Hyrule Cinemas: Pricing movies and popcorn

A report submitted in partial fulfillment of the requirements of the course

Revenue and Price Analytics

By

Group – 8

Akash V S 1911013
Sunil P 1911167
Devika Dudhat 1911078
Karthik G 1911087
Akshay K 1911017
Santhosh Kumar N 1911218

On

26 Aug 2020
 Van Westendorp analysis

Values Tickets Popcorns

Indifference Price Point 8 to 9 6
Optimal Price Point 9 6
Point of Marginal Cheapness 7 5
Point of Marginal Expensiveness 11 7
Acceptable Price Range 7 to 11 5 to 7

Determining Optimal Price

Tickets Price - The price elasticity for Tickets states that a decrease in price by 1 dollar
causes an increase in attendance by 10%. The current price charged for tickets is 12 dollars
and the current attendance is 150. If the price is reduced to 11 dollars per ticket the
attendance increases to 165. The total revenue for 12 dollars price is 1800 dollars, after
dropping the price by 1 dollar the total revenue is 1815. If the price is dropped to 10.5 dollars
the revenue (10.5 x 173.25) is 1819.125 dollars. If the Price is dropped to 10 dollars, the
revenue is 1815. Further reduction in price causes lower revenue despite an increase in
attendance.

Popcorn Price - The price elasticity of Popcorn states that a decrease in price by 1 dollar
increase demand by 50%. The current price is 4.5 dollars per bag and demand of 100,
providing revenue of 450 dollars. If the price is reduced to 3.5 dollars the demand increases
to 150 and the total revenue is 525 dollars. If the price is dropped to 2.5 dollars the demand
increases to 225 and the revenue is 562.5 dollars. Lowering the price to 2 dollars creates a
revenue of 562.5 dollars and any further reduction decreases the total revenue. When the
price of popcorn is increased to 5 dollars the revenue (5 x 100) is 500 dollars. Similarly, the
at price of 5.5 dollars the revenue (5.5 x 100) is 550 dollars. At the optimal price point, the
revenue generated from popcorn sales is (6 x 100) 600 dollars.

Therefore, after considering the price elasticity of demand and the Westendorf analysis we
can observe that for ticket sales at a price of 10.5 dollars which increases the demand by 15.5
percentage results in a revenue of 1819.125 dollars. A similar analysis for popcorn sales
signifies that a price of 6 dollars is also the optimal price, which does not affect the demand
but increases the revenue to 600 dollars. In conclusion, to maximize profit the price for
tickets maybe 10.5 dollars per bag and the price of popcorn maybe 6 dollars per bag.
 Conjoint Analysis
Steps followed for conjoint analysis

Linear Regression

From the given data the attributes small size, mall location and all movies are considered as
default variables and linear regression was applied on the given data. The R Square value was
93.55% and all the variables had a significance less than 0.05. This implied that the
regression was good fit and all the variables had a significant impact on the utility.

Utility/Part worth of each attribute

From the regression results we can directly interpret the utility of each variables. For
Location and Movies attribute it is seen that the utilities are negative. For calculation
purposes we are converting them into respective positive values.

Size Location Movies

Small 0.0000 Mall 0.0000 0.5878 All Movies 0.0000 1.8789
Medium 1.1700 Plaza -0.4033 0.1844 Some -1.8789 0.0000
Large 1.6822 Standalone -0.5878 0.0000 Popular -1.2056 0.6733

Importance of each attribute

Total utility is found by adding the highest utility of all the attributes i.e) 1.682 + 0.5878 +
1.8789. The highest utility of each attribute is divided to get the importance of the attribute

Size and movies screened have a high utility compared to Size 40.55%
location. This means that changing the size and type of movies Location 14.17%
Movies 45.29%
telecasted will increase the preference of the customers by a
greater extent than changing the location.

Preference share of each profile

The total utility of each seat of variables is found separately. Exponential profile is divided
with the sum of exponential of each profile to get the preference share of each profile.
Prefernce
The following four profiles have the highest Size Movies Location Share
preference share among all the profiles. One Large All movies Mall 17.35%
Large All movies Plaza 11.59%
Medium All movies Mall 10.39%
Large All movies Stand Alone 9.64%
common characteristic across all these profiles is “all movies” seem to appear in all these
profiles.

Utility of price

Combining the data from results of Van Westendorp analysis of ticket price and given data. It
is known that 7$ has a utility of 0.7 and 11$ has utility of 0 with a linear relation. Since the
optimum price point from for getting highest revenue is found to be 10.5$. We have
considered the price for Stand-alone as 10$. For a price of 10$ the utility is 0.175. For this
value the corresponding price of Plaza and Mall is found to be 11.5 and 14 (rounded of to
nearest 0.5 multiple) (since the price can be changed by 0.5$)

Therefore the increase in price rounded of to nearest 0.5$ can be infered as

Stand alone - plaza = 1$ Location Utility Price Utility Total Utility Increase in Price
Stand Alone 0.0000 10.5000 0.0875 0.0875
Sttandalone -mall = 2.5$ Plaza 0.1844 11.5540 -0.0969 0.0875 1.0540
Mall 0.5878 13.8587 -0.5003 0.0875 2.3048

Revenue Optimisation

Moving to the plaza will generate a net increase of 23 footfalls compared to that of the
standalone’s footfall. Moving to Mall increases footfall by approximately 34 (34.3 precisely).

When the Price at standalone is set at an optimum of 10.5 the number of customers also
increase to 173.25 . We set the price of Plaza and Mall to $11.5 and $14 to get the same
utility as of standalone (refer Q3).

From the result of Van Westendorp analysis, the price popcorn is set to $6 and assumed that
2/3 of the customers still buy popcorn with the facts given from the case.

Price Customer count Ticket revenue Popcorn Revenue Rent Profits

StandAlone 10.5 173.25 54573.75 20790 50000 25363.75
Plaza 11.5 196.25 67706.25 23550 65000 26256.25
Mall 14 207.55 87171 24906 80000 32077

From the above table it is seen that moving to mall gives the highest revenue. The increase in
revenue is primarily because of the increase in customers we get as we move from standalone
to other locations. The increase in profits is also due to leveraging the price rise of popcorn
while we have the same number of customers buying it. Although the rent at Mall is higher,
we get a profit of 32,077$. Therefore, moving to Mall is the most profitable Option for
Hyrule cinemas.