Thursday, December 5, 2013

Raising Prices on the Casuals

There's a lot of debate about raising admission and parking prices of late.

Some think raising a price on a product in such little demand the last ten or so years (other than for big events, boutique meets etc) is a bad move at anytime. Others think racing is under-priced and can move prices up without seeing a large attendance decrease.

A few points:

* "Free" works in many new businesses as a way to trap new people to use your product. Chris Anderson wrote about this in his excellent book several years ago, and much of it applies today. In effect, a woman buys a tablet from Amazon and she uses Amazon Prime to buy goods and rent movies, the margins on the recurring item purchases are good, so margins can be zero percent on the tablet. The two are inexoribly linked, and projections are done on a sliding scale.

Principally, the same applies to racing, however, unlike Amazon, there are strong barriers to becoming a racing customer. If I buy a tablet that works at Amazon, I am likely to patronize it. If I enter a racetrack for a days outing, it does not mean I will be playing every day. My state may not allow me to signup to play on the Internet. etc etc.

We as marketers, or businessmen, have a formula we need to calculate to figure out our fair price for entry in anything. The "lifetime value" of a customer is included in any marketing spend. For example, a one-off purchase might have to have a return on ad spend of $8 to be a wise strategy, while a lifetime customer, like an online poker player, or cable or cell phone subscriber can have less than a dollar for dollar ROAS.

Racing's lifetime value of a new track visitor (people always think this number is higher than it is) is very low.

* If "Free" worked, Woodbine would be King. Woodbine has had free admission since slots. It's not like handle is breaking records at Woodbine, or throughout Canada who has free admission and parking.

* Why take betting money out of people's pockets? If someone spends $20 to get in somewhere, it is twenty dollars less to bet. Very true. This is why casino's do not charge admission.

* Enhancing the experience. If I were a track exec dude (Heaven help us all, that would be comical) I would say "I am planning to raise admission to $20. I need ten ideas next week telling me how I can enhance racing's viewing and customer experience so the patrons want to pay $20 to get in". If I work with good people they will probably come up with forty ideas to try.

The movie market had to deal with disruptive technology with home rentals, home theater systems, blue ray discs and all the rest. Movie ticket sales are not close to horrible and average ticket sales have kept up with the rate of inflation. They have also expanded their markets to other countries with modern theaters to make more and more money.

They did that by enhancing the experience and marketing that: Imax, 3D, better sound, and on and on. In 2010, despite all the disruptions and new ways to watch movies, hundreds of channels, netflix, hulu and all the rest, ticket sales for live viewing was more in terms of revenue than watching movies from home.

Think about that for a second. Racing has had internet betting, at home wagering, satellite facilities and new competition. On track handle and attendance has fallen precipitously, and at the same time if it held the rate of inflation it would probably cost well over $100 to enter the racetrack. All we hear is "we can't compete!" The movie industry has had similar competition, and shocks, but it is holding its own (some would say thriving), especially with ticket sales.

* Comps. Charge $20 to get in, give money back to your best customers to gain goodwill and buzz. It costs like $150 to see Shania Twain at some casino and small gamblers and others pay that, but if you have enough points on your slot card you get to see her for free. If points cards and reward programs didn't work, Capital One would not have Alec Baldwin Samuel L. Jackson hawking their cards.

You can't comp if you don't charge. 

There are clearly pros and cons to raising prices. If raising prices worked, everyone would be doing it in their business and inflation would be through the roof. However, if you raise prices and find a way to offer new forms of value, convenience or whatever micro-economic go-to-concept you want to use, it can and does work.

Can racing do that? Probably not. Changing takes investment, time, innovation, risk, marketing and the resulting analysis, and about a hundred other things we don't seem to do very well. But it can, in my opinion, be (theoretically) done.

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