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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
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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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
– Consumers conduct research
and talk to friends & family
to select goods/services
that satisfy their needs.
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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
– Producers conduct research to gather
info about types of goods/services that
customers are likely to purchase
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Price-Demand Relationships

Major Challenge
– Find balance between what producers are willing
to produce & what customer are willing to buy.
– Must consider the marketing mix elements

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

Sports Event or Motion Picture = Business
– Goal of any Business = Make Money
– Willing to invest resources (Time, Money, Materials)
if it is likely to be profitable.

law of supply
– price goes up: supply produced goes up
– price goes down: supply produced goes down
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Price-Supply Relationships

Marketers help to balance the impact of the
laws of supply and demand by:
– Providing consumers information
– Making products conveniently available
Consumers decide where to use their
limited resources
 Producers watch for profitable prices and
quantities and adjust accordingly

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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
– Supply Curve = Producers
– Demand Curve = Consumers
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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 (FREE)
– based upon independent decisions made by
consumers and businesses
– Gov plays a limited role
– 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.

Laws of Supply & Demand set prices

Businesses stay fresh and innovative to
keep up with competitors
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Taxation

Taxation can be used by the government
to encourage or discourage sales.
– Increase tax on alcohol and cigarettes causes
prices to rise
 Discourage purchases
 Provides more revenue to government
– Tax breaks = encourage production and sales
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Illegal Pricing

price fixing
– when related businesses
conspire to charge high
prices (illegal in U.S.)
– i.e. All Fast Food Restaurants formed a cartel
that decided to charge $12 for a Hamburger
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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
higher-priced alternative
– advertised prices cannot be misleading/deceptive

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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PRICING CONSIDERATIONS

Price
– the amount that customers pay for products & services

Pricing
– the process of establishing and communicating the value
of goods and services to customers

Considerations:
 Cost of Merchandise
 Operating Expenses
 Desired Profit
 Supply & Demand
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
cost of merchandise
– Amount paid to the manufacturer for goods

operating expenses
– all the costs associated with
running your business
– i.e. utilities, salaries, federal income taxes

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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
Supply & Demand
– higher prices for high demand products

pure competition
– many companies offering the same product
– customers do not recognize major differences in brands
– the market (consumers) 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
– i.e. sneakers, burgers, t-shirt, etc.

flexible pricing policy
– allows customers to negotiate a price
within a set range
– i.e. auto dealers (sales negotiation)
– eBay bidding
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
price lines
– distinct categories of merchandise based upon
price, quality, and features
– Ralph Lauren
 Polo: high-end price line
 Chaps: next best alternative at lower cost

geographic pricing
– allows pricing variations based upon geographic location
– Factors: distribution costs, local competition, local taxes
and/or other restrictions
– Closer you are to manufacturer – lower the costs
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A Variety of Pricing Strategies (6)


1.
Retailers use a wide variety of pricing strategies in an
effort to increase total sales
Marketers must motivate customers to buy.
Psychological Pricing
– creating an illusion for customers
 odd-even $9.99 vs $10.00
– illusion of paying less than next higher dollar
– even though it’s only a penny.
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A Variety of Pricing Strategies
2.
Prestige Pricing
– higher-than-average pricing
– targets customers seeking status and quality
– Specialty stores - superior quality & service
3.
Volume Pricing
– when a supplier provides a lower price to a
customer; buys at high volume of product
– i.e. Walmart can pass savings on to consumers
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4.
Promotional Pricing
– Limited Time Sale:
 five-hours only/ 50% off sale
offering customers an incentive to get them in the store
– Loss-Leader Pricing
 willingness to take a loss on the reduced prices of selected items
in order to create more customer traffic
 Customers will likely buy additional items while there
– Special event promotion
 associates a special sale with a major event
 Thanksgiving / March Madness
– Rebates
 coupons on products that customers can mail in for a refund
 depends upon further action by the customer
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5.
Quantity Discounts
–
–
–
–
multiple-unit pricing
a volume based discount
Shirts: $10 each or 2 for $16
Theme Park: 1 Day Pass $60 or 3 Day pass $120
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6.
Trade-in allowance
– giving a store your old product when purchasing a new
product
– usually results in a discount on the new product
purchase
 i.e. sports gear – need advanced/higher quality (athlete excels)
 i.e. baby gear – need next level of product (baby ages)
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
List and describe the six 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.
1. Establish

the price objectives.
Decide % of profit you want to earn
2. Determine


the cost of the product/service.
Initial cost, operating cost, advertising / promotions
Cover TOTAL cost and allow for a profit
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3.
Estimate consumer demand for your
product or service.


4.
Study the competition.

5.
Higher enough to ask for higher price?
Low price generate enough additional demand to
move merchandise and make comfortable profit?
Distinguish your products from competitions
Decide on a pricing strategy.


Evaluate product for appropriate pricing
Base decisions on good marketing info
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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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IMPACT OF THE BUSINESS CYCLE

business cycle (economic cycle)
– the ups and downs of the economy
– Chart on next slide…
– Sports & Entertainment planners should be
aware of the market conditions they are
facing as they make their plans
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Expansion

expansion
– the upside of a business cycle
– Growing demand for goods and services
– great potential for profit
– Competition encouraged to enter

peak
– highest point of growth in the economy
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Contraction

contraction
– the downside of a business cycle
– recession or depression – economy slows down
– Unemployment goes up – consumers demand less

inflation
– when prices for goods and services rise
faster than consumer income

How consumers feel about economy influences
money spent on Sports & Entertainment items.
– Tighten budgets, reserve spending, TV rather than LIVE
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Business Reaction

Sports & Entertainment industry
hit hard in a recession

trough
– lowest point of contraction

recovery
– economy shows signs of improving
– Encouraged to add staff back and increase production

prosperity
– the period of business expansion following recovery
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Business Reaction

Travel & Tourism Example:
– Rising costs of fuel and airline prices
– Hotels adjust promotions to encourage
consumers and maintain occupancy rates
– Families still take vacation but pull back on extravagant
– Extend business trips to include family fun (cut cost)
– Competing attractions have to win consumer dollars
 Theme Park vs. Movie Theater vs. Ball Game
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Seasonal Cycles

For some businesses, demand fluctuates
with the seasons. (Ski Resort vs Theme Park)

high season
– the season with the highest demand

low season (off season)
– the season with the lowest demand

shoulder periods
– periods of moderate demand
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
Sports and entertainment marketing
strategies must be developed to help
even out the fluctuations created by
changing seasonal demands.
– Special promotions for Holidays
– Special promotions for Schools: Senior Days,
Prom, Marketing Career Days, Physics Day, etc.
– Student Organization Trips:
 FBLA trip to Hershey Lodge ( & Hershey Park)
 Sophomore Class Trip to Dorney Park
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
What is inflation and how does it
contribute to recession?
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IMPACT OF CONSUMER TRENDS

Trends in sports and entertainment are
dictated by:
– television revenue
– sponsors
– consumer demand
– Trends are reflective a consumers wants and
needs (demand).
– Businesses aim to satisfy those needs.
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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
New TV shows are introduced with great
expectations.
 Flat ratings = pulled from network
 Television networks cannot afford the risk of
having viewers switch channels to watch a more
exciting show on a competing network.


TV Cancellation Watch:
Renewal Odds for Remaining Bubble Shows
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Audience Ratings Speak
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Socio-Culture Issues

Socio-culture issues include trends in
–
–
–
–

customer attitudes
Lifestyles
(eating out frequency, discretionary spending)
Opinions
(important in product design)
demographics (market characteristics, age, income)
Assessing consumers’ ever-changing
wants and needs 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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