Cineplex Case Analysis- Team 04

1. The movie market can be segmented in various ways as below:

Based on Age: The frequency and intent for each age group to attend movies is different. Thus, there can be
different categories such as "Teenagers" (13-15), "Young Adults" (16-19), "Young Working" (20-24),
"Young Families" (25-35), "Older Families" (36-54), and "Retirees" (55+). Each age group has different
disposable income which will impact the overall RPG.
Behavioral: Demographics like age & disposable income provide more understanding into the frequency of
visits which would directly affect the revenue for Cineplex & hence this would be ideal way to segment.
Based on Motivation: Movies can be seen to attract different customers based on their motivation to meet.
E.g. routine entertainment, special events, etc.
Based on Genre: The case mentions that the Box office RPG fluctuated based on movie genre. Different
genres will attract different customer segments and thus the change in revenue. E.g. audiences for action
themed and children’s movies purchased a high volume of concession items, which typically resulted in a
higher RPG than dramas.

2. There are several ways to look at the reward structures.

One approach is to look at initial value and additional visits for incremental value for each customer
(Refer Exhibit 1& 2). With this approach, we see that Option 1 is the best choice. Since, option 1 provides
quick turn around (at 1st visit) to gain 500 sign up points. This is highly desirable to the customer visiting
the 1st time who gets 500 points for sign-up and 100 for the visit, which they can redeem at a quicker rate
compared to other options. The customers are getting $1.13 per visit after enrolling into the loyalty program
& if they still visit at average value of 7.5 times per year, as per option 1. Other options do not provide such
value upon enrollment. Customers would have to be enrolled and keep visiting in order to start receiving
additional benefits. This resonates with the target audience’s instant gratification desire. (13-24) Also,
customer only needs 6.25 additional visits to get an additional total value of $5.62 at 750 points. Whereas,
for option 2 and 4, it will take many more visits before the customers start receiving value from the loyalty
program.
If we consider the Net increase in attendance and subsequent RPG, we see that option 4 provides the highest
increment in RPG at 2000 points. But, the time & additional visits required would discourage the customers
to accept the reward structure. Importantly the cannibalized visits are comparatively high in Option 4.

Thus, Option 1 should be optimal as it provides a good balance between customer value and increment in
attendance with less cannibalization.

3. Partnering with Scotiabank emerges as the optimal choice. This collaboration provides access to
Scotiabank's extensive customer base of 6.8 million individuals, offering significant market reach.
Moreover, the risk associated is relatively low, with Scotiabank proposing a 50-50 cost-sharing
arrangement. The projected cost for developing & maintaining the loyalty program over 3 years stands at
$6.6 million. However, there are notable challenges with the 50-50 partnership model, including limited
decision-making power for Cineplex and restricted access to Scotiabank's database due to privacy
regulations. Survey responses indicate a strong preference for a loyalty program without an additional
physical card requirement, rendering Scotiabank's proposed three-card strategy unsuitable.Instead, it would
be optimal to proceed with either a single card or a cardless approach, utilizing phone numbers for point
logging & redemption purposes. Leveraging the existing relationship with Scotiabank from previous
Corporate Sponsorship events presents an opportunity to negotiate favorable terms in the partnership
agreement.
Why Not FlightMiles? - While partnering with FlightMiles grants direct access to their substantial 7
million customer base, there are significant financial implications. With a hefty cost of $15 million over
three years, coupled with additional expenses such as $0.09 per point issued and access fees for FlightMiles'
proprietary data, the financial burden is considerable. Moreover, the exit contract poses a risk, as Cineplex
would forfeit all data access upon termination.(Refer Exhibit 3 for cost analysis)
Why Not Internal Development? - Although this option offers complete control over program direction
and data ownership, it comes with inherent risks. Failure of the program could adversely affect Cineplex's
established brand image. Financial risks loom large, particularly concerning unredeemed points, and
divestment from the program would prove challenging. The initial investment of $5.5 million in the first
year, with diminishing costs in subsequent years, presents a costly endeavor. Additionally, the creation of a
new database to evaluate promotional effectiveness would entail a lengthy process, adding further
constraints to this option.
4. Given Cineplex's plans for a loyalty program targeting the 16-24-year-old demographic, known for their
frequent visits and potential spending increases, partnering with Gamma as a database vendor appears to be
the optimal choice. With a cost effective investment of $200,000, Gamma offers significant advantages. Its
expertise in email and e-communication campaigns, web ads, search functions, and messaging align closely
with our marketing goals. Moreover, Gamma operates on a fixed price, fixed time model, ensuring budget
predictability and adherence to timelines. With a focus on online search ads, Gamma's proficiency makes it
the most suitable option for our target demographic. While specific data management costs are not currently
estimated, Gamma's current capabilities of working with Citi Financial positions it well for maintaining data
integrity, particularly in collaboration with Scotiabank.
Here are the recommended platforms for enrolling 500,000 customers annually over the first three years and
launching marketing campaigns to attract the youth segment:
Radio: Focus on local radio ads, negotiating for complimentary advertisement space on multiple radio
station websites. This strategy leverages the local presence and engages the target audience effectively.
Online Advertising: Concentrate on movie-related sites such as google.ca and imdb.com, as these platforms
are likely frequented by moviegoers. Utilizing banner advertisements on these sites can efficiently reach the
target demographic.
Grassroot Initiatives: Engage in corporate sponsorships with partners like Scotiabank to amplify word-of-
mouth marketing and increase awareness among potential customers through promotional events at
colleges.
Regional Launch: Begin by launching the program regionally to mitigate risks and test its success before
expanding nationwide. This phased approach allows for data analysis and informed decision-making for
future expansion.
Regarding budget allocation: (Refer to Exhibit 4 for budget breakdown)
Radio: Target all 6 larger markets to increase reach. Utilize free advertisement space on radio station
websites to maintain ongoing program discussion and engagement.
Online Advertising: Invest in banner advertisements on google.ca, imdb.com, muchmusic.ca, assuming
these platforms are where moviegoers search for movie tickets and reviews. This targeted approach
maximizes online visibility and engagement within the desired audience.

By strategically allocating resources and adopting a phased approach to program rollout, Cineplex can
effectively achieve its enrollment goals while minimizing risks and optimizing marketing impact.
 Appendix

Exhibit 1:

Assumptions:
Given only 40% points can be redeemed, to redeem 500 points in option1, customer has to earn a total 1250
points(out of which 500 are sign up points), hence he needs to make only 7.5 visits to obtain a value of
$1.13 from total visits of 7.5. Value per 1 vist is calculated by dividing the value(eg. $8.5 at 500 points for
option1) by number of total visits. Total value to customers is calculated by taking into account the
membership fee, permanent concession discounts($3.44 is considered per year RPG as the visits increase the
overall RPG would increase rather RPG increase per visit because of enrolling for a loyalty program)
 Exhibit2:

Assumptions:
Here, we look at the additional visits that a customer needs to make(above average level of 7.5 visits per
year) to start adding value to the customer. We see that option 1 provides faster way to redeem points
compared to option 2( 6.25 extra visits to earn $5.62 value Vs 6.2 extra visits to earn $4.4 value).
Net increase in attendance is calculated as actual incremental attendance times 1- the estimated
cannibalization rate(given in the case exhibit 4). When we look at the cannibalized visits at all 3 scenarios,
we see that Option4 hurts the most. To maintain a balance between Customer value & cannibalization risk,
it is ideal to opt to Option1 as the target concession RPG of 5%-15% increase is also being achieved.

Exhibit 3:

Assumptions: Regarding Internal Development in Year 2, we assumed a 40% decrease in costs, using
Scotiabank's costs as a reference. For Year 3, we assumed a 50% decrease. However, there may be
additional costs if exiting, such as setting up a new department, not included in this calculation.

For Flight Miles Points, we assumed that 95% of the 500,000 customer market would enroll in the loyalty
program based on survey data. Total costs for both options were calculated under the assumption that sign-
ups occur only in Year 1 and that there are repeat visits averaging 7.5 per year across all three years. The
values of $26,506,250 and $25,437,500 should be understood as the total costs with Flight Miles partnership
if Option 1 reward structure and Option 4 reward structure are chosen, respectively.

Exhibit 4:

Assumptions: Regarding radio ads, we assume new ads are developed and launched every alternate
week(4) throughout the first 2 months. Since Radio ads impact is difficult to trace. We focus to invest more
in the online channels. As for banner ads, the calculation assumes we create them to raise awareness for
each unique customer impression. The remaining budget can be allocated to grassroots initiatives like
promotional events at colleges where our target segment would be most ideally present. Depending on the
effectiveness of each channel, we can redistribute our budget across the year.