Monday, January 28, 2008

Ultimate Business: Managing Price Expectations in Ultimate

Nation,

As a member of one of the (if not the) largest city ultimate frisbee associations in the world, I often look at the Ottawa Carleton Ultimate Association (OCUA) as a learning experience for smaller organizations throughout the country and the continent.

OCUA started in the basement of someone's house in the mid 1980's. By the mid 90's it was the largest ultimate league in the world. Sadly, the success of the league can be summed up by a Simpsons quote:
Lyle Lanley: Y'know, a town with money is a little like the mule with a spinning wheel. No one knows how he got it and danged if he knows how to use it.

OCUA has over 3500 members, and I don't think they really know how it came to pass. Further, the nature of volunteer boards, volunteer staff and paid staff turnover fails to capitalize on tacit knowledge that has been picked up over the years.

An ambitious push is being made for strategic planning by OCUA. 2006 saw a long term plan document that was as encouraging as it was guilty of being verbose, idealistic and bloated. A 2007 version was a better effort, narrowing the focus of the goals and priorities of the league.

One key issue that will rear its ugly head in the next few months is a summer team fee increase. Already members only forums are discussing the fee increase, and questioning the claims of OCUA that there have been no fee increases in the past seven years. I will say that an organization needs to avoid false claims, but I'm not posting about that sub issue.

What I want to talk about is the strategy of increasing process. Can you have a fee increase be embraced? Are there methods that business and sports groups use?

The answer is yes.

Currently, the communication strategy of the fee increase for the upcoming summer has been a defensive/justification strategy. To paraphrase:
  • We're looking to expand our revenues
  • It's in line or lower than other sports
I will point to an interesting article I critiqued at Western, written by Kyle, Kerstetter, and Guadagnolo (2003). The goal of this paper was to understand consumer response to price for an annual 10 KM marathon race. Kyle points out that understanding consumer response is more important now in public sport programs as public sport shifts its dependence on government revenue to user fees. He identified two kinds of price checks that a consumer uses to make a decision to buy or to pay additional fees:
  • Internal Reference Prices (IRP) (actual price paid, perceived fair price, and price last paid) and
  • External Reference Prices (ERP) (suggested retail price listings, comparison pricing, and brand price comparison).
The authors posed four hypothesis regarding a consumer IRP, finding statistical significance to three. Here's what they found as well as an explanation of how it relates to Ultimate
  • The provision of cost of service information will raise subjects IRP.
    • OCUA members will be more understanding and supportive of fee increases when they know what costs are entailed and how that affects the running of the league.
  • Preference to potential service loss will raise subjects IRP significantly higher than reference to service gain.
    • It's pretty simple, people respond better to spending extra to maintain sprinkler and maintenance fees than to add a clubhouse at UPI and other fields.
  • Reference to personal loss will raise subjects IRP significantly higher than reference to personal gain.
    • Very similar to the previous hypothesis. It is easier to motivate a customer to spend more to keep what they have than to add extra.
What can we take out of this?
  • Understand the difference between internal and external reference points
  • Realize that IRP has often been ignored by leagues and groups trying to communicate price changes
  • Understand the consumer/league member better
  • Understand how to sell fee increases with a proven strategy from a similar situation
You're not going to convince your entire league that price changes are needed. People are as resistant to change itself as they are to paying more. However, Your organization can do itself a great favor by understand the "science of selling" and focusing on the aspects that speak to your members.

3 comments:

Bill Mill said...

Grammar Police: Simpsons, not Simpson's (or Simpsons' if you must, but the apostrophe's not really necessary).

Also from the department of redundancy department: "Currently, the current strategy"

(and I like and agree with the article. Nice reference, useful, and well argued.)

Sport Management Steven said...

Guilty of those mistakes. I edited them, and will try to do better next time. Real work made me push the publish button too quickly.

Thanks for the comments. I hope others from different leagues can post their stories as well.

Hodge said...

Hehe, Mule..

Nice article Steve