Lifetime Value

30 BoxOffice® Pro The Business of Movies JANUARY 2015
by Mark de Quervain, Action Marketing Works Ltd.by Mark de Quervain, Action Marketing Works Ltd.
A good question? I thought so when
this came to mind. Why? Be-
cause we spend a lot of time
talking about how to grow
cinema-attendance frequency:
if only we could make occasional
cinema-goers go one additional time each
year, we would all be more successful.
But how does one know that this is ac-
tually achieved amid the clutter and
noise of the peaks and troughs of
our business, and whether the po-
tentia profit is ort t e expense
HOW
MUCH IS A
CUSTOMER
WORTH OVER
A LIFETIME OF
CINEMA-GOING?
Jan15_CustomerWorth.indd 30 12/30/14 7:34 PM

JANUARY 2015 BoxOffice® Pro The Business of Movies 31
It is worth bearing in mind that in most major established mar-
kets, audience attendance remains stubbornly flat in spite of extensive
marketing activity, new cinemas, and new technologies; achieving
significant growth seems an elusive goal.
Making money from driving incremental attendance is certainly
hard. I have spent years looking at new ideas that are supposed to
drive frequency, but it is always difficult to make them work, on a
spreadsheet let alone in actual trials. The reason is that the short-term
incremental revenue is often too small to make it worthwhile or even
measure, resulting in ideas never passing the “so-what” test or being
stopped after trials. Marketing budgets are also limited due to the small
returns, which probably compounds the challenge and impacts the
result and follow-up actions.
LIFETIME VALUE
To derive the value of a lifetime of cinema-going, I have had
to make a number of assumptions:
1
I have taken an annual frequency of 6 times per annum
as the starting point—a number that represents an
occasional cinema-goer.
2
The numbers chosen are aligned to the U.S. market but
can be easily changed to any country or company.
3 Average ticket price plus sales tax/VAT Year 1 of $9.00
4 inus cost of fi m renta 5 %
5 nnua tic et price in ation of 3% per annum
6 rofit per ead from retai concessions sa es 1 5
7 nnua retai concessions price in ation of % per annum
8 at sa es tax of 7 5%
defined a ifetime as 3 years given t at t ere may be
periods of non-cinema-going or infrequent going.
THE NET LIFETIME REVENUE (ASSUMING THE TABLE
AT LEFT) IS ONLY $1,663.
I am not sure how this feels to you, but I was surprised how small
this number actually is, particularly since it includes 30 years of infla-
tion. Imagine working for a major supermarket or car manufacturer or
clothing company—the number would be multiple times bigger. The
amount also excludes deductions for operational costs, utilities, and
other overheads we take into account for EBITDA (earnings before
interest, taxes, depreciation, and amortization).
Even a person going one time per month only doubles the above
revenue at $3,326.
Interesting, too, that the price of a ticket rises from $9 to over $21
in 30 years!
So what does this mean? Does it change anything?
I think it actually does. For a start it forces me to think longer term
and to more carefully consider the customer journey from young to old
and how we could, as a marketers and cinema operators, nurture cine-
ma-going in such a way as to build frequency and revenue over a longer
time period. This approach would certainly change things, not least our
view of marketing payback models, which tend to be more short term,
and whether marketing investment makes sense.
Of course one issue is that many investor windows are five years at
best, so any conversation about 30-year value could easily be meaning-
less to them. Not so! Why? Because if you have many customers, all
at different places on their cinema road map journeys, it’s likely that,
even over a five-year period, there is significant upside in revenue from
incremental cinema attendance. (continued on next page)
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SETTING TARGETS
Setting realistic targets for driving frequen-
cy over time is important, not least because
they will drive what you do and when. They
also allow you to measure success, and this
will require putting in place touch points in
the customer journey that provide the neces-
sary data to allow you to know if what you are
doing is working as intended.
In terms of setting a frequency target, it
might help first to see what difference certain
assumptions could make to the net revenue
over the 30-year period. This will help you set
the investment and expectations in terms of
ROI over time.
If one assumes that it will take five years to
increase frequency one visit per annum (from
six to seven in a steady state), then over six
blocks of five years (total 30 years), the actual
net revenue in real terms goes from $1,633 to
$2,643—a growth of 37 percent. Over ten years
this would be a 10 percent net real increase.
Not that ambitious, perhaps, but achievable
considering that in the last five-year block of the
FIG 2
The chart shows
how cinema-go-
ing over a cus-
tomer’s lifetime
is more complex
than a straight
linear progres-
sion. It allows for
a 2-year gap of
zero attendance.
12
11
10
9 9
8 8
7
6 6
5
0
STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6 STEP 7 STEP 8 STEP 9 STEP 10 STEP 11 STEP 12
Years 3 3 3 3 3 2 2 3 3 3 2 2
Frequency 18 24 33 36 27 0 10 24 27 30 14 12
Cum. Frequency 18 42 75 111 138 138 148 172 199 229 243 255
Cum. Average
Frequency 6.0 7.0 8.3 9.3 9.2 8.1 7.8 7.8 8.0 8.2 8.1 8.0
Cum. Average
Frequency % Change 17% 19% 11% -1% -12% -4% 0% 2% 3% -1% -2%
11
10
9
8
7
6
STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6
Step = 5 years
Starting Frequency 6x, Ending Frequency 11x per annum
FIG 1
Cinema-going frequency increasing by 1x per annum every 5 years drives 37% increase in operating profit
HOW MUCH IS A CUSTOMER WORTH?
Jan15_CustomerWorth.indd 32 1/5/15 9:14 AM

30, frequency would have grown from six times
per annum to 11 times per annum, which is ac-
tually quite high, in effect moving an occasional
cinema-goer to a frequent cinema-goer.
This is very over-simplified as it assumes a
linear growth every five years over a 30-year
period. See Fig. 1, on page 32.
In reality, of course, we know that a
person’s cinema-going frequency can vary
considerably over such a long period, with
possible periods where he or she stops going
altogether due to having a family, for example.
A customer’s attendance may also peak earlier
and then decline. Fig. 2 shows how this might
be taken into account when looking at a cus-
tomer road map and his or her lifetime value.
Clearly this is much more complex!
In this example (Fig. 2), the average
frequency per annum grew from six times to
eight times over the customer’s lifetime, an
increase of 25 percent. This includes a period
of frequent cinema attendance (Steps 4 and 5)
peaking at 12 times per annum. This model
drives a net revenue of $2,493 (excluding gap-
year inflation), an increase of 34.5 percent,
which is close to the linear model shown in
Fig 1.
The chart also shows how tricky it is to
measure and track changes in frequency when
we have natural variances in attendance each
year. However, the cumulative average annual
frequency and percent change can be used
as the KPIs (key performance indicators) for
ensuring the customer is on track, particularly
if benchmarked against market admissions.
THE EARLIER THE BETTER: THE
IMPORTANCE OF CHILDREN AND
TEENAGERS
The sooner one can get a customer to join
the road map the better. The younger we get
people into our plan, the more likely we can
drive change and the more valuable they will
be to us now and in the future, resulting in
more revenue generated.
The implication of this cannot be clear-
er—we need to engage and drive attendance
among the younger generation.
Bear in mind, of course, that we see rap-
idly aging populations is many EU countries
and the United States. I reported in a previous
article for BoxOffice that in the EU-25 by
2020, the number of over-65-year-old people
is set to increase by 15.9 percent, while the 0-
to 14-year-olds are set to decline by a modest
1.4 percent (2010 vs 2020 EU-27).
This article will not cover how we might
drive cinema-going with youngsters; it will
show a good reason why. Suffice to say that it
is a significant challenge given lifestyle changes
and how young people consume film. It must
be a major priority for any cinema company
to have a clear audience-development plan for
families with young children and teens up to
17 years old.
SO WHAT ABOUT MORE MATURE
AUDIENCES?
Cinemas are catering to more mature and
discerning audiences, and this is seen through
the success of “quality” movies and of opera,
ballet, and theater. More mature audiences
may also seem, in certain circumstances, to be
less price sensitive than, say, a family with two
children, a teenager, or a student, who require
potentially different content, scheduling, and
even different environments.
Chasing and growing attendance among
the more mature audience is certainly benefi-
cial, but if we don’t have younger cinema-go-
ers in the pipeline, our business will face a
major challenge in the near future.
THE IMPORTANCE OF DATA
CAPTURE
Given that we are looking at occasional
cinema-goers, i.e. customers who attend a
cinema on average six times per annum, the
importance of data capturing as many as
possible and having an active and engaging
dialogue with them cannot overstated.
Many cinemas do, of course, do this
already, but many may not have a clear under-
NOVEMBER 2013 BoxOffice® Pro The Business of Movies 57
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standing of the monetary value of an active, en-
gaged customer versus a customer who’s in the
database but inactive, or not in the database at
all. With so much marketing effort and budget
being put into data capture and CRM (custom-
er relations management), it would be good
to know what this incremental benefit is, not
least for ROI, forecasting, and performance
measurement. A strong number may actually
allow companies to justify spending more.
The number of customers in the average
company’s database tends to be a percentage
of the total customer base, perhaps 20 to 25
percent. These may, of course, be skewed to
more interested and engaged people who may
or may not be high-frequency visitors.
It would seem logical that if a person is
receiving 52 e-mails a year, there is a good
chance of generating an incremental visit that
results in a group attendance of at least two,
so the net benefit can quickly be seen. The
key question is whether we know if what we
do creates real incremental revenue and how
the overall activity fits (if at all) into a formal
audience-development plan.
LOYALTY PROGRAMS
Loyalty and reward programs do entice
sign up and generate active CRM. However
many companies struggle to quote a formal
ROI number because of the difficulty of
evaluating member benefits versus incremen-
tal visits and amount spent. The upside is
potentially eroded by the most frequent and
loyal customers signing up first and being
rewarded for actions they would have taken
anyway. The less active and engaged occa-
sional cinema-goers may be less attracted by
a program that is built to minimize profit
leakage by giving away unnecessary rewards.
Most programs I have looked at seem to lack
a database that covers most customers but
skews to customers who generate around 50
percent of attendance, thus leaving a large
pool of customers untouched by the offer.
A benefit of a good reward program is the
ability to build a profile of film choice so that
recommendations can drive retail spending
habits. It can take several years to get enough
data for accurate profiling, however, which can
slow down the effectiveness of the program.
Retail spending habits are probably more
quickly predictable and easier to incentivize
than spending on cinema, not least because of
the margins involved.
BENEFITS LINKED TO
REGISTRATION
It is certainly possible to drive wider
sign-up into a CRM program by making sure
that any “benefit of worth” requires regis-
tration. Benefits can be a mix of all types of
things, ranging from pricing (cheap days for
example) to exclusive screenings and special
events. “Ring fencing” special offers (having
customers register and, perhaps, log in) is
good practice, as this secures data capture and
reduces profit leakage.
Certain incentives, such as making
online purchases cheaper than off-line, can
drive data capture. In fact when using such
a strategy, Cineworld in the U.K. reported
a doubling of its customer database in two
years, so that the majority of their customer
base is now registered.
Such strategies can work separate from or
alongside a loyalty program.
CUSTOMER SEGMENTATION
Customer segmentation quickly follows
on the heels of data capture. Without a good
segmentation strategy and plan, all communi-
cation would be at best “vanilla,” or at worst
badly targeted, thus driving inefficiency in
spending and possibly disengaging customers.
Meaningful, well-targeted messages will en-
gage more customers and drive more positive
outcomes.
One possible segmentation strategy might
be for the business to plan something for each
of its “segments” at least one time per month
or every six weeks, not least because of the
frequency target we are trying to achieve. A
person going six times per annum may need 12
opportunities/choices in a year; a person going
seven times would need 14 opportunities, and
so on.
Note that customer segments can overlap
and thus share content. The more segments
Customer
Journey Road Map
Data Capture
CRM
Segmentation
Relevant
Content
Touch
Points
THE WHO
Allows us to identify
and talk to people in
a relevant way they
understand and like
This enables us to do
what we want
THE WHAT
Reason to go
and return
TRACKING &
MEASUREMENT
NPS/CSI, Loyalty
Frequency, Rate
Return, VFM WOM
FIG. 3
Summary
HOW MUCH IS A CUSTOMER WORTH?
Jan15_CustomerWorth.indd 34 1/5/15 9:14 AM

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you create the more complex the work be-
comes, so choosing your segments in the first
place is critically important.
The content offered to each segment can
be new, recently released, or brought back,
old(er) for special events such as ladies nights,
sneak previews, early limited releases, and al-
ternative content. The use of digital projectors
is a great enabler of this strategy as it allows
for more content flexibility.
The challenge is that this approach
requires time, resources, money, and effort to
deploy effectively. It also certainly requires the
full buy-in of the film-buying team, as they
will not have to find content but schedule it
appropriately.
There are some exhibitors who are already
doing this and seeing encouraging results.
SEGMENTATION SUMMARY
It is beyond the scope of this article to ex-
plore segmentation in more detail. At Action
Marketing Works we are developing a new
way of approaching customer segmentation,
which we hope to reveal at CinemaCon next
year. It combines learnings from other in-
dustries with how television stations segment
their audiences and applies it to cinema.
TOUCH POINTS
Along with data capture, CRM, and
segmentation come touch points. These are
predefined points at which you can measure
attendance in relation to the targets set for
them, measure what customers are up to—
which films they see, what retail they buy,
whether they attend special events and/or re-
spond to promotions, which days of the week
and show times they prefer, what groups they
go with—and find out what they think.
Without touch points, your ability to
measure success—to check where customers
are along the road map of lifetime of cine-
ma-going—becomes impossible.
Importantly, all data collected that go into
a database need to be properly analyzed and
used. Too much data and you drown very
quickly; too little and the database becomes
impotent. The key is to get the balance right:
just enough information to get what you
want, when you want it.
I would certainly include ring-fenced
offers (content, events, pricing, promotions,
and retail) as touch points and combine them
with an online-purchasing strategy. It would
also be beneficial to add customer feedback
and CSI (customer service index) into this
matrix.
SUMMARY
So what has this article covered?
It has quantified the value of a lifetime
of cinema-going (30 years), which might
be lower than expected. This is why short-
term actions can be hard to justify, not least
because it involves very little money.
It suggests ways to measure cinema-going
frequency targets, even if the road map is not
linear but more complex.
It suggests that it might be necessary to
re-evaluate one’s marketing expectations in
the short-, medium-, and long-term and how,
perhaps, a slightly longer view would help
marketers set more realistic workloads and
more justifiable budgets. It may also allow
marketing teams to show how what they do
generates revenue and then attach a revenue
number to it.
It suggests that we should have a pre-
defined detailed road map for our customers,
without which we will end up with uncon-
nected short-term actions leading to nowhere
in particular.
It emphasizes the importance of getting
young people into your road map, as this will
increase revenue and protect future business.
It looks at the importance of data capture,
CRM, customer segmentation, and touch
points, how they coexist, and why.
Most importantly, it talks about giving all
customers—children, teenagers, and mature
cinema-goers—a reason to come back after
visiting our cinemas within a predefined time-
frame so that cinema-going becomes a more
important part of their lives. And that has to
be good news for all of us. n

Lifetime Value

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