterns
31
Process.. (3/5)
How was the survey

conducted?
32
Process.. (3/5)
Mail 10000 postcards
Fill Online / Telephone Survey
Chance to Win $500 restaurant gift
certificate
33
Budget; Response Rates (4/5)
?
34

o$3,800 budget
o10000 postcards
o625 responses
35

List Source
Mail Qty.
Springfield residents, census tract

Minor league hockey team, individual,
and season ticket buyers
College football individual and
season ticket buyers
Parents of little league baseball players,
2007-08 season
Parents of girls softball players,
2007-08 season
Total
List Cost, per

thousand
names
Undeliverable
Net
Response
5,000
$90
250
5.2%
2,871
$125
97
6.1%
1,380
$125
41
7.6%
441
$130
20
17.3%
$130
12
11.4%
308
10,000
420
36
Pretesting (5/5)
?
37
Pretesting (5/5)
oPretested 3 times on friends, relatives,
business associates
38
Insights from the

Online Survey by
Larry Buckingham?
39
Purchase Likelihood (1/4)

Exhibit 5: Survey Questionnaire and Response Distributions
Question
Response
Yes
1. Do you consider yourself a baseball fan?
2. In the past year, have you attended a professional baseball game?

3. During the past two or three years, how often have you
Never
attended a major-league game?
76%
attended a minor-league game?
83%
attended a college game?
79%
No
Not sure
38%
60%
2%
28%
72%
0%
1-2 times
20%
14%
17%
3-4 times
1%
5 or more times
3%
1%
2%
Not sure
0%
2%
0%
2%
0%
40
Purchase Likelihood (1/4)

Yes No

6. Have you ever purchased a season Fcket for a sporFng event? 23% 77%

7. If a minor league baseball team came to Springeld, is it likely you would (select one):

Not aOend at all

61%
Probably aOend just one game

21%
Probably subscribe to a 5-game package

11%
Probably subscribe to a 20-game half season

5%
Probably subscribe to a 38-game full season
2%
41
Willingness to Pay (2/4)

Less than $4
8. If you were to attend one game, what would you be willing to

pay?
0%
Less than $4
9. If you were to purchase a multi-game package of 5 tickets,
1%
what would you be willing to payper game?
10. If you were to purchase a half-season ticket for 20 games,
1%
what would you be willing to payper game?
11. If you were to purchase a full-season ticket for 38 games, what
would you be willing to payper game?
18%
$4
2%
$4
$6
5%
$6
$8
13%
$8
$10
31%
$10
$12
27%
$12
$14
22%
$14
2%
3%
19%
36%
34%
5%
7%
23%
28%
25%
15%
1%
26%
20%
14%
11%
10%
1%
42
Concession Sales (3/4)

nothing
more
12. What would you be willing to pay, per game, for a grandstand 24%
seat over and above the cost of a bleacher seat?
Nothing
13. How much do you expect to spend on snacks, souvenirs and

arcade games, per person, for each game you attend?
14. What is your age?
15. Are you:
8%
10% more 25% more

48%
19%
Less than
$5
$6-$10
11%
18 or under
1%
19-25
7.00%
Female
56%
Male
44%
50% more
9%
$11-15
45%
36%
26-35
30%
36-45
21%
46-55
19%
56-65+
19%

43
nothing
more
Demographics (4/4)
Nothing

15. Are you:
8%
10% more 25% more

48%
19%
Less than
$5
$6-$10
11%
18 or under
1%
19-25
7.00%
Female
56%
Male
44%
50% more
9%
$11-15
45%
36%
26-35
30%
36-45
21%
46-55
19%
56-65+
19%
44
Demographics (4/4)
None
34%
16. How many children, ages 5-16, live with you?
Some high
school
17. What is the last grade in school or college that you completed? 28
Up to
$22,499
One
38%
High
school
28
$22,500$44,999
Two
18%
Three
7%
Some
college
College degree
31
13
$45,000$74,900
Four
2%
More than 4
1%
$75,000 and
over
18. For statistical purposes only, which of the following broad

categories represents your household's annual income?
18%
36%
40%
6%
45
Three Issues
2
optimal pricing policy?

46
How much money is

needed from ticket
sales and
concessions to
cover fixed costs?
47
Annual operating expenses (Exhibit 1)

Fixed expenses

Players' salaries $887,000a

Bats and balls $22,500a
Uniforms
$8,000
League dues $175,000
Sta salaries $124,000
Oce expenses $110,000
Team travel $455,000
Market research & mailing lists $4,879
Advertising, sales, and marketing $175,000
Total xed expenses $1,961,379

a These expenses were paid by the major league team with which the Noreasters were aliated.
48
Noreasters expenses and non ticket revenue

Fixed expensesa
Uniforms
League dues
Staff salaries
Office expenses
Team travel
Market research & mailing lists
Advertising, sales, and marketing
Total fixed expenses

Less nonticket revenue:
Advertising and sponsorship
City of Springfield & university contributions

Balance needed from ticket and concession sales

to cover fixed costs
$
8,000
$ 175,000
$ 124,000
$ 110,000
$ 455,000
$
4,879
$ 175,000
$ 1,051,879
$
$
$
25,000
21,000
46,000
Exhibit 1, Pg. 8
Case, Pg. 3
$ 1,005,879

a Note that expenses for players' salaries and for bats and balls, totaling
$909,500, are excluded as they are paid by the major league team with which
the Noreasters are affiliated.
49
Fixed Costs
Need to recover
$1,005,879
50
Determining the
optimal pricing
strategy from
willingness-to-pay?
51
Pricing (1/7)

Exhibit 6 Buckinghams pricing matrix worksheet
$ per ticket
Less
Ticket Type
than $4
$4
$6
$8
$10
$12
$14
Single ticket
5-game ticket
20-game half-season
38-game season
52
WTP (2/7)
o31% are WTP $10
o49% are WTP more than $10
(Exhibit 5, Que 8)
53
WTP by Price & Ticket Type (3/7)

Data from Case Exhibit 5, Consumer willingness to pay by price and ticket type

$ per ticket
Ticket Type
Single ticket

5-game ticket

20-game half-season
38-game season

Less
than $4
0%
1%
1%
18%
$4
2%
2%
7%
26%
$6
5%
3%
23%
20%
$8
13%
19%
28%
14%
$10
31%
36%
25%
11%
$12
27%
34%
15%
10%
$14
22%
5%
1%
1%

54
Cumulative Willingness to Pay (4/7)

27 % willing to pay $ 12
+ 22 % willing to pay $ 14
49 % willing to pay at least $ 12
Determine the total percentage of
consumers who are willing to
purchase at each price point
55

Cumulative table of consumer willingness to pay by price and ticket type

Ticket Type
Single ticket

5-game ticket
20-game half-

38-game season

season

$ per

ticket

Less
than
$4
$6
$8
$10
$12
$14
$4
100% 100% 98%
93%
80% 49% 22%
100% 99% 97%
94%
75% 39%
5%
100% 99% 92%
69%
41% 16%
1%
100% 82% 56%
36%
22% 11%
1%

56
Expected Ticket Revenue (6/7)

Optimal prices by ticket type a

Ticket Type
Single ticket

5-game ticket
20-game half-
season
38-game season

$ per

ticket

Less
than
$4
$6
$8
$10
$12
$14
$4

$ $4.00 $5.88 $7.44 $8.00 $5.88 $3.08

$ $3.96 $5.82 $7.52 $7.50 $4.68 $0.70

$ $3.96 $5.52 $5.52 $4.10 $1.92 $0.14
$ $3.28 $3.36 $2.88 $2.20 $1.32 $0.14
This is the potential ticket revenue per

game for each ticket type/price pair.
57
Optimal
Pricing
Schedule
(7/7)

% of

Ticket Type
Single ticket
5-game ticket
20-game half-season
38-game season
Total
Ticket
Price
$10
$8
$7
$6
consume
interested
ticket typ
21%
11%
5%
2%
58
Three Issues
3
Will Noreasters
breakeven?
59
Revenue from
Tickets?
60
Consumers (1/4)

Exhibit 5, Que 7
Tickets and seats sold and total ticket revenue by ticket type

Ticket Type
Single ticket
5-game ticket
20-game half-season
38-game season

Ticket
Price
$10
$8
$7
$6
Total
% of
consumers
# of
% willing to # ticket
# seats
interested in
interested
buy at this
type
a
ticket type consumers ticket price
sold
sold
21%
11%
5%
2%
11,621
6,087
2,767
1,107
80%
94%
81%
56%
Total Ticket
revenue
Springfields

9,297 population
9,297
$ 92,968
=
5,722
28,610
$ 228,878
55,338
2,227
44,547
$ 311,830

620 23,552
(Case, p.$ 141,311
2)
106,006
$ 774,987

a From Springfield total of 55,338
61
Number of Tickets Sold (2/4)


Ticket Type
Ticket Type
Single ticket
Single ticket
5-
5-ggame ticket
ame ticket
20-
20-ggame half-
ame half-sseason
eason
38-
38-ggame season
ame season

Ticket
Ticket
Price
Price
$10
$10
$8
$8
$7
$7
$6
$6
Total
Total
From
Cumulative

WTP

% of
% of
consumers
# of
% willing to
consumers
# of
# ticket
# seats
# seats
interested in
buy at this
type
interested in interested
interested
buy at this
type
a
a
ticket type
sold
ticket type consumers
consumers ticket price
ticket price sold
sold
sold
21%
21%
11%
11%
5%
5%
2%
2%
11,621
11,621
6,087
6,087
2,767
2,767
1,107
1,107
80%
80%
94%
94%
81%
81%
56%
56%
9,297
9,297
5,722
5,722
2,227
2,227
620
620

9,297
9,297
28,610
28,610
44,547
44,547
23,552
23,552
106,006
106,006
Total Ticket
Total Ticket
revenue
revenue
$
$ 92,968
92,968
$ 228,878
$ 228,878
$ 311,830
$ 311,830
$ 141,311
$ 141,311
$ 774,987
$ 774,987

a
a From
From SSpringfield
pringfield ttotal of
otal of 555,338
5,338
62

Cumulative table of consumer willingness to pay by price and ticket type

Ticket Type
Single ticket

5-game ticket
20-game half-

38-game season

season

$ per

ticket

Less
than
$4
$6
$8
$10
$12
$14
$4
100% 100% 98%
93%
80% 49% 22%
100% 99% 97%
94%
75% 39%
5%
100% 99% 92%
69%
41% 16%
1%
100% 82% 56%
36%
22% 11%
1%

63
Ticket Revenue (4/4)


Ticket Type
Ticket Type
Single ticket
Single ticket
5-ggame ticket
ame ticket
5-
20-ggame half-
ame half-sseason
eason
20-
38-ggame season
ame season
38-

Ticket
Ticket
Price
Price
$10
$10
$8
$8
$7
$7
$6
$6
Total
Total
% of
% of
consumers
# of
# ticket
consumers
# of
% willing to
# seats
interested in interested
interested
buy at this
type
# seats
interested in
buy at this
type
a
a
ticket type consumers
consumers ticket price
ticket price sold
sold
sold
ticket type
sold
21%
21%
11%
11%
5%
5%
2%
2%
11,621
11,621
6,087
6,087
2,767
2,767
1,107
1,107
80%
80%
94%
94%
81%
81%
56%
56%
9,297
9,297
5,722
5,722
2,227
2,227
620
620

9,297
9,297
28,610
28,610
44,547
44,547
23,552
23,552
106,006
106,006
Total Ticket
Total Ticket
revenue
revenue
$ 92,968
92,968
$
$ 228,878
$ 228,878
$ 311,830
$ 311,830
$ 141,311
$ 141,311
$ 774,987
$ 774,987

a
From Springfield total of 55,338
64
Ticket Revenue (4/4)

Ticket Type
Single ticket
5-game ticket
20-game half-season
38-game season

Ticket
Price
$10
$8
$7
$6
% of
consumers
# of
# seats
interested in
interested
buy at this
type
a
ticket type consumers ticket price
sold
sold
21%
11%
5%
2%
11,621
6,087
2,767
1,107
80%
94%
81%
56%
Total
9,297
5,722
2,227
620
9,297
28,610
44,547
23,552
106,006
Total Ticket
revenue
$ 92,968
$ 228,878
$ 311,830
$ 141,311
$ 774,987

What is the total capacity of

the stadium?
65
Revenue from
Concessions?
66
Concession Revenue Per Seat (1/3)
nothing
more
Nothing

8%
10% more 25% more

48%
19%
Less than
$5
$6-$10
11%
18 or under
1%
19-25
7.00%
Female
56%
Male
44%
50% more
9%
$11-15
45%
26-35
30%
36%
36-45
21%
46-55
19%
56-65+
19%
$0.00*8% + $2.50*11% + $8*45%

+ $13*36%

15. Are you:
$8.56
67
Revenue From Concessions (2/3)

$8.56/seat
Case, p.6

Concessions revenue
Ticket type
# seats buying
concessions
Attendance
seats sold
Concession
revenue
Single ticket
5-game ticket
20-game half-season
38-game season
Total
9,297
28,610
44,547
23,552
106,006
100%
97%
95%
90%
9,297
27,751
42,320
21,197
100,565
$79,580
$237,552
$362,257
$181,443
$860,832
68
Net Income Per Seat (3/3)

Case, p.4
39% contribution margin

Net Income Per Seat
= $8.56 * 39%
=
$3.34
69
Breakeven?
70
Breakeven Analysis

Breakeven analysis
Revenues:
Ticket sales
Concession sales (net)
Total revenues:
Balance needed from ticket and concession sales to cover
fixed costs
Net income
$774,987
$335,725
$1,110,712
$1,005,879
$104,833
71
Take Aways From Case

o Can we generalize the insights?
72

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The Springfield Noreasters:

Maximizing revenue at Minor

Sameer Mathur, Ph.D. (Carnegie Mellon)

Quiz: Springfield Noreaster

How many games were Noreasters scheduled to play at home?

Quiz: Springfield Noreaster

How many games were Noreasters scheduled to play at home? 38 (p.2)

Who are the Players?

oMarketing Director for Noreasters

o Owner of the Noreasters

What is the present

Situation Analysis (1/3)

Situation Analysis (2/3)

The Springeld Noreasters: Maximizing Revenue in Minor League

Harvard Business School Case

Why study this

Objectives of this Case (1/3)

o Data analysis and interpretation.

Objectives of the Case (2/3)

"scaled" pricing strategy for a

costs per production unit (in this case, stadium seats)

The Springeld Noreasters: Maximizing Revenue in Minor League

Objectives of the Case (3/3)

pricing and its impact on the sales of

undertaken by the League Sports Association and by

optimal pricing policy?

undertaken by the League Sports Association and by

Insights from the

Attendance / Exposure (1/3)

A. Total Percent Exposed During Past Year by Educa:on

The Springeld Noreasters: Maximizing Revenue in Minor League

Income-level of Audiences (2/3)

B. Income ComposiFon of Audiences

$22,500 to $44,999 33% 34 32 30

Harvard Business School Case

Education-level of Audiences (3/3)

C. EducaFonal ComposiFon of Audiences of Four Professional Sports

Baseball Football Basketball Hockey

The Springeld Noreasters: Maximizing Revenue in Minor League

These insights were 3 years old,

The Springeld Noreasters: Maximizing Revenue in Minor League

Telephone Interviews (1/3)

Telephone interviews of six

Insights from Interviews (2/3)

Season ticket versus Individual ticket

Insights from Interviews (3/3)

Concession Sales are crucial

Design Objectives? (1/5)

The Springeld Noreasters: Maximizing Revenue in Minor League

Design Objectives (1/5)

How was the survey

Budget; Response Rates (4/5)

Budget; Response Rates (4/5)

Harvard Business School Case

Budget; Response Rates (4/5)

Springfield residents, census tract

List Cost, per

Harvard Business School Case

Insights from the

Purchase Likelihood (1/4)

1. Do you consider yourself a baseball fan?

2. In the past year, have you attended a professional baseball game?

$0.008% + $2.5011% + $8*45%