The young generation is setting new standards for many traditional industries. According to a representative survey of 1,000 German consumers commissioned by PwC, people under 30 have high expectations of their shopping experience. As a fact, they are the drivers of digitization and individualization in a new market environment.
For many traditional industries, including the cinema industry, digital services are not yet an essential part of the shopping experience. However, for the younger generation, they are already highly relevant today.
The survey further reveals that individual services also play a key role, especially for the younger generation. According to PwC, 44% of the respondents under 30 expect sellers to be interested in their personal preferences. Furthermore, about a quarter of them prefers customizable products.
In order to not lose the touch with the major consumer group of tomorrow, theatre owners are in need to adapt to the changing purchase behavior and overcome the challenge to target the younger generation.
While the shopping and money-spending behavior of the younger generation is changing, new trends are also visible for their movie consumption preference.
A study from 2017 by GfK Media Scope on the German cinema market revealed that younger movie-goers increasingly prefer to go to theaters on weekend rather than during the week. Furthermore, data shows that the life cycle of movies is getting shorter, meaning that more revenue is created during the release week of new movies. Lastly, competition from online movie streaming services, such as Netflix, are threatening the profitability of traditional cinemas. These patterns can also be seen in other European and international cinema markets.
The question is how exhibitors might reverse this trend and make cinemas attractive again for millennials, which are offered a wide variety of alternatives in the form of movie streaming services and new competition from other forms of entertainment and the ease of consuming visual content digitally.
Customization brings millennials to the cinema
When asking millennials how to get them into the cinema, a lot of them answer that they consider going to the theater more often when premium features are offered, which would bring back the unique movie experience. This highlights the need for exhibitors to invest in theatrical experiences that include premium features like large, comfortable chairs, immersive sound, large-format screens, as well as reserved and personalized ticketing.
Implementing new product features for a better movie experience might be the easier step for most exhibitors. Finding the right strategy to price the new features and provide different product bundles is the trickier part.
The key for exhibitors to succeed in the complex environment of different pricing strategies is to understand the audience well enough to know what are the optimal price points for their movie tickets. If tickets are priced too high, cinemas risk a poor attendance in theaters, while low tickets might not even cover the costs they are dealing with.
In an ideal situation, you as an exhibitor would know exactly how many people will attend the movie in your theater and what premium features will be used, so you can price accordingly to the demand and find the right ticket price for each customer. While this seems to be unachievable, today’s data science can already predict quite accurate the attendance in theatres, based on hundreds of factors that drive demand, such as movie life cycle, movie popularity, theater location, weather, and many more.
Discussing pricing challenges at the UNIC Cinema Days 2018
The topic of best pricing strategies in cinemas was the focus at the workshop by Smart Pricer during the UNIC cinema days 2018 in Brussels.
Organized every year in the Belgium capital, the UNIC Cinema Days serve as a key platform for senior executives and key figures from across the European and international cinema landscape. The UNIC cinema days traditionally provide an opportunity to discuss the latest trends in the cinema business in a focused and informal environment.
Christian Kluge and Gergana Ivanova from Smart Pricer have carried out the workshop “Overcoming pricing challenges”. The focus of the workshop was to analyze current pricing models in cinemas and discuss the obstacles that prevent the implementation of new pricing methods to stay ahead in the game and adapt to the changing landscape. The efforts are driven by the aim to attract the younger audience again and offer more flexible ticket prices for visitor’s convenience.
Exhibit 1: Gergana Ivanova asks the attendees about their current pricing strategy
Source: Smart Pricer
The current state of pricing grants room for improvement
During the workshop, the attendees were faced with the question about the current pricing strategy. It was revealed that the majority of exhibitors admit the prices of nearby cinemas play one of the biggest roles in determining own movie ticket prices.
Almost all cinemas already offer some kind of price differentiation for their customers. A survey on the price differentiations that are most common in the theaters of the attendees revealed, that most cinemas already differentiate their prices by movie format, demographics, physical location, and day of the week.
However, less differentiation could be seen in more specific demand-impacting factors, such as time of the day, promotions, seat location in the auditorium, and anticipated movie popularity (Exhibit 2). When looking back at the mentioned survey by GfK Media Scope that many young movie-goers would prefer more customized cinema experiences and better choice, it becomes clear that exhibitors are missing the opportunity to differentiate their products and align prices accordingly.
Exhibit 2: Share of cinemas using selected pricing dimensions for differentiation
Source: SP workshop at the UNIC cinema days
When asking the attendees about their strategic plan for future pricing development, it was revealed that around 89% of the exhibitors think that there is a potential for improving their current pricing. Hence, the majority is aware that there is more potential in a better pricing for their overall business performance. After all, the major idea behind a new and more flexible pricing strategy is to give customers the choice of different product segments and skim the willingness to pay of each of them.
Most exhibitors consider to improve pricing by differentiating
The attendees discussed the possibilities and opportunities of currently lacking price differentiation and agreed that certain pricing improvements would benefit cinemas and movie-goers alike. The following five Pricing improvements were seen as a good start to adapt to the changing needs of movie-goers:
• Make pricing simpler and more transparent
• Remove online booking fees
• Offer discounts on pre-sales
• Weather-based pricing
• Demand-based pricing
First of all, it is important to communicate every price change transparently to your customers. When the rules of different price segments are shown openly, visitors generally accept changes and can evaluate the best price segment and features for their likes.
By removing online booking fees, online sales are incentivized. This has the benefits that cinemas can reduce the cost of selling tickets at the box office and gather valuable data from their customers from their website. Behavioral data on the website offers more personalized marketing campaigns, while Social Media and Newsletter are tools to stay in touch with the most loyal customers.
Discounts on pre-sale are rewarding early-birds who give up the flexibility but are planning ahead of time. The discounts lead to more pre-sales and in return give cinemas a better planning security on how many people might come and how many staff they are needing.
Weather-based pricing is quite popular for out-door entertainment providers, who offer discounts on days with bad weather to drive demand. But also cinemas can use weather-based pricing for their strategy, as bad weather is more likely to attract people into cinemas than nice weather.
Demand-based pricing is the highest form of price optimization. Tickets for movies change over time, based on the expected demand for each show and the number of tickets already sold. This strategy is well-known in the airline and hospitality industry.
3 main challenges prevent exhibitors from improving their pricing
The results show that most exhibitors are open to a dynamic pricing model, where ticket prices vary, depending on the actual demand for the ticket. However, the majority doesn’t know how to implement dynamic pricing effectively or have the data analysis tools at hand to start the process.
Exhibit 3: The attendees answered the three questions about price optimization
Source: Smart Pricer
There are three main categories of challenges which the attendees expressed during the workshop (Exhibit 3):
- Influence of third parties
- Fear of Market maturity
- Customer perception and reaction to new models or changes
Many cinemas are concerned about the influence of competitors on their own strategy. As they prefer to keep their prices similar to those cinemas nearby, new pricing strategies would disrupt the balance. Furthermore, the IT-systems are often quite slow to respond to the changes required with dynamic pricing. Another obstacle is the regulations and legalities set by the distributors.
Secondly, exhibitors fear that the market might not be ready for too advanced and complex changes in pricing. Nobody wants to be the first to take the risk and change their pricing strategy. The risk of losing the image and reputation is seen as too high.
Lastly, exhibitors are concerned that cinema is a traditional industry and customers do not always accept new models in a positive way. New flexible pricing could lead to a bad customer perception and probably to bad press as well.
Overcome the challenges
Since the main challenges are targeting the fear of the unknown and problems with IT implementation, the attendees understood that the solution has to be that cinemas should base their decisions more on data instead of gut feeling and assumptions. After all, the consumer behavior is shifting and cinemas have to adapt to stay in the game. Most exhibitors agree, that this is the way to go in the future and are looking forward to elaborating more on the topic to not fall behind the competition.
A detailed data analysis of internal and external factors that influence the demand for movie-goers provides the comfortable situation of setting up prices that really reflect the customer’s willingness to pay and make pricing the competitive advantage of cinemas, rather than a challenge.
About Smart Pricer
Smart Pricer’s team of pricing experts provides cinemas, sports clubs, entertainment venues, and ski resorts around the globe with the necessary tools to increase ticketing revenues and attract more visitors. With over 10 years of airline pricing experience and millions of price optimizations, Smart Pricer is the go-to-partner for companies such as Europe’s largest cinema chain Odeon-UCI, Berlin’s Bundesliga club, Hertha BSC and Swiss ski lift provider Zermatt Bergbahnen AG. Smart Pricer continues to help companies achieve an increase in ticketing revenues by +5-15% while enhancing visitor satisfaction.
Dynamic ticket pricing gives the consumer the ability to purchase film tickets at a wider range of prices. This depends on a number of demand variables, such as movie life cycle, time of day, day of the week, film title, venue, size of screen, actual bookings and several more. The number of seats in each price category for every film is based on demand conditions at the time of purchase.
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