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Chapter 9
The Economics of Supply
and Demand
9.1 Supply and Demand
9.2 Pricing Strategies
9.3 Market Conditions
Sports and Entertainment Marketing
© Thomson/South-Western
Winning Strategies
Cereal Stars
 Wheaties cereal discovered by accident
 first featured star was fictitious
 Lou Gehrig was first actual star featured
 many athletes make it a career goal to be
featured on the box
 in 1999, women in sports were featured
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Lesson 9.1
Supply and Demand
Goals
 Explain the relationships between
supply, demand, and price.
 Discuss the government’s influence on
pricing.
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Terms
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law of demand
law of supply
scarcity
equilibrium
price fixing
bait and switch
price discrimination
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THE LAWS OF SUPPLY AND
DEMAND
 demand
 the relationship between the quantity of a
product that consumers are willing and
able to purchase and the price
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 producers
 businesses that use resources to develop
products and services
 supply
 the relationship between the quantity of a
product that producers are willing and able
to provide and the price
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Price-Demand Relationships
 law of demand
 an inverse relationship
 when the price goes up, demand goes down
 when the price goes down, demand goes up
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Price-Supply Relationships
 law of supply
 when the price goes up the supply
produced goes up
 when the price goes down the supply
produced goes down
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Scarcity
 scarcity
 consumers have limited money to spend
 producers have limited resources to use
for production
 Consumers and producers must decide
how to use their limited resources to
meet unlimited wants and needs.
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Equilibrium
 equilibrium
 the point where the supply and demand
curves intersect
 indicates the best quantity and price for
goods and services
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Concerts in the Spotlight
 Concert prices can be set high.
 limited supply
 high demand
 If demand is high enough, supply can
be increased by adding a second show.
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 How does price affect demand?
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GOVERNMENT INFLUENCE ON
PRICING
 private-enterprise system
 based upon independent decisions made
by consumers and businesses
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 The U.S. government has an influence
on prices charged for merchandise
directly and indirectly through antitrust
laws, taxation, and various consumer
protection laws.
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Benefits of Competition
 monopoly
 where one business controls the entire
market
 Antitrust laws encourage competition
and help avoid monopolies.
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Taxation
 Taxation can be used by the
government to encourage or discourage
sales.
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Illegal Pricing
 price fixing
 when related businesses conspire to
charge high prices
 illegal in U.S.
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 bait and switch
 when a product that is advertised at a great
price is “out of stock”
 salesperson tries to sell customer a higherpriced alternative
 advertised prices cannot be misleading
 price discrimination
 occurs when one individual, group, or
business is charged a higher price than
others purchasing the same product or
service
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 List three ways the government
influences pricing.
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Lesson 9.2
Pricing Strategies
Goals
 Discuss pricing strategies used by
businesses to increase sales.
 List five steps for determining price.
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Terms
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operating expenses
markup
price lines
loss-leader pricing
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PRICING CONSIDERATIONS
 price
 the amount that customers pay for
products and services
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 pricing
 the process of establishing and
communicating the value of goods and
services to customers
 operating expenses
 all the costs associated with running your
business
 markup
 the amount that is added to the cost of an
item to cover operating expenses and allow
for a profit
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 pure competition
 many companies offering the same product
 customers do not recognize major differences in the
brands
 the market will drive the prices low as businesses
compete for consumers’ business
 market price
 determined by laws of supply and demand
 if not sufficient to cover costs and allow for a profit,
the business will cease production of the product
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Pricing Policies
 one-price policy
 all customers pay the same price for a
product
 flexible pricing policy
 allows customers to negotiate a price
within a range
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 price lines
 distinct categories of merchandise based
upon price, quality, and features
 geographic pricing
 allows pricing variations based upon
geographic location
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A Variety of Pricing Strategies
 Psychological Pricing
 creating an illusion for customers
 Prestige Pricing
 higher-than-average pricing
 targets customers seeking status and
quality
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 Volume Pricing
 when a supplier provides a lower price to a
customer who buys a high volume of
product
 Promotional Pricing
 offering customers an incentive to get them
in the store
 two-hour/ 50% off sale
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 Loss-Leader Pricing
 the willingness to take a loss on the reduced
prices of selected items in order to create
more customer traffic
 special event promotion
 associates a special sale with a major event
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 rebates
 coupons on products that customers can mail in for
a refund
 depends upon further action by the customer
 multiple-unit pricing
 a volume based discount
 trade-in allowance
 giving a store your old product when purchasing a
new product
 usually results in a discount on the new product
purchase
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 List and describe five pricing strategies
to increase sales.
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DETERMINING THE PRICE
 There are five steps to determining the
price to charge for a product or service.
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1. Establish the price objectives.
2. Determine the cost of the product or
service.
3. Estimate consumer demand for your
product or service.
4. Study the competition.
5. Decide on a pricing strategy.
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 List the five steps for determining price.
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Lesson 9.3
Market Conditions
Goals
 Define the business cycle and describe
its impact on sports and entertainment.
 Discuss the importance of monitoring
consumer trends.
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Terms
 business cycle
 inflation
 shoulder periods
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IMPACT OF THE BUSINESS
CYCLE
 business cycle (economic cycle)
 the ups and downs of the economy
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Expansion
 expansion
 the upside of a business cycle
 peak
 highest point of growth in the economy
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Contraction
 contraction
 the downside of a business cycle
 recession or depression
 inflation
 when prices for goods and services rise
faster than consumer income
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Business Reaction
 trough
 lowest point of contraction
 recovery
 economy shows signs of improving
 prosperity
 the period of business expansion following
recovery
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Seasonal Cycles
 For some businesses, demand
fluctuates with the seasons.
 high season
 the season with the highest demand
 low season
 the season with the lowest demand
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 shoulder periods
 periods of moderate demand
 Sports and entertainment marketing
strategies must be developed to help
even out the fluctuations created by
changing seasonal demands.
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 What is inflation and how does it
contribute to recession?
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IMPACT OF CONSUMER
TRENDS
 Trends are dictated by
 television revenue
 sponsors
 consumer demand
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Retro Television
 Retro show fans like to relive the good
old days and recall positive memories
of growing up watching the stars in the
sitcoms.
 Popular show reruns are inexpensive to
show on television.
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Game Shows
 There are game show channels that
rerun old favorites.
 New game shows are being produced
to meet demand.
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Audience Ratings Speak
 Television networks cannot afford the
risk of having viewers switch channels
to watch a more exciting show on a
competing network.
 Some series do not last more than six
airings due to flat ratings.
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Socio-Culture Issues
 Socio-culture issues include trends in
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customer attitudes
lifestyles
opinions
demographics
 Assessing consumers’ ever-changing needs
and wants is the bottom line for the success
or failure of a product or service.
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 Why must sports and entertainment
marketers pay careful attention to
consumer trends?
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PERFORMANCE INDICATORS
EVALUATED
 Demonstrate an understanding of the
economic challenges facing television
network programming.
 Demonstrate critical thinking and problemsolving skills.
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 Describe promotions appropriate for the
target market that will result in increased
ratings for the bowl game.
 Describe advertisements that will attract the
attention of your target market.
 Develop a strategy to encourage viewers of
the Price Is Right to watch the bowl game.
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THINK CRITICALLY
1. How have the number of bowl games
affected the television ratings for the
games?
2. Why are the scheduled date and time of
the game important factors for ratings
and promotions?
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3. Why should television networks pay
attention to the programming scheduled
around the game and on competing
networks when making decisions?
4. How can an association be made
between the game show and the bowl
game?
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