Should a hotel charge the same price for its smallest room as the penthouse? Should a Mercedes Cabriolet cost the same as a Toyota Corolla? Of course not, but yet movie theaters in the United States charge the same price whether you're going to see the latest Oscar winner or the Emoji Movie.
But now, Regal Cinemas "plans to test demand-based pricing" by allowing prices to reflect consumer sentiment toward each specific film. Directors who see the ticket prices of their films in the discount bin might not appreciate the new pricing paradigm.
This is interesting. I would be curious how the studios respond. Do theaters pay a fixed price to studios to show a film or do they pay a percentage of ticket proceeds?
ReplyDeleteI would be interested to see if the theaters were willing to lose money in ticket revenue to profit from concessions.
This is a very thought provoking topic. You're right, many other entertainment and service industries charge based on demand and benefits. So why are movie theaters different?
ReplyDeleteWith the rise of Netflix and Amazon movies and the Firestick and downloading movies illegally, theaters experimenting with demand based pricing should keep that in mind and not over price a movie. Also, would this encourage people to see the less popular movies, because they are less expensive. In other words, would this create more of a demand for the unpopular movies? And if it does, that movie will eventually be priced higher. Thus creating movement along the demand curve. "If the price of a substitute product increases, then industry demand for a product will increase." (Freub et al p.97) Price is a controllable factor in demand.
Would theaters take it a step further are use demand based pricing on their already hefty priced concessions? For example let's say M & M are the candy of choice. Can they price those at $7 and let's say raisinettes at $3? At what point does price become too high?
An increase in demand happens because of a decrease in price. Therefore the less expensive/not as well liked movies will be chosen.
At what point does the pricing become too high and do movie theaters start losing money?
The analogy of comparing movie prices to hotel room charges and different car models, really makes the idea of differing movie charges sound feasible and sensible at first glance, but let’s look at it from a consumer view as well as a business standpoint. When I read this post, it stopped me in my tracks and got me to thinking, wondering why we do pay the same price for all movies. Wouldn’t it be interesting to test out the demand-based pricing and see what it does to the bottom line.
ReplyDeleteThe use of direct and indirect price discrimination, pricing movies based on consumer sentiment toward them, would likely change the dynamic of how consumers view cinema experiences. Unfortunately, it may backfire by making it unaffordable for many people to see the latest Oscar winner, thus putting a dent in revenues. It would make sense to do a survey, determining who the clientele is and whether they would pay a higher price to see the latest Oscar winner.
I’m questioning this since I’ve often gone to our local cinema, with my teenage daughter and group of her friends, to see the latest “big” movie on its opening weekend. If prices were not affordable, we wouldn’t have been able to get this group of girls together for this outing, which means the cinema would have lost our business. Not only would they have lost ticket sales, but they would also have lost concession sales. So, if the pricing were to differ among movies, the pricing of the latest Oscar winners would need to remain affordable for the lower-value group or revenues would likely take a negative turn.
Yes, movie- ticket sales continue to decline, but is this the route that Regal Cinemas wants to take. Many of Regal’s competitors have come up with other ways to increase ticket sales such as offering quality food and drink, and also by offering better seating. In the case of Regal they are not bettering the service, but instead increasing the money for a high demand movie and lowering the costs for a movie that’s in less demand to see.
ReplyDeleteAs a consumer it can be hard to decide between two alternatives, but in this case I find it hard for a customer to pay more for a movie in higher demand when they can see it at a lower cost at another movie theater chain, which might offer them better service. This article also states that “Regal’s bottom line, it’s less about butts in the seats for the movies themselves – and more about the lines at the concessions stands.” If you’re a theatre like Regal that is making 85% or higher of a profit on sales from your concessions you might want to offer better food and drink selections as other movies chains have started to do.
I do think that lowering the price of movies that are in less of demand is a good option. It all comes down to the elasticity of demand. If Regal lowers prices on movies that are in less demand and a high amount of customers respond to these lower prices than they have made the right decision, but again I can’t see myself paying a higher price when I can go to another theater.
When it comes to movie prices, demand-based pricing, may not work out in a theater’s favor. Consumers can find substitutes to watch a movie that they want. With the rise of alternatives such as Netflix, Hulu, Amazon Fire and illegal downloads, consumers can always find the movie that they want to see. It is so easy for consumers to sit at home and watch a movie from the comfort of their home instead of driving to a theater and paying $16 for a ticket and $20 for popcorn and soda.
ReplyDeleteIf demand-based pricing was to take place, consumers would more be inclined to watch a less popular movie. This leads to the next issue which is there could be a trend in the less popular movies which would in turn make the prices rise for that instead of the popular movie. Find substitutes can increase the price. According to Froeb, “If the price of a substitute product increases, then industry demand for a product will increase." (Froeb, 97). Another thing that could happen is if a theater does raise the prices for an oscar film, then some families may not be able to afford to go see a movie which could possible effect the revenue of the theater. If a consumer does want cheaper tickets to a movie, theaters do offer early bird discounts or if you are a senior, you can get a discount.
In regards to the pricing structure of movies, I don’t think the demand based pricing would work in favor of the movie theatre reaching its goals. Consumer’s face a lot of substitutes in being able to watch a movie. Besides being able find movies to rent on mobile devices from places like Apple’s iTunes store, consumers can take advantage of apps and services like Amazon Firestick, Roku stick, Netflix and other services. With the advancements in technologies, especially in Televisions, most new TV systems have these apps integrated right into them. What this means is the substitutes to cinemas are much more convenient and require virtually no effort for the consumer to view and enjoy the same movies offered in a cinema.
ReplyDeleteUtilizing demand-based pricing would allow for the consumer to watch a cheaper, lesser quality movie. Eventually, many others would follow suit and would lose the purpose of getting higher profits on the higher quality, thrill seeker type movies. Finding substitutes, as discussed in the Froeb text, could help increase popularity to the cinemas. For examples, many theatres take the newly released, heavy marketed movies and don’t allow gift cards, special promotions and sorts to be used and make consumers pay a higher rate. Maybe allowing this would keep a more consistent, long term demand & profit to movie theatres as people won’t feel any price discrimination.