My first big job out of college was working for a company that managed several theatres and sports arenas. It’s a fascinating industry where the fundamental goal is to keep your lights on as many nights a year as possible. To do that in a highly competitive concert and family show market, we were forced to partner with several “experimental” sports franchises including Indoor Soccer, Lacrosse and Arena Football. If you’ve seen sports movies like “A League of Their Own,” you’ve seen fan followings develop from a handful of diehards into a standing room only championship game crowd. That’s THE MOVIES. Filling the building for a startup in the real world is a tricky business. Missteps in pricing and promotions can literally put the franchise’s future at risk.
You might be thinking, “Hang on. What does sports marketing have to do with my B2E startup?” I’m glad you asked! Just like SaaS, a sporting event has a high fixed cost, but extremely low marginal cost once the doors are open. Similar game theory can work for both. And just like education technology buyers, sports fans are engaged by word of mouth momentum. When a satisfied customer speaks highly of either product, they will sell the next customer far better than the marketer can. Lastly, while both products are not commodities, one might argue competition can come from almost anywhere in the entertainment or educational materials world. So congratulations…you’re kind of in the same business as Australian Rules Football.
I had the chance to work with multiple startup sports leagues each with a different philosophy on how to become the next major American arena sport. They fell into three pricing philosophies:
Owner A – Fill the building at all costs—give the tickets away if you have to. I’ll make the concessions money and it will be a great atmosphere. People having a great time will pay for tickets in the future.
Owner B – I’ll discount tickets but don’t give them away. Something you get for free has no value.
Owner C – Hold the price as high as we can. The true aficionados of this sport might be a small audience but they are the ones that will pay good money to see it. Discounts might grab me additional people but the price will be eroded to my primary buyer so there’s no financial gain.
Two decades later, in the B2E consulting business I am having similar conversations about pricing:
Owner A – I have a free or freemium service. Instant large user base will appeal to investors. I can leverage advertising, premium subscriptions, or sell the brand to a larger company later.
Owner B – I have a paid subscription model for my app or SaaS. I keep the price low to win a larger audience but I only want paying users.
Owner C – I am going for top dollar per student. I want to win a small audience on high value.
There was no contest which strategy worked the best in sports. Did you guess B? Against the advice of professional sports promoters, with a value-oriented starting price and lots of promotional discounts but no free admissions, Owner B actually built the most valuable franchise in the long run. We hated the nights with paid attendance of 2,500, but it was paid. Their average attendance grew to 6,000 which looked fine in their venue of 11,000 seats. Fans came back year after year until the league suspended operations due to lack of interest in the opposing team’s markets.
What happened to the other leagues? Owner A had the best optics. After one or two years of going the slow and steady route, he told us it was time to dramatically improve the atmosphere. “Make it a party,” end quote. He came to the right people. We gave away some 30,000 general admission tickets per game to draw 6 then 8 then 10 thousand and more fans each night. Excitement built to a crescendo. The team played for the championship in front of 19,000 people and the fire marshal insisted we shut the doors. The place was rocking and we had good “ears per ticket” (the Disneyland term for revenue of parking, food and beverage, t-shirts sold in addition to each admission). Next winter as we started our season ticket campaign, we had a few hundred buyers that bought premium paid seats, but individual game tickets were virtually unsaleable. We spent that summer breaking new ground in how to draw free bodies to the arena, but the declining crowds looked increasingly like some sting operation to round up escaped convicts. Ultimately, the franchise closed down.
Owner C closed the quickest, however. The high priced strategy back fired. In my opinion this sport had the coolest product, hand-tailored for our captive NHL audience that we were pushing it to. Those that came didn’t enjoy the small crowd atmosphere, and there wasn’t enough word of mouth excitement to draw new fans. The high ticket price wasn’t competitive to the full range of entertainment options that that audience could choose from such as local junior and college hockey. The strategy failed and the team never got off the ground. They had the shortest life span of all three; I believe only 2 seasons.
Can we extrapolate anything from these stories to ed tech? I told you at the outset I believe startup sports are a lot like your business. If you buy into that correlation, pay attention to some of the key lessons for ed tech startups.
- DO drive early word of mouth by keeping your price as low as you can afford.
- DO offer smart discounts such as the ones I describe as Sales Drano.
- DO always provide incredible customer service and implementation support no matter what your price.
- DON’T give away uncontrolled pilots or the full product, especially not to rogue classrooms.
- DON’T overprice your product thinking you’ll control the high end market. It’s too small.
- DON’T wear dry clean only items to a free event – some creepy dude is definitely going to spill beer on you.
If you are pointing to the rare success story that drastically diverted from these Do’s and Don’ts, ask yourself how much you have in common with their climate, investment capital, and business objectives? I know a few of those stories from backstage, and as you learned from the tale of Sports Owner A, appearances can be deceiving. Get the facts, plan for long-term growth and for what enables the best service for your customer. Particularly that last one is the key to a successful education franchise!