Pricing Strategies
What is penetration pricing?
A pricing strategy where prices are set low to attract customers to a new product.
What is a business risk?
A factor that can cause loss or damage to a business.
What is the formula for calculating profit?
Profit = Revenue – Expenses.
What is a revenue stream?
A source of income for a business, such as ticket sales.
What is a balance sheet?
A financial statement that shows a company’s assets, liabilities, and equity
Compare skimming pricing and competitive pricing.
Skimming sets high initial prices; competitive pricing sets prices based on competitors.
Name a method to mitigate financial risk in sports and entertainment.
Insurance, diversifying revenue streams, or contract clauses.
How do sports and entertainment businesses typically generate revenue?
Through ticket sales, sponsorships, merchandise, and broadcasting rights.
Name two secondary revenue streams for sports businesses.
Sponsorships and merchandise sales.
Why is a profit and loss statement important?
It shows the company’s financial performance over time, indicating profitability.
Explain the concept of dynamic pricing in entertainment marketing.
Adjusting prices based on demand, often used in sports ticketing.
Describe a legal risk faced by sports marketers.
Risks related to contracts, copyright infringement, or player conduct.
Explain how increasing fixed costs affects a company’s break-even point.
Higher fixed costs mean more revenue is needed to cover those costs before making a profit.
How does merchandising impact a business’s revenue?
By providing an additional stream of income through branded goods.
How can analyzing financial documents help a sports business grow?
By identifying areas of profit and loss, allowing for better budgeting and risk management.
What is price elasticity, and how does it affect pricing decisions?
Price elasticity refers to the degree to which the demand for a product changes in response to a change in price. Products with high elasticity see significant changes in demand with small price changes, while products with low elasticity do not.
What is the difference between systematic risk and unsystematic risk, and how can businesses mitigate each?
Systematic risk affects the entire market and cannot be diversified away (e.g., economic downturns), while unsystematic risk is specific to a company or industry and can be mitigated through diversification.
How can a company improve its profit margin without increasing prices?
A company can improve its profit margin by reducing costs, increasing operational efficiency, negotiating better supplier deals, or reducing waste.
What is licensing in sports and entertainment, and how does it create a revenue stream?
Licensing involves granting permission to another party to use a brand, logo, or intellectual property in exchange for fees or royalties. It creates a revenue stream by monetizing a brand’s intangible assets.
How does the cash flow statement differ from the income statement, and why is it critical for sports businesses to track cash flow?
The cash flow statement shows the inflows and outflows of cash during a period, while the income statement focuses on revenue and expenses over the same period. Tracking cash flow is critical because a business can be profitable but still fail if it lacks sufficient cash to cover short-term obligations.
Explain the concept of cost-plus pricing and provide an example of when it might be used.
Cost-plus pricing involves adding a fixed percentage or amount to the cost of producing a product to determine its selling price. It’s often used when the business wants to ensure a consistent profit margin, such as in manufacturing.
Provide an example of a reputational risk in sports marketing, and explain how a business can mitigate this type of risk.
A reputational risk could arise from a scandal involving a sponsored athlete. Mitigation strategies include crisis management plans, PR efforts, and maintaining strong ethical standards in sponsorship agreements.
What is the difference between gross profit and net profit, and why is it important to distinguish between them?
Gross profit is the revenue minus the cost of goods sold (COGS), while net profit is what remains after all expenses, including operating costs, taxes, and interest. It’s important because gross profit shows efficiency in production, and net profit indicates overall financial health.
Explain how broadcasting rights contribute to revenue in sports and entertainment.
Broadcasting rights are sold to networks or streaming services, allowing them to broadcast events to audiences. This provides a significant revenue stream for leagues, teams, and event organizers.
What does the debt-to-equity ratio indicate about a business's financial health, and what are the risks of having a high ratio?
The debt-to-equity ratio indicates how much of the business’s financing comes from debt compared to equity. A high ratio means the company relies heavily on borrowed money, which increases financial risk, especially during economic downturns.