Posted: May 24th, 2022

Minor League Baseball Business

SPRINGFIELD NOR’EASTERS

HBS Case Study: The Springfield Nor’easters

HBS Case Study: The Springfield Nor’easters

The Facts

Minor league baseball teams can be a potentially lucrative source of revenue in the right market. As going to major league games becomes increasingly expensive, more and more people, particularly parents who want their children to have the experience of going to a live baseball game, are increasingly turning to minor league games as a way of filling the gap (Cespedes, Lovelock, & Winig, 2008, p. 3). Springfield is a large city in Massachusetts and because of the Boston Red Sox, Massachusetts has a very strong baseball culture but the city was still a significant drive from Boston. It had many college students as well, another potential fan base. This case study revolves around the creation of a minor league team known as the Springfield Nor’easters. The team has been created as a way to capitalize upon the potentially large New England fan base in an underserved area. There is a demand within the town and also a need for sports entertainment.

However, the question arises how to price and market the team’s tickets and the game series. Pricing is a critical consideration given that Springfield has been experiencing hard times as a town and the residents do not have particularly deep pockets as consumers. Also, the reason there is interest in a minor league team is due to the hope that the team will offer a cheaper alternative to major league baseball such as the Red Sox. The question arises how to ensure that the pricing strategy attracts the maximum number of ticket buyers, garners the highest price possible, and also ensures that the price is commensurate with the image of the team that the owners are trying to create.

Key Issues

Ticket pricing is thus a key consideration, given that most minor league purchasers are value-driven consumers. Consumers often patronize minor teams because of convenience, price, and the general entertainment value offered by the experience, versus the actual record of the team which has relatively little impact on ticket sales. With this in mind, pricing and positioning is key. The price point must be low enough to satisfy the target consumer’s need for value without being so low that the experience is not undervalued. The median income of Springfield is less than $40,000 and nearly a quarter of families live below the poverty line, so clearly there is little disposable income for non-necessities (Cespedes, Lovelock, & Winig, 2008, p. 2). When marketing and pricing entertainment, it is essential to remember that even for the most die-hard fan, going to a baseball game is always a luxury, not a necessity and thus must be priced accordingly.

The town had experienced a notable economic decline. A quarter of the residents were young people, indicating some positive indicators and economic development but since many of these were students, again this inevitably pushes the price point for entertainment relatively low. Pricing tickets too low effectively leaves “money on the table” and also does not distinguish the minor league team from college teams in terms of quality (Cespedes, Lovelock, & Winig, 2008, p. 6). On the other hand, an insufficient differential means that consumers will not have an incentive to stay local, versus going to a Red Sox game. Pricing too low can also result in a high rate of ‘no-shows,’ leaving seats noticeably empty and creating a lackluster entertainment experience. Also, these people cannot patronize the concession stand or buy t-shirts. A balance is needed and also a relatively broad price range although too broad a range is unnecessary (versus the Red Sox who offer season tickets in the hundreds of dollars and bleacher seats worth only a few dollars).

Factors regarding competitive pricing include the price of competitive entertainment — not just games but bowling, movies, and so forth; how to price different ticket packages; and also the price of concessions. The types of family entertainment offered locally are also a factor. The pricing must be relevant but the team must have enough revenue coming in to make going to the games an experience, which includes attracting outside vendors, staging attractions to keep the interest of children like games and meeting the players, and concession stands.

To gain a better sense of the price point of consumers and their needs, a web survey was disseminated to 10,000 users who were identified of the survey by a postcard and told they would have a chance to win a $500 gift certificate if they filled out a form (Cespedes, Lovelock, & Winig, 2008, p. 5). Names were obtained both from sports-related mailing lists and also of databases of names of Springfield residents living above the poverty level. The study participants were not necessarily representative of the entire population of the city but had small children or otherwise fell within the demographic of likely patrons.

Individual tickets ensure 100% attendance of buyers for the most part. However, offering discounted ticket packages ensures at least some revenue stream. Too much of a reliance on individual tickets alone may mean that no tickets will be sold on certain days. On the other hand, too much of a reliance on packages may mean empty seats as people very rarely come for each and every single game in a 38-pack, although they may buy this package simply because they wish to save money. The need to structure price packages in an intelligent fashion is thus another critical factor.

Alternative Courses of Action

The first and most simple alternative is to focus on selling as many seats as possible. This includes pricing the tickets very low, to encourage people from all economic brackets to enjoy the game. One potential advantage of this is that consumers may choose this option above going to the movies or bowling, given that a $5 adult ticket and a $2 child’s ticket is still cheaper than other types of entertainment. This may attract people who are not seasoned baseball fans but are simply looking for something to do, including college students with little money. While this suits the Springfield demographic, however, these consumers are unlikely to wish to spend a great deal for concessions and t-shirts and they are unlikely to be willing to pay for season tickets, given their feelings for baseball do not run deep.

Lower prices may be more apt to draw the student audience. Unfortunately, students, although they may make up a significant demographic of Springfield, are not necessarily the most desirable target audience. Since they do not have small children, they may be more apt to look for other forms of entertainment such as partying or may simply have so many school obligations on the weekend such as studying and work that they cannot afford to go to games. Also, students are transient and will eventually leave the area. They do not form a core fan base for the team. Children can hopefully build a generational following for the Springfield Nor’easters which can carry on for years and years.

A second alternative is a mid-price strategy along with incentives for buying season tickets. This alternative plan would include offering packages that allowed money-saving opportunities for more dedicated fans and mid-range priced tickets on an individual basis at the door. The advantage to this would be more initial revenue and also customers more willing to spend money on concessions. Offering family fun days with some paid and some unpaid entertainment such as bounce houses, face painting, and fun runs for children would also draw in more spectators and generate a source of revenue. The advantage to courting this price demographic is that it would be more willing to spend money and generate revenue for the team beyond that of ticket prices alone.

A third alternative is to focus on a more premium consumer. This would mean focusing on pricier season ticket packages and pricing the ticket prices higher. An obvious advantage to this strategy is that it generates more revenue from the sales of tickets as well as draws a core consumer who may be more willing to spend money on concessions and souvenirs. But the obvious problem with this strategy is that serious baseball fans willing to pay very high prices are apt to be Red Sox fans willing to travel far distances.

Evaluation of Alternative Courses of Action

All of these potential courses of actions have some serious flaws. The obvious flaw with a low-price strategy is that it simply does not generate enough money per ticket. However, this is also flawed given that the highest percentage of respondents indicated that they would be willing to pay $10-$12 for individual tickets (36% and 34% respectively). Even regarding premium prices, there was substantial willingness to pay more (Cespedes, Lovelock, & Winig, 2008, p. 11). 28% indicated they would only be willing to pay $4 per game as part of a 38-pack (Cespedes, Lovelock, & Winig, 2008, p. 11). To charge such a relatively insignificant amount for a single ticket would be effectively a loss of revenue from the organization’s point-of-view.

The data indicates that a surprising 60% of those interviewed did not consider themselves serious baseball fans, however. This suggests that a very high price point is not supported by current demand, arguing against a premium model. A more experiential model that stresses the ambiance of going to a game for a reasonable price is likely to be attractive. This also argues against focusing on subscription tickets, at least initially, given that the fan base for the sport is still in its nascent stages. In fact, 61% said that if a minor league team was begin in Springfield, they would not come at all (Cespedes, Lovelock, & Winig, 2008, p. 11). 72% also stated that they had not attended a major league game recently, which indicates a lack of investment in the sport on a financial level (Cespedes, Lovelock, & Winig, 2008, p. 11). There was also very little willingness to spend more on a grandstand versus a bleacher seat.

This statistic is not necessarily discouraging, however, but rather points to the need to emphasize other aspects of the experience of going to a game, such as having fun with friends and family and the overall experience of going to a game. 38% had one child while only 18% had two and 34% had none, however, indicating that a balance between family fun activities and general activities aimed at increasing the entertainment around the game would be needed. There are not enough families with small children to solely rely upon this demographic to attract revenue and although relying upon students and young people at a financial base may be problematic in some respects, on a demographic level it is clearly necessary because of the sheer numbers required to support the team.

This suggests a segmented and diversified approach may be needed that evolves over time. Mid-priced tickets at around $10 may be helpful to generate buzz about the sport, along with non-baseball related activities such as a food fair for adults, pony rides for kids, and other events not necessarily tied to baseball itself to encourage people to patronize the stadium and watch the team. Then, later on in the team’s history game packages can be sold at a mid-market price point to ensure that the team has a regular source of revenue. However, some dependence upon independently sold ticket sales will always be required, given the fact that entertainment is often an impulse purchase for most people, except in the instance of the most desirable major league teams for die-hard fans.

Recommendations

Beginning with moderately priced (but not the cheapest price possible) tickets with an emphasis on individual sales is most advisable. Continued research is needed to determine if more diversification in terms of package ticket sales will be desired by consumers as interest in the team builds but currently there is not enough demand. The focus should be on drawing more people to the ballpark through various initiatives. Concession sales will also build revenue and despite the fact that a significant percentage indicated they were not baseball fans, 45% stated that they would make concessions stand purchases, once again underlining the desire for an experience of entertainment in general, versus simply watching a game (Cespedes, Lovelock, & Winig, 2008, p. 11).

The fact that most potential customers have one or fewer children and are within the 26-35-year-old-demographic according to the survey suggests that rather than focusing on families with children, as is typical of many minor leagues, a more diverse array of outside activities is needed. This may encompass balancing family-focused events with attractions designed to generate interest amongst young adults in general, such as a singles night or wine festival. At present, the interest in the sport is still being built and focusing on too narrow a niche may shut the team off from potential sales.

Reference

Cespedes, F. V., Lovelock, V. & Winig, L. (2009). The Springfield Nor’easters: Maximizing revenues in the minor leagues. Harvard Business School Case Study.

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