Wembley Stadium Pricing Study

Ticket Pricing Strategy for the new Wembley Stadium

1 Introduction

OBJECTIVE To maximise profits from ticket sales at Wembley Stadium

KEY ASSUMPTIONS 1. Wembley has a monopoly on certain types of match

2. Wembley is run by profit maximising managers selling tickets to utility maximising buyers

STRATEGY Set prices for seats as close to the willingness to pay as possible using price discrimination

KEY CHOICES What type of seating to sell and at what price?

2 Scope

This strategy is limited to the following football matches:

* England home matches - competitive and friendly

* Major cup semi-finals and final

* Lower league play-off finals

Wembley has a monopoly on these matches due to Football Association (FA) policy2. Theory states that Wembley should charge as close to the willingness to pay of its customers as possible to maximise its profits1. The ability to do this depends on demand and the ability to price discriminate between market segments.

3 Absolute Demand

Absolute demand for tickets will be high due to several factors:

* Football is England's national sport

* Watching live matches is popular

* Wembley Stadium is the 'home of football' with a long and distinguished history

There is good evidence for assuming high demand:

* The last three competitive England home games were sold-out2

* Attendance figures for club matches are consistently high3

* Recent cup finals at Cardiff Millennium Stadium were sold-out4

Actual demand varies between market segments but can be found from market research, e.g. membership schemes and studying events at similar grounds.

4 Market Segmentation

The table below shows the range of customers that buy tickets for football matches. Elasticity of demand is shown for each category and explained below:

Market Segments

Elasticity of Demand Reason for Elasticity

1 Adults High Loyal but can choose to watch on TV instead

Children High Guardians are paying and have other options

Families High Have other options for family entertainment

'Special treat' groups High Has alternatives including main seating

2 Corporate hospitality - open Low High status product, few alternatives

Corporate hospitality - private Low High status product, few alternatives

4.1 Segment 1 Demand

Elasticity is relatively high (II > 1) because these buyers have attractive alternatives - they can watch the game on TV or in a pub with friends. Demand is still high though because of the quality of the games. Wembley can therefore charge a premium, but not over-charge to the extent that alternatives become dominant:

'Special treat' customers are those who are willing to pay more because they are buying an experience rather than just wanting to see a match. They still have a high elasticity because there are alternatives - they will be put off if prices are too high.

4.2 Segment 2 Demand

Elasticity is relatively low (I&#61541;I < 1) for corporate customers because of the monopoly that Wembley has on high status England home games. For this segment, the product is the whole event rather than the football match. Standard seating is not an alternative because they do not provide the same level of service or privacy.

The main factor effecting demand curves is the attractiveness of substitutions, which are complex for events at Wembley.

5 Price Discrimination

5.1 By Type of Seating

Wembley can offer customers a choice between 'standard stadium' and 'luxury box' seating that allows self-selection of product and price (second degree price discrimination1). This allows customers with a high willingness to pay to purchase a higher quality product at a much higher price than the difference in marginal cost. Wembley can also 'scale the house' by charging extra for better views, e.g. pitch-side.

5.2 By Type of Customer

Within segments, Wembley can execute third degree price discrimination1 on the basis of observable buyer characteristics that correlate to willingness to pay. One characteristic is age, i.e. child tickets are typically half price. Discrimination is also possible between corporate customers who wish to guarantee a box over a long period and 'special treat' customers who may only go to one match. Advantage can be taken by selling long term 'licences' made up of an initial fee plus an annual renewal fee.

5.3 By Type of Match

Wembley can also discriminate according to the 'quality' of the match as this also correlates to willingness to pay, e.g. charge more for high quality opposition, and competitive matches.

6 Maximising Profit from Seating Types

Wembley's managers need to choose what proportion of the stadium to fill with luxury seating because this generates the most revenue and profit, as shown below:

Profit can be assumed to follow a similar pattern. The quantity that maximises revenue (QL*) depends on demand, which varies for different customers and matches. An example calculation is provided below:

Let 'standard seating' = 1 and 'luxury seating' = 2

Price: P1 = a1 - b1Q1

P2