3.2 Elasticity of Demand
It is important for organisations, such as Wests Tigers, who have an experience to sell to understand the implications of elasticity as this has an implication on whether or not they increase or decrease the sponsorship packages and at the same time what their competitors are doing and offering from a pricing perspective.
a. Price Elasticity
Price elasticity measures the responsiveness of demand to a change in price (Tribe 2005, p. 77).
To sponsor the Wests Tigers is a luxury, not a basic requirement of an organisation, and therefore it tends to be relatively price elastic. Furthermore, given the number of similar alternatives in the market (ie other Sydney based teams from both the NRL and rival codes), there are alternatives. Whilst the players are different and performances are different year in year out there still are alternatives. Especially when a Club has not been performing and it is known to the market that the Club has not retained key sponsors, an increase in price is going to see the sales and total revenue decrease. Further to this is the flow on effect of additional revenue such as merchandise in the case when the Club are not able to secure one of their major partners, which has a key benefit of jersey branding, so the sign-off of their merchandise is implicated and hence they do not receive the licensing revenue they would have if there product was retailing.
b. Income Elasticity
Income elasticity measures the responsiveness of a demand to a change in income (Tribe 2005, p. 78). Companies must not only have the willingness or desire to sponsor the Wests Tigers, but also the financial capacity to do so. As previously noted, sponsoring the Wests Tigers is considered a luxury good and therefore if a company is required to review its sponsorship commitments due to constriction of its income, then this would be considered income elastic. During times of financial pressures, cost cutting and budget freezes, discretionary business spending on areas such as sponsorship is often first to be reviewed. For example in 2012, despite an eleven year association and the team experiencing on-field success, the Bank of Queensland severed it sponsorship of the Brisbane Lions as they had posted a full year’s loss of $17.1M and marketing dollars ‘needed to go’. (SMH XXXXXXX).
c. Cross Elasticity
Cross elasticity measures the responsiveness of a demand for one good to a change in the price of another good (Tribe 2005, p. 79). Furthermore he states that substitute goods have a positive cross-price elasticity of demand. Substitutes for sponsoring the Wests Tigers would be to sponsor another Club within the NRL or another sporting code. Alternatively, sponsoring another area such as an art exhibition, event or music festival as a few examples are other options. Complimentary goods, he goes on to explain, have a negative cross-price elasticity of demand of zero.
4. Supply Conditions Analysis
4.1 Goals of Wests Tigers...