1. How might the reward program described in case exhibit 5 affect the movie and event –going behavior of major market segments? At retail, what is the average value of each reward structure for customer’s dollars spent – 5 %, 10%, 15% or 20%? Which reward structure would you choose? Why? (For the sake of simplicity, ignore the one-time fees and rewards)? The reward programs as depicted in exhibit 5 are evaluated as below in terms of retail value they offer to customers of Cineplex entertainment.
The obvious intention of the reward program is to enhance customer loyalty by rewarding them for their repeated, frequent patronage. Therefore, we will consider the discount percentage for 10 adult movie purchases and 10 concession combo purchases as our reference than a single purchase. Further, we also need to consider the tangibility of the rewards while deciding the reward structure, especially because the customer segment being targeted is in age group of 13-24 yrs (as per Table 1, frequent customers) who might be willing to spend too much time thinking before making entertainment purchases. |Option 1 |Option 2 |Option 3 |Option 4 | |Permanent Concession Discounts |0 |0. 1 |0. 15 |0. 1 | |Concession RPG |3. 44 | | | | |Discount Value, 1 purchase |0 |0. 34 |0. 52 |0. 4 | |Discount Value, 10 purchases | |3. 4 |5. 2 |3. 4 | |Sign up points |500 |100 |0 |250 | |Discount Value, one time |5. 48 |1. 1 | |2. 7 | |Points Adult Movie |100 |100 |0 |100 | |Discount Value, 1 movie |1. |1. 1 | |1. 1 | |Discount Value, 10 Movies |10. 95 |10. 95 |0 |10. 95 | |Points per concession Combo |0 |75 |0 | | |Discount Value, 1 purchase | |0. 82 | | | |Discount Value, 10 purchases | |8. | | | |Box Office RPG |10. 95 |1000 | | | |Total Discount Value, 1 Adult Admission and 1 |6. 57 |3. 36 |0. 52 |4. 18 | |Concession purchase | | | | | |Customer Spend, 1 Adult Admission and 1 Concession |14. 39 |14. 39 |14. 39 |14. 9 | |purchase | | | | | |Discount as percentage of Spend |45. 66% |23. 32% |3. 59% |29. 02% | |Total Discount Value, 10 Adult Admission and 10 |16. 42 |23. 70 |5. 16 |17. 13 | |Concession purchase | | | | | |Customer Spend, 10 Adult Admission and 10 Concession |143. |143. 9 |143. 9 |143. 9 | |purchase | | | | | |Discount as percentage of Spend |11. 41% |16. 47% |3. 59% |11. 90% | The average value for each of reward option is highlighted as “Discount as percentage of Spend” for 10 Adult Admission and 10 Concession purchase.
As evident, option 2 offers maximum value for customer. I will also choose option 2 for reward structure due to below reasons: ? There is a nominal onetime membership fee of USD 2 which is immediately reimbursed to the customer on first enrollment and first movie purchase- both equivalents to USD 1. 1 each. ? Additionally, this ensures that only serious customers enroll in database, thereby adding to relevancy to CRM database ? The membership fee keeps the member motivated to engage in repeat purchases until the first reward at least.
This provides with sufficient time to understand customer behavior and design offerings which can help build a relationship. 2. What is the likely increase in Cineplex Entertainment’s revenue from your proposed program – 0%, 5%, 10%, 15% or 20%? What are the varying financial consequences for Cineplex Entertainment? Would you proceed with a reward program? By rolling out the reward program, Cineplex is going to incur additional fixed as well as variable costs as well. Fixed Cost Burden: ? Cost of setting up CRM database ? Cost of setting up Loyalty card website Marketing Costs for publicizing the reward program Variable Cost Burden: ? Cost of Rewards- Opportunity costs for providing free tickets and concession purchases The reward program design should be such that it becomes self sufficient in the longer run and helps Cineplex achieve its objective of stabilizing movie and event attendance. As we can see below, option 2 selected returns almost USD 8 million by means of membership fees with 10% enrollments from current viewers. This itself should be sufficient to provide for fixed cost incurred by Cineplex. Attendance |39945000 |39945000 |39945000 |39945000 | |Membership Fees |0 |2 |5 |0 | |Considering 10% membership base of total attendees |0 |7989000 |39945000 |0 | The remaining variable costs need to be linked with increased attendance from members and the reward program offered to these members for their repeat purchases.
For option 2, we calculated 16. 5% discount for members who repeat movie and concession purchase on 10 occasions. If we consider the entire 10% base receives this discount of 16. 5%, Cineplex will have to bear additional variable costs of another USD 7. 5 million (39945000*0. 1*0. 165*11. 17). To breakeven this variable cost, Cineplex will require around 5% incremental attendance of 660000 viewers. This is quite achievable using a reward program; hence, I will proceed with implementing reward program option 2. 3. Would you develop rewards programs alone? Who would you partner with – Flight miles or Scotia bank? Why??
There are 3 options which are being considered by Lewthwaite currently and let us dig in details to analyze and reach a conclusion: Internal development: Pros: ? Complete Ownership of database ? Reward plans can be designed after studying the market at Cineplex’s own conditions. ? Advantage of designing own policies Cons: ? An internal development of loyalty program at this stage would require Cineplex to develop an entire new database which take years to build on and competition may set in and attract customer till then. ? There is a heavy expenditure of 5. 5 million $ in the first year with diminishing expenses in the subsequent years. Additionally, Cineplex needs to bear the risk of program failure. There is a complete ownership which can prove fatal, should the program not succeed. [pic] Flight Miles Partnership Pros: ? Access to already existing database of 7 million people, that Flight miles has built over the years. This will include customers of other retails stores as well, who can be attracted to enter the loyalty program with Cineplex as well. ? Cineplex executives have projected a requirement of 500,000 loyal customers for the program per year and this database would make the spread quicker. There is an initial investment from Flight miles for 250000 USD for an add campaign for Cineplex. Cons: ? The cost of accessing this huge database is around 5 million USD and additional amount is required to be paid for every access. ? Flight miles customers would expect atleast 10 points per Cineplex transaction And Cineplex would need to pay 0. 09 USD on each point issued. ? The ownership of database doesn’t lies with Cineplex and it looses all information if it backs out at any point of time. Scotia bank Proposal Pros: ? Financial risks are reduced as expense sharing will happen on 50-50 basis. Scotia bank has an experience of database management and hence Cineplex will gain the customer database as well as an experienced partner in this Bank. Cons: ? The proposal contains use of multiple cards and as per the survey done, most of the customers refrain from using multiple cards for loyalty programs. ? Exclusive naming rights to be given to Scotia bank for 3 Cineplex theaters ? Exclusive agreement for Scotia bank machines to be installed in al Cineplex theaters. This will hit the already existing Cineplex relationship (if any) with the other banks. Cineplex would not be able to access individual-level banking information available with Scotia bank due to existing privacy laws, which will prove to be detrimental in accessing various other retail consumers. [pic] Cost of Cineplex share is $3 million, $1. 7 million & $1. 9 million for 1st, 2nd and 3rd year respectively. After looking at the 3 existing options, my vote goes for partnership with Flight miles loyalty program for the following reasons: ? Immediate access to 7 million customer database which can be used efficiently in the first year to gain spread of loyalty program.
An internal development would take long time for Cineplex to gain access. Scotia bank has restricted access to database due to privacy concerns and hence achieving a 5 million base in the first year as projected by Cineplex executives would be a tough deal. ? As per the customer survey done, customers are wary to carry separate loyalty cards, which has been proposed by Scotia bank and hence Flight miles scores better. ? Ownership of database is a concern, however, the existing terms can be used to exploit the database to the maximum to gain loyalty membership and this risk can surely be taken. . How should Lewthwaite market and promote the program? Should the launch be regional or national? Lewthwaite should market and promote program through following channels: ? In-theater advertising Cineplex has an approximately 5. 3 million footfall and in theater advertising will give it a good reach. There are different events in –theater and they can be used to customers’ interests ? Radio: As the lucrative segment of 16-24 years of age is mostly working, this channel is good for these segments as they can catch up with the program initiatives while driving to and from work. Online: This channel also can be used effectively to target the intended audience. The launch of the loyalty program should be national as it will be effective and Cineplex already has developed a capability to initiate a nation wide program. Access to the entire 7 mn database from Flight miles will further strengthen this national launch and appropriate customers can be targeted. Additionally, the projection of 500,000 customers can be gained at a fast pace with the launch of a national program. [pic][pic]
