Formed in 2008, the Indian Premier League (IPL) is a professional Twenty20 cricket league in India which is scheduled in the summer of every year. The IPL formed eight franchises allocated to eight of the largest cities in India (Parker, Nataranjan and Burns 2008).The IPL offered a total prize money of US$6.0 million in 2015 (Indian Express 2014). Mumbai Indians team represents the city of Mumbai in the IPL.The rights for the franchise was purchased by Reliance Industries Limited through its subsidiary for a total of $111.9m (The Economic Times 2008). Mumbai Indians support the social cause of education to the underprivileged with NGO's like Pratham, Teach For India and Nanhi Kali (The Times Of India 2010). Captained by Rohit Sharma and coached by Ricky Ponting, Mumbai Indians is one of the most successful team in the IPL. They won the 2011 as well as the 2013 Champions League Twenty20. Also the team lifted its first IPL title in 2013 by defeating Chennai Super Kings (ESPN 2013). They repeated their win in 2015 as well.
Sachin Tendulkar being an icon player for Mumbai Indians till he retired was entitled to earn 15% more than the next-best paid player in the team (Gulf News 2015). Supported by a strong mix of Indian and International stars, the Mumbai Indians with regards to its logic of empowering ability and youth proved to be the most watched team in the first and last season with around 239 million viewers (iplt20 2009). Mumbai Indians has been the most followed team in the IPL and appreciates a huge global fan base (Hero Motocorp 2011). The Mumbai Indians play their home games at the Wankhede Stadium in Mumbai which has a seating capacity of more than 30,000.
This report will focus on the Economic theories which are relevant to the sports market and evaluate the usefulness of these theories in analysing the demand for the team's products, particularly jerseys, the consumer response to the ticket prices. The author will also consider the suitable strategies which could be helpful in increasing the team's market share and also analyse the extent to which globalisation of the sports market has influenced the demand for the team's products or services.
In 2008, 2009 the team sported a blue jersey with silver striped on either sides with Idea as the core sponsor. In 2010, 2011 the kit unveiled had 3 golden stripes towards the back (NDTV 2011). Adidas was the apparel sponsor from 2008-2014 which has not been replaced by an in-house brand of Reliance Trends, Performax (Gulf News 2015).
Neo Classical Demand Theory
Sport is a non-durable consumption good, which means the benefit that matters to the consumer is generated at the time of consumption. Gratton and Taylor (2000) highlighted the four main determinants of demand in the Neoclassical economic approach which are - Price, Income, Price of other goods and Tastes and preferences. The most important fundamentals of this approach is that consumers frequently see a product as being more profitable than the cost of production, in this manner influencing the demand for the product.
While Mumbai Indians are more focused on utility maximisation (Downward and Dawson 2002), they still need to ensure they achieve the best balance between jersey sale and demand in order to allow them to contribute to their annual turnover. Consumers will have a limit on what they are willing to pay for a jersey; this is why price is a major determinant of demand (Gratton and Taylor 2000). If jersey prices were to increase and the price outweighed the satisfaction of the consumer, then theoretically a negative correlation would occur meaning that demand decreases.
The economic situation in India is showing positive changes, with an increase in the disposable income of middle class who offer massive consumption potential for the sports industry (Passport 2015). According to Gratton and Jones, (2000) Sport is generally considered as a luxury product. In addition, the outline of a consumer's spending on team's jersey relies upon the level of consumer's income. This is known as income elasticity of demand, where it expresses that the higher the wage the consumer has, more he can spend on buying team's jersey. (Begg et al. 2011). Thus the increasing intention of Indians to spend on luxury goods may result in consumers buying team's jerseys over other sports jerseys (The Economic Times 2015).
Price of Other Goods
The third determinant of demand is the price of other goods and how the quantity demanded for any goods is affected by a change in price of closely related goods which may be substitutes or complements. Substitute goods are similar goods that may satisfy a specific consumer demand whereas complementary goods are those whose use is interrelated with the use of another good such that a demand for one generates demand for the other good.
A concerning issue for the Mumbai Indians is the price of substitute goods, if jersey prices increase then theoretically the demand will increase for other sports jerseys. (Gratton and Taylor 2000). Taking this theory into consideration if the price of other jerseys increase, then demand for the jerseys will likely fall. ()Being a market leader, team's jersey still faces competition from its substitutes which include other team's jersey as well as few other sports jerseys. Thus, an increase in the price of team's jersey will increase the demand of other jerseys, as consumers will shift towards jerseys with lower prices as they satisfy the same need.
Taste & Preferences
Subjective to an individual, tastes and preferences would be difficult for the Mumbai Indians to observe with regards to demand for jerseys as it greatly depends on how much the jerseys increase in price (Downward and Dawson 2002). Key determinants for consumers tastes and preferences can be identified by; age, sex, educational background and occupation (Gratton and Taylor 2000). Sport emerges as an important component of Socio-economic development of the country. Brand loyalty plays an important role in the Indian market (The Economic Times 2010) The Indian youth are attracted towards cricket and the growing popularity of the adidas products in India.
With Mumbai Indians being one of the most popular team in the IPL, it can capitalise on the popularity of the strong brand loyalty and considerably increase the market share of its jerseys. Nevertheless, more women in India are taking part in fitness activities due to the social media posts, energetic celebrities, the proliferation of fitness devices and apps, and government and sports companies' efforts to engage women. (Passport 2015).
Household Production Theory
Composite commodities are activities undertaken by an individual or a household which require inputs of market goods and time. This expanded on neo-classical theory and is relevant in analysing the demand for sport. According to (Gratton and Taylor 2000) a relative change in the price will lead to a change in the consumption patterns.
Becker's model stated that as real wages increase, the price of time rises relative to the price of market goods. “A change in relative prices will cause a change in consumption patterns. Substitution and income effects operate to give a change in consumption pattern. In short, people will change what they buy and how they use their time. As wages increase, the substitution effect controls, leading to a decrease in consumption of time-intensive commodities. As time becomes scarcer and more expensive, household production and consumption of goods-intensive activities will increase (Gratton and Taylor 2000).
Applying this theory to Mumbai Indians, the time factor may have an effect on supporters who have to travel long distances in the crowded city. Therefore, if the time costs of travel and attendance increase, such individuals may decide to stop attending live matches in preference for other less time consuming activities. Indirectly the fan following would start declining which would result in less demand of team's jerseys over a period of time.
Uncertainty of Outcome Theory
The unpredictability of a game is a determining factor of demand for match attendances, the hypothesis states that there is a positive correlation between high uncertainty of a match and the amount of jersey sales (Syzmanksi and Andreff 2005). Forrest and Simmons (2002) state that "Competitive balance is an important concept for determining attendance". The quality of the opposing team, as a result of this the uncertainty of the outcome or score along with incentives. Taking this theory into consideration, the other team which would play against the Mumbai Indians should be equally competitive. These factors in all determine the quantity of receiving a large amount of audiences to the match. These increased crowds will increase revenue on goods such as merchandise, especially if crowds come from different countries as it is more likely that they will purchase team's jerseys. Yet, it is still important to note that the uncertainty of outcome theory has become heavily examined and criticised. Garcia and Rodriguez (2002) highlighted the quality of the match along with the uncertainty of outcome as being exceptionally important in analysing the demand of consumers and therefore the volume of spectators to be expected to watch a match. Mumbai Indians should take into consideration that the revenue through the sales of the team's jersey could decline if the match attendance is meagre.
Effects of Price Change
Begg, Fischer and Dornbusch (2000, p 58) state, "The price elasticity of demand is the percentage change in quantity demanded divided by the corresponding percentage change in its price". Price elasticity of demand is most commonly used to measure consumers' sensitivity to price of the product (Patrick L. Anderson 1997).This report will focus on the potential price changes of the team's jersey in India using the price elasticity of demand model. All the figures mentioned below are in INR. The team's jersey is often subject to consumer demand.
The theory of price elasticity would also account for why consumer demand varies for the team's jersey relating to the price of the product. According to Gratton and Taylor (2000) sport is a luxury good where in participation increases as income rises. Hence, agreeing to this theory the teams could expect an increase in participation and consequently the sale of jerseys will increase over time as the disposable income in India is rising (Trading Economics).
Price elasticity is usually negative because quantity demanded falls when price rises and vice versa. (Gillespie 1963). The elasticity of demand theory is explained with other things being equal which include Price, Income, Price of other goods and Consumers tastes and preferences (Glazer and Hirshleifer 2005).
Increase/ Decrease price
Increase/ Decrease in sales
Elasticity of Demand
If the current price of the team's jersey is Rs 2299 (Mumbai Indians 2015), and the team is selling 100 jerseys at the above said price. If there is a 1% increase in the price, then the new MRP will be Rs 2321.99. Due to an increase in the price, the jersey sales would drop by 2% in demand which will be 98. So the demand elasticity would be -2 (Begg et al, 2000). This is elastic demand as the percentage change in quantity is more than the percentage change in price (Downward, Dawson and Dejonghe 2009). Subsequently if the price of the jersey is reduced by 4% to Rs 2207.04 then the quantity demanded at this price will increase by 2% i.e. to 102 jerseys. The demand elasticity will be 2. This is known as the inelastic demand as the percentage change in quantity is less than the percentage change in price (Leeds and Von Allmen, 2005).
An increase in price could only increase profitability margins for the team through more effective pricing methodologies (Gratton and Taylor 1995). Perhaps an increase in price for the team's jersey can result in consumers demanding a substitute product This type of relationship between products is referred to as the cross-price elasticity of demand. Thus price is a major determinant in consumer demand. (McMahon-Beattie and Yeonman 2004).
This paper will now suggest few recommendations for Mumbai Indians to facilitate some assistance with developing its brand image and additionally build deals. India has been one of the fastest developing economies around the globe and will be colossally appealing for any business company. Online shopping has already paved its way in the Indian market, as consumers find it more convenient (The Economic Times 2015).
Mumbai Indians should look to extend their merchandise market through market penetration. Mumbai Indians can use the emotional branding technique of archetypes in advertising (Roberts 2010). More specifically they can elaborate on the story of the athlete pitted against his own enemy and after great fight emerging victorious. This can help to develop an emotional brand-driven approach, as customers will associate with the athletes as they will feel they reflect their identity. This will help the team build customer loyalty with heroism.
The team should also look to strengthen its distribution and franchisee arrangements to contest with other global sportswear brands in India; a portion of this strategy may include targeting a greater number of multi brand outlets and department stores in order to increase its brand visibility which will help them to attain the leadership position and achieve high growth in the country (Passport 2014).
They should hope to combine their position by entering the business sectors through cost leadership strategy (Frynas and Mellahi 2011) as it gives an advantage of lower expense over its rivals. With the growing population, the number of internet users is quite low (Central Intelligence Agency 2014). Mumbai Indians should look to increase its offline presence by increasing the number of retail outlets over online stores, although they have tied up with major third party retailers for internet retailing. (Passport 2014).
Globalisation is certainly not a new concept, it's been an ongoing process which has propelled the sport market forward (Miller et al. 2001). Westerbeek and Smith (2002) document that globalisation is largely dependent on trade and the financial interaction integrating different economies around the world. The global sports market revenues are expected to rise at an annual growth rate of 3.7% from US$121.4 billion in 2010 to US$145.3 billion in 2015 (PwC 2011). According to (Hill and Vincent 2006) Sports such as tennis, golf, cricket and rugby have benefited from international media exposure. Cricket, once was ruled by the British empire and was a preserve of the English and South Welsh elite classes, is now a sport run today by Indian finances and political influence (Mustafa 2013). The online viewership of the IPL has increased considerably over the last three years. In 2013, the IPL saw a 56% growth in unique visitors with over 200 million views (Times of India 2014). In 2009, around 245 minutes of on-air advertising time during the initial seven IPL matches was consumed by the advertisers, totaling about 21 hours of playing time (Business Standard 2009).
Broadcasting and Media
Currently Media rights cover the third largest category for generating revenue in the global sports market with a compound annual growth rate (CAGR) of 3.8% which means the value in 2015 will be estimated at $35.2billion (PwC 2011). The demand for broadcasting is constantly increasing and is one of the most prominent factors for driving the globalisation of the sport market (Gratton et al. 2012). The IPL is heavily dependent on broadcasting as it is such an important source of income (Gratton and Solberg 2007) and aids their growth in being a globally recognised league. While broadcasting may hamper the number of people attending the matches at the stadium, the broadcasting rights can still compensate for the loss made on gate revenue (Kesenne 2014).
Initially in 2008 it was announced that a group consisting of India's Sony Entertainment Television network and Singapore-based World Sport Group secured the global broadcasting rights of the Indian Premier League (ESPN cricinfo 2008).The record deal had a duration of ten years at a cost of US$1.026 billion. As part of the deal, US$918 million were to be paid by the group to BCCI for the television broadcast rights and US$108 million for the promotional purposes (The Australian 2008). Initially 20% of the profit would be accredited to IPL, 8% as prize money and 72% would be distributed to the franchisees until 2012, after which the IPL would go public and list its shares (The Times Of India 2008). However, in 2010, Sony-WSG re-sold parts of the broadcasting rights to other companies. In the UK, Sky and BT Sport have paid a record £5.136 billion for live Premier League TV rights for three seasons from 2016-17. Furthermore, with the complete digitisation market in the UK, the figure guarantees a 70% expansion on the association current £3billion TV deals, 168 matches to be indicated live, at a normal expense of £10.2m to the telecasters per match (The Times Of India 2015). Different networks broadcast the IPL in different territories (Appendix 1). For fans that are unable to watch the matches live or attend them, they can watch the highlights via the Mumbai Indians YouTube channel (Youtube 2008).
Similar to broadcasting, there has been an exponential growth in sponsorship (Gratton 2012) and it overlaps broadcasting. Gratton et. al. (2012) also denoted sponsorship can be viewed as part of the profit-maximisation behaviour of a firm, and some objectives of the sponsorship are to increase sales, alter image perceptions, increase awareness and build corporate image. This is often associated with some of the industries that are closely connected to sponsorship: banks, insurance companies and oil companies. By associating elite performers with the product, the aim is to create an elite image for the company. Furthermore, governing bodies and major event sponsorship tend to dominate the high value deals. With sports sponsorship and merchandise revenues, having been estimated to grow at 5.9% annually generating $9 billion in 2009 (Santomier 2008).
Master card an American multinational corporation –is the official founding sponsor of the Mumbai Indians (Indian Television 2008) where as Hero Motocorp is one of the main sponsors of the team. The contract between Hero Motocorp and Mumbai Indians is the largest sponsorship contract in the history of IPL for any franchisee (Hero Motocorp 2011). Adidas is the official apparel partner for the team (The Economic Times 2011). Bridgestone, Dheeraj and East Coast LLC, Coca Cola Kingfisher, Royal Stag, Air India and Red FM 93.5 are few other associate sponsors and partners (Mumbai Indians 2011). Etihad Airways and Jet Airways have also partnered with IPL and Mumbai Indians (Ethiad 2015).
On the negative frontier, globalisation of sports has affected the national sports teams as players are now willing to leave their home countries and travel to those places where they are getting higher incomes (Thibault 2009). This proved beneficial for IPL as it attracted talented cricketers from all over the world. Mumbai Indians included star players such as Sachin Tendulkar, Harbhajan, Zaheer Khan from India; Malinga Jayasuriya from Sri Lanka; Philip Hughes, Symonds and Maxwell from Australia and many more over the years. Many star players from other teams also opted to play for the IPL and not their home countries as IPL provided more monetary income to the players (ESPN 2014)
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