Cineplex

16 Pages   |   3,297 Words

Initial Impressions and Early Objective

Subjective

Cineplex Odeon is one of the largest motion theatre circuits in North America with 132 theatres with 1366. Cineplex has demonstrated resiliency in this highly competitive market as evidenced by their rebound from Chapter 11 in 2001.  A comparison of 2010 and 2009 revenues indicates Cineplex has been profitable, yet has not demonstrated significant growth (PricewaterhouseCooper, LLP, 2011). Cineplex appears to open to using new media strategies to enhance market share as evidenced by offering their customers a mobile site with an option to use PayPal as a payment option.

Objective

Since Cineplex’s inception in 1979, the founders Garth Drabinsky and Nathan Taylor pursued an aggressive growth strategy as evidenced by opening new theatres in the United States market as well as purchasing existing operations. The acquisition of Plitt Theatres, a struggling theatre chain in the United States, in 1985 led to the Cineplex operation approaching MCA, Inc. for an infusion of capital. In 1986, MCA purchased a 49.7 percent share of Cineplex which provided Cineplex the funds needed to purchase and build additional theatre units.

In addition to adding theatres to the Cineplex operation, Drabinsky sought to make the theatre-going experience a more sophisticated, upscale experience by setting high expectations for quality service and exciting venues. Cineplex achieved this objective by refurbishing existing theatres including those considered historic landmarks. Drabinsky took a risk in betting consumers would pay extra for the comfort and style his venues offered. He also expanded the fare his concession stands offered by including items such as cappuccino, herbal teas and croissants. Since concessions accounted for one third of all box office revenue in 1989, most analysts viewed the broader menu offerings as a worthwhile innovation. 
 

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In 1989, the Cineplex group expanded into the live theatre market with the acquisition of the Imperial Theatre in Toronto, Canada. Drabinsky then bought exclusive rights to Andrew Lloyd Weber’s the Phantom of the Opera which premiered in 1989 with record breaking advance box office ticket sales.
 
Due to issues with questionable accounting practices and near insolvency in 1989, both Garth Drabinsky and Nathan Taylor were forced out of the company. The new chairman and chief executive officer steered the focus of the Cineplex operation back to motion picture exhibition leading to the sale of its live entertainment division.  The combination of limited expansion and aggressive cost cutting resulted in Cineplex returning to profitability in 1993. In the late 1990’s, Cineplex branched into the multiplex market which fit with their philosophy of limiting costs, as the multiplex model offers a number of screens with only the need for one box office and ticket taker. Cineplex also broaden their concession offerings to include such items as espresso and pizza. The late 1990’s brought the advent of the megaplex with the addition of games rooms and surrounding the theatres with restaurants, bars, book and music stores, and video game centers. Despite Cineplex’s conservative expansion strategy, the company incurred net losses in both 1995 and 1996. This loss was attributed to increased completion and poor performance of the movies supplied to Cineplex. Cineplex Odeon merged with Sony Lowes Theatre group in 1998. The company rebounded with the merger(Khurana, 2010).
The increased level of competition in the theatre chain industry in Canada led to a 20 percent drop in revenues. Cineplex filed for an order to restructure their obligations and operations under the Companies’ Creditors Arrangement Act in February 2001. The company initiated closure of 23 older theatres in Canada. The company’s losses continued through 2001. The company emerged from bankruptcy protection in 2002 and began the path toward profitability (Cineplex Odeon, 2002.  Though the company survived, the Cineplex brans suffered damaged with its consumer due to a significant increase in ticket prices.
 In July 2005, Cineplex acquired Famous Players, their largest competitor, to become the largest theater chain in Canada. Cineplex also began to showcase live events which helped to increase box office revenue. Through price adjustments in 2006, Cineplex returned to profitability.

Assessment

Cineplex presents with a demonstrated ability to navigate through the high competitive movie theatre industry. The company appears to focus on acquisitions to maintain and grow its market share. As evidenced by the company’s sensitivity to cyclical conditions in the economy, this strategy leaves the company in a crisis mode due to solvency issues during times of recession. The decision to raise tickets prices resulted in Cineplex alienating consumers thus weakening the brand. The focus of the company needs to shift to increasing brand loyalty among existing clientele and expanding its market share by providing incentives to new consumers. 

Plan

The recommended plan is for Cineplex to develop a customer loyalty program which capitalizes on its strong online presence and innovative venues.

Understand the Company

SWOT ANAYSIS

Strength: The strength of Cineplex lies in its innovative venues and commitment to high quality services.

Weakness: The weakness of Cineplex is its alienation of its customer base due to the significant increase in cost ticket prices.

Opportunities: The following are opportunities available for Cineplex to increase its revenue:

  • Broaden features available on mobile apps;
  • Flight miles partnership  ;
  • Rewards program with Scotiabank;
  • Discounted movies and/or concessions;
  • Cineplex sponsored rewards card (Zataman, 2009).

Threats: The primary threat Cineplex faces is the high level of competition in the movie theatre industry. The industry as a whole faces competition from the cable industry offering movie channels and on demand pay-per-view products. Online services such as Netflix also provide the consumer of the lower cost option of viewing new releases at home. An upcoming threat to the movie theatre industry is the advent of streaming movies online which allow production companies and distributors direct access to potential audiences.

The 5M’s

Mission
Cineplex today is one of the largest motion theatre circuits with over 132 theatres in North America alone. It aims at providing the best and exemplary service in the field of theatre movies. This is evidenced in its mission statement “Passionately delivering an exceptional entertainment experience.” It aims at delivering an entertainment experience that cannot be matched by some of its competitors.
Message
Cineplex has managed to build a favorable reputation to its customers. One of the key pillars to its reputation is the excellent service it accords to its customers. Keeping up with the pace in the movie industry and having a taste for all groups has made Cineplex entertainment to tower over the rest of its competitors.
Media
Cineplex entertainment is determined to use a variety of media in serving its customers and also as a marketing strategy. This includes the inclusion of online payments for its movie services as a method that has been termed to increase efficiency in its service delivery. This specifically includes the introduction of PayPal as a mode of payment which is acceptable by many of its customers. As PayPal is a common mode of payment due to its safety and reliability, it will work towards marketing Cineplex entertainment.

Money
An experience at Cineplex entertainment is worth the money spent on buying the movie ticket. Cineplex entertainment aims at customer satisfaction and giving its customers good value for their money.
Measurement
The services of Cineplex entertainment are rated to be the best due to its inclusion of all the generations by focusing on the saying “something for everything.” The collection of movies at Cineplex takes into consideration the different tastes of the audience which rates it to be among the best movie theaters.
Hierarchy of effects
Fans of the movie industry are always ready to buy the services of Cineplex entertainment. The company has cut a niche for itself above the other competitors with its strongest selling point being variety and having most of its theaters located in historic places which interest the audience.
Awareness
Majority of the people who attend cinema theaters are aware of the existence of Cineplex. This is because of the kind of service it offers to its customers, with its location being in some of the interesting historical places.
Knowledge
Knowledge of the kind of service and experience at Cineplex has played a significant role in determining the customer numbers. By taking into consideration the different tastes of the audiences, the entertainment firm has been able to customize its services to suit its audience. This has contributed much to people knowing what Cineplex entertainment offers.
Liking
Taking care of the different tastes the audience has in terms of selecting the kind of movies to show at Cineplex has contributed much to the customer liking. The kind of comfort that is accorded to customers during the movie sessions and the efficiency when in it comes to paying for the services through paypal has increased customer liking.
Preference
Although there are other strong competitors in the movie theatre industry, Cineplex has continued to record increased customer numbers in most of its movie theaters. This shows that the customers prefer Cineplex over the other movie theaters owned by competitors in the field. To the customers, variety and consideration of different tastes is what determines their choice, and this is just what Cineplex offers.
Conviction
The attraction of new customers and the retention of existing ones seem to be pegged on the conviction that Cineplex is the best movie theater as compared to others. This is due to a multiplicity of factors like the location of the theaters in historic places, the efficient mode of payment and the exemplary services accorded to the customers. Having a conviction that Cineplex offers the best service leads to purchase.
Purchase
With the full awareness of the services and knowledge, which leads to the liking and preference of the Cineplex over others, it leads to the conviction of the customers and the final purchase of the service. If one of the steps is not fully exploited, there will be low purchases recorded by Cineplex. Therefore, all these factors play a significant role in arriving at the purchase of services offered by Cineplex.

Understand the Market (The 5 C’s)

Company: Cineplex currently enjoys a 65 percent market share in Canada due to aggressively competing for consumers. Historically the growth strategy of Cineplex has relied opening new venues and acquiring and upgrading existing facilities. This model is limited in its viability due to the decrease in the number of customers actually attending theatres due to competition from cable providers, online streaming videos and film piracy.
Customers: An independent focus group study conducted in 2003 identified the following age segments of the theatre going customer base and frequency of attendance for various events.
Table 1. Observations on Event Type and Frequency of Movie Attendance by Age
                                                                                                            (Zatzman, 2009)                                
Frequency
Reasons for Attendance
Age Segment Labels
  13-15
Teenagers
16-19
Young Adults
20-24
Working Families
36-54
Older Families
55+
Retirees
Low (Special Events)     X X  
           
Medium (Special Movies         X
           
High (Routine) X X X    
                                                                                                                       
The data suggests the customer segment most likely to be regular movie customers are in the 13-24 age groups. The cohort most likely to have the highest amount of disposable income is in the 55+ age range.

Competition: Cineplex faces significant competition in the market place not only from the two other major movie theatre companies, but also from competition from cable providers, online streaming videos, movie rental stores, online movie rental services and film piracy.

Collaborators: Cineplex has the potential to partner with the following organizations:

  • Flight Miles: Customers would use points to use to attend movies and events.
  • Scotiabank: Customers would be able to use reward cards to earn points

Context: Cineplex is limited to showing movies by existing contracts with production companies.

Understanding the Opportunity

The focus of the Cineplex management should be focused on developing brand loyalty in the 13-24 age demographic as well as increasing the revenue per guest in both this group as well as with those consumers aged 55+

Segmentation

Consumers looking for an out-of-home entertainment experience. Cineplex appears to have a significant percentage of this population, but this status is fragile given the strong competition for limited consumer’s dollars. Consumers are looking for a unique entertainment experience above and beyond “going to see a movie” which is something they can do at home. For the younger part of the market, the addition of a video game room or access to limited edition licensed items associated with the film they have seen might have appeal. For the over 55 demographic, a full menu with a special showing of the movie will differentiate Cineplex from the competition. The younger submarket is technologically savvy and having access to mobile apps along with comprehensive website appears to be the most efficient means of accessing this market.  Advertising directed at the 55+ is likely to be most effective through traditional media such as newspapers, magazines, radio and television. The younger submarket is considered to be the Generation Y and the Millennial Generation. The older demographic is considered the Baby Boomer (Boomers) generation. The Generation Y and Millennial generation are likely to be looking for new and exciting types of entertainment (such as the new 3-D movies). The
 
Boomers tend to look for more relaxing forms of entertainment with a degree of sophistication. These two markets represent approximately 80 percent of the population who are likely to attend. (Otlacan, 2005)
Targeting: The target markets are those persons in the Generation Y, the Millennial Generation ,and the Baby Boom generation. The individuals in this group are likely to have an interest in popular culture and trends. Cineplex is somewhat impeded in maneuvering its cinematic presentations due to existing contracts with production companies and distributors.
Positioning: Currently Cineplex is well positioned for the Baby Boomer Generation with its reputation for sophisticated venues. Cineplex is building a strong position in the Generation Y and the Millennial Generation with is website and mobile apps.

Create Value

Product: Cineplex offers consumers a full service movie theatre experience with upscale concession offerings such as espresso and cappuccino. Some venues are located in historic buildings while others are megaplexes surrounded by restaurants, bars, book and music stores, and games shops. They occasionally offer live events and special showings. 
Pricing: Cineplex bases their pricing philosophy on the premise most consumers are willing to pay a bit more than they would at the competitor’s theatres because of Cineplex’s upscale venues. While this might hold true for the Boomer Generation, Cineplex stands to lose market share in the 13-24 year old demographic which tends to be more limited in their disposable income and thus they are looking for the lowest price.
Promotions: Cineplex’s most advantageous means of promotion is through the development of a consumer loyalty program. Accumulation of points through the use of a credit card appeared to appeal to most Cineplex customers based on a 2005 survey (Zatzman, 2009). The Cineplex website and mobile app associated with PayPal (Kats, 2011) is targeted at the Generation Y and the Millennial Generation.
 
Place: In addition to its online presence, Cineplex utilized in-theatre advertising through placement on concession products, point of purchase displays or on backlit posters. This is advantageous to Cineplex in that it is cost neutral. In order to broaden appeal to the Boomer Generation, Cineplex considered: 1. placing half-page ads in regional newspapers; 2. purchases 30 second commercial in regional markets; and 3. using word- of-mouth publicity.

Capture Value

Pricing Strategy

In order to remain competitive in the movie theatre industry, Cineplex needs to review it pricing strategy against competitors and assess whether consumers truly perceive the more upscale venues as justification for the higher ticket price. A review of Cineplex’s financial performance indicates while customers might be willing to spend more during periods of economic growth,
 
consumers flee to less expensive venues during periods of recession. This consumer behavior results in decreased revenue for Cineplex and appears to be the major contributing factor to Cineplex’s need to restructuring during every downswing in the economic cycle since its inception.

(SCA)

Customer Acquisition: Cineplex acquires customers by attracting customers by providing upscale venues to view major motion pictures and periodic live events. The experience of the Cineplex patron is enhanced by the availability of specialty food and beverages in the concession area.
Customer Retention: Cineplex seeks to retain its customer base currently though in house advertising in the form of sneak previews, backlit posters and announcements on its website. Cineplex seeks to enhance customer retention through the development of a customer loyalty plan.

Profitability

Table 2.
Cineplex Entertainment Revenue per Guest
Box Office Revenue per Guest                      $7.73
Concession Revenue per Guest                 $3.34
Film Cost as a Percentage of             51.7
Box Office Revenue
                                                Source: (Cineplex Galaxy Income Fund 2005 Annual Report)

Evaluation Metrics

Table 3:ROI Calculation for Cineplex Investment

                                                                                    In Thousands of Canadian dollars
  2007 2008 2009 2010
 
Revenue
 
 
805,019
 
849,689
 
964,348
 
1,010,782
 
Operating Margin
 
       
16.7%
 
EBITDA
 
       
1,010,782
 
EV/EBITDA
 
       
11
 
Enterprise Value (2010)
 
       
12,128,846
 
Purchase Value (2007)
 
       
443,013
         
 
Assume Growth of 10%
 
(Cineplex Galaxy Income Fund 2008 Annual Report, 2008; PricewaterhouseCooper, LLP, 2011)

Evaluation

Execute, Observe, Record

In order for Cineplex to maintain long-term financial viability and obtain a sustainable pattern of growth, the focus of the management team should be developing a customer loyalty program. 
The options available for the structure of the program are provided in Table 4.
 
 
Table 4.                       Preliminary Reward Structure Options
  Option 1 Option 2 Option 3 Option 4
 
Membership Fee
 
No One-time $2.00 Annually $5.00 No
 
Permanent Concessions
Discount
 
______ 10% 15% 10%
 
Points
 
Yes Yes No Yes
 
Sign-Up Points
 
500 100 _____ 250
 
Points per Adult Movie
Transaction
 
100 100 _____ 100
 
Points per Concession Combo
Transaction
___ 75 _____ ____
Reward Items and Maximum Retail Value
Points Required  
500 Free Child
Admission
$8.50
_______ _______ ______
 
750
Free Concession Combo
$ 12.37
_______ ________ ______
1000 Free Adult Admission
$10.95
Free Adult Admission
$10.95
_______ Free Adult Admission
$10.95
1500 Free Event Admission
$19.95
Free Event Admission
$19.95
  Free Adult Admission/Concession Combination $23.32
 
 
2000
 
_______ _______ _______ Free Adult w/Two children
Admission $275.95
 
2500
 
_______ Night Out Package _______ _______
(Zatzman, 2009)

Re-Do (Work the Plan)

The loyalty program should be advertised through both traditional media to appeal to the Boomer market and through new media strategies including Cineplex’s mobile app, website as well as Twitter and Facebook. To monitor the efficacy of the program, the amount of revenue needs to be recorded and evaluated quarterly to determine the efficacy of the program. Initially it would be beneficial to offer all the options listed above and at the end of the initial quarter, determine the popularity of each option and consider discontinuing the least popular plans. After a sizable database is established a further means of promoting Cineplex worth considering is either a direct mail campaign or an email campaign. Another consideration would be exploring the possibility of a Groupon campaign.

Bibliography

Cineplex Galaxy Income Fund 2008 Annual Report. (2008). Retrieved March 2011, from http://cineplexgalaxy.disclosureplus.com/SiteResources/data/MediaArchive/pdfs/reports_filings/2008%20annual%20report%20final.pdf
Cineplex Galaxy Income Fund 2005 Annual Report. (n.d.). Retrieved March 2011, from http://dplus.cineplexgalaxy.com/contents/objects/annual%20report%202005.pdf
Lowes Cineplex Announces Theatre Closings in Canada. (February , 16 2002). Retrieved March 2011, from Cineplex Odeon: http://www.cinplexodeon.com
Kats, R. (2011, February 14). Cineplex Entertainment Adds PayPal Payment to Mobile Site, App for Customer Convenience . Retrieved March 2011, from Mobile Commerce Daily.
Khurana, A. (2010, Decemeber 15). Marketing Strategy of Cineplex Odeon Corporation. Retrieved March 2011, from Management Paradise: www.managementparadise.com?forums/marketing-management/210710
Lowes Cineplex Entertainment Emerges from Banruptcy. (March , 21 2002). Retrieved March 2011, from Cineplex Odeon: http://cineplexodeon.com
Otlacan, O. (2005, October). Marketing Strategy: 7 Steps to Market Segmentation .
PricewaterhouseCooper, LLP. (2011, Febraury 9). Cineplex Independent Auditors Report for FY2010Q. Toronto, Ontario, Canada.
Sheppard, R. (2001, January 22). Trouble at the Megaplex. McClean's, pp. 29-29.
Zataman, R. (2009, May 15). Cineplex Entertainment: The Loyalty Program. Ontario, Canada.

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