Rotman Strategy Case Competition

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Finalist in Rotman MBA Case Competition

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Rotman Strategy Case Competition

  1. 1. Team CinergyAlaina Boyer, Jay Burke, Brendan Cochrane, Pramod Jindal & Beam Ukarapong
  2. 2. RecommendationProblemShould Cineplex focus on building its download business or reinvest in itstheatre business?RecommendationCineplex should reinvest in its core competencies within the theatreexperience, while expanding the complementary entertainment services it offersMajor Insights• Exhibition theatres have problems – we CAN fix them• Cineplex is REALLY good at its core competencies• We can PLAY in the Digital sandbox, but… Fixing Problems Core Competencies Digital Sandbox 1
  3. 3. Exhibition Theatres have problems – we CAN fix them Convenience 4-hour outing for a 2-hour movie is inconvenient Why does this happen? Need to get there early for good seats and line-up for food Proposal CinExpress – a service to reserve your seat, pre-order food & beverage and pick-up your order from designated line Costs • Initial confusion amongst non-reserved seating patrons • Dedicated staff for express line • Enhance current website/app/interface to incorporate CinExpress Benefits • Higher revenue from increased ticket price (+$2.00/seat) • Pre-ordered food = guaranteed sale Fixing Problems Core Competencies Digital Sandbox 2
  4. 4. Exhibition Theatres have potential – maximize it Loyalty Scene Membership card and Loyalty Program: very successful How to use Loyalty to our advantage? • Incentivize new members - free upgrades • Retain members with Milestone Rewards • Birthday and anniversary promotions • Expand point-redemption partners Costs • Additional free movies • Loss of 10% concession revenue (Scene discount) Benefits • Increased membership: more theatre footfalls and concession spending • Free word-of-mouth advertising Fixing Problems Core Competencies Digital Sandbox 3
  5. 5. Exhibition Theatres have scope for improvement Social Media Penetration A Facebook page isn’t enough Why should this change? Transition from offline to online social experience How will we correct this? Ability to post updates after ticket sales and reviews post-show Costs • Programming/development costs Benefits • Brand recognition (each auto-generated posting has Cineplex brand embedded) • Free social media advertising will reach broader audience & tech-savvy users Fixing Problems Core Competencies Digital Sandbox 4
  6. 6. Leverage our Core Competency: Theatre Experience Broad Experience Experience beyond our best movies: complete entertainment experience Our Proposal Continue to invest in alternative programming, games, liquor-licensed VIP as well as non-peak theatre usage Actions • Theme nights • UFC events • Customized events Costs • Licensing, capital expenditures and labour Benefits • Increased ticket revenue • Additional reasons to visit a multiplex • Increased share of wallet from customized-event clients Fixing Problems Core Competencies Digital Sandbox 5
  7. 7. Leverage our Core Competency: State of the art technology Technology We have the best technology. Home theatre solutions cannot simulate a real theatre experience Proposal Continue to invest in: • UltraAVX • Complete digital screen and 3D projection upgrade by 2012 as planned • Canadian Digital Cinema Partnership Costs • No change from current reporting Benefits • Provide enhanced customer experience • Maintain competitive advantage over digital Fixing Problems Core Competencies Digital Sandbox 6
  8. 8. Leverage our Core Competency: Studio Relationships Studio Relationships We have the best new movies you can’t find online Proposal • Leverage leading market share position to acquire best titles • Extend relationship to re-release patron favourites Costs • No change from current reporting Benefits • Maintain competitive advantage over digital • Preferential treatment and flexibility Fixing Problems Core Competencies Digital Sandbox 7
  9. 9. We can PLAY in the digital sandbox But… • Non-core business • High switching costs for legitimate users • Low switching costs for illegitimate users • Fierce competition • In pipeline “UltraViolet”- new technology, same players Cost • Advertising costs for brand promotion • Increased redemption of Scene points (affecting core margins) Benefits • Additional revenue stream • Allows entry into new market • Leveraging Scene loyalty Fixing Problems Core Competencies Digital Sandbox 8
  10. 10. Risks associated with our Recommendations Overall Risks to the Industry • Busier life style – not enough free time for movies • Recessionary fears – reduced leisure budget Convenience, Loyalty and Social Media • Customers not receptive to reserved seating  lost revenue • Potential breach of privacy in Loyalty program • Maintaining higher service delivery levels Event Experience • Additional improvements not aligned with customer values • Changing customer tastes • Year without blockbuster movies Digital Sandbox • Ongoing piracy concerns • Competing against new innovations by established digital competitors • Digital players enter theatre business Fixing Problems Core Competencies Digital Sandbox 9
  11. 11. SummaryRecommendationCineplex should reinvest in its core competencies within the theatreexperience, while expanding the complementary entertainment services it offersMajor Insights• Exhibition theatres have problems – we CAN fix them• Cineplex is REALLY good at its core competencies• We can PLAY in the Digital sandbox, but… Fixing Problems Core Competencies Digital Sandbox 10
  12. 12. Thank you Q&A 11
  13. 13. Reserved Seating Cost/Benefit Structure Reserved Seating Reserved Seating Brand new chairs $ 300.00 Chair covers $ 35.00 Total Seats to Change 60 Total Seats to Change 60 TOTAL NEW SEAT COST $ 18,000.00 TOTAL NEW SEAT COST $ 2,100.00 Replacement Labour Cost $ 100.00 Replacement Labour Cost $ 100.00 Hours to replace 60 seats 15 Hours to replace 60 seats 15 TOTAL LABOUR COSTS $ 1,500.00 TOTAL LABOUR COSTS $ 1,500.00 GRAND TOTAL COST $ 19,500.00 GRAND TOTAL COST $ 3,600.00 Increased Revenue Increased Revenue Premium for Reserved Seating $ 2.00 Premium for Reserved Seating $ 2.00 Average Show Rate 4 Average Show Rate 4 50% occupancy 30 50% occupancy 30 75% occupancy 45 75% occupancy 45 80% occupancy 48 80% occupancy 48 85% occupancy 51 85% occupancy 51 TOTAL REVENUE at 50% sales $ 240.00 TOTAL REVENUE at 50% sales $ 240.00 TOTAL REVENUE at 75% sales $ 360.00 TOTAL REVENUE at 75% sales $ 360.00 TOTAL REVENUE at 80% sales $ 384.00 TOTAL REVENUE at 80% sales $ 384.00 TOTAL REVENUE at 85% sales $ 408.00 TOTAL REVENUE at 85% sales $ 408.00 Payback Period Payback Period Cost/Revenue @ 50% 81 days Cost/Revenue @ 50% 15 days Cost/Revenue @ 75% 54 days Cost/Revenue @ 75% 10 days Cost/Revenue @ 80% 51 days Cost/Revenue @ 80% 9 days Cost/Revenue @ 85% 48 days Cost/Revenue @ 85% 9 days 12
  14. 14. Scene Membership Growth Scene Membership (in millions) 3.5 No. of Members 3.2 3.0 2.6 2.5 2.0 2.0 1.5 1.2 1.0 0.5 0.4 0.0 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Y/Y Growth 23% (2010-2011) 13
  15. 15. Internal Activities and Capabilities Plane Beakers Boat Valuable Rare In-imitable Movies (Exhibition) - showtimes, convenience 3 2 2 Movies (Digital) 1 1 1 Loyalty (Scene) 3 2 3 Merchandise (zoning) 30% 3 1 1 Alternative 3 1 1 Media (ads) 3 2 1 Media (magazine) 2 1 1 Social media 3 1 1 Premium (seats, sounds, VIP) 3 1 2 Interactive (App) 3 1 1 Vendor relationship (food/aeroplan) 3 1 1 Technology (3D/IMAX) 3 3 3 Popcorn 3 1 1 Previews 2 1 1 Partnership (Scotia) 3 3 3 CDCP (Empre) 3 3 3 Night-out package 2 1 1 In-house brand (OutTakes) 2 2 1 Locations 3 3 3 Studio Relationship (having the best movies) 3 2 3 Source: 14
  16. 16. Blue Ocean Analysis of Cineplex (Current), Cineplex(Proposed), Cineplex Anywhere and Digital Download8765 NEW-CPX4 CineAW3 CPX Digital210 Watch a Price Convenience Great food Great Fun Great social Watch the recently experience emotional experience movie I want released experience movie 15
  17. 17. 5 forces: Exhibition Entertainment Substitute – high, and getting worse • More activities Buyer – moderate • Switching costs low, consumer influence mod Supplier – moderate • Avatar high, others low Barriers – High • Huge Capex Rivalry – Low • Cineplex 66% Source: 16
  18. 18. 5 forces: Anyway to Watch a Movie at Home Substitute – High • Tons of other options Buyer – Moderate, and getting worse • Can influence the price (Netflix) • But there are potential switching costs (Rogers On Demand, buying an Xbox) • Getting worse because of increasing piracy Supplier – Moderate • For legal activities, high • For illegal, low Barriers – Moderate • For legal activities, high • For illegal, low Rivalry – High • Tons of ways to get a movie at home Source: 17
  19. 19. Industry Analysis Exhibition Out of home - Coffee Entertainment in - Movie - Community Canada - Plays/operas - Arcades - Sports events - Nightlife - Recreational activities - Culture - Dining - Shopping - F&F At home (Electronic) At home (Non-electronic) - TV - Board gamesAnyway to get - Movies - Card gamesmovies at home - Computer - Reading - Video games - Quiet time - Music - Exercise - Internet - F&F - Social media - Cooking 18

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