Following a financially disastrous pandemic, cinemas and studios are desperate for a rebound. But the pressure persists; inflation, increased digital competition and the looming possibility of further shutdowns and capacity limits are all threats to the P&L. But one company, AMC has taken a novel approach to the P&L challenges and embraced mix management as they are discovering new ways to deliver premium offerings and maximize profitability.
Mix management is a rather simple concept but is challenging to execute in a meaningful way. By designing offerings that are known to drive value for certain groups of consumers and customers, companies can manage the assortment sold to unlock volume or profitability. The key to being able to manage mix is a keen understanding of the true value drivers for individual segments of customers and how much can be charged for that value. Proper mix management identifies new consumer strategies to unlock revenue uplift potential.
Given the fixed nature of the movie theatre business revenue is king and the name of the game is maximizing it. AMC has managed its mix by introducing varied pricing throughout its portfolio for additional value, but most interesting of all is their approach to content with the newly released feature The Batman.
Read below to discover how AMC is driving mix by differentiating the product.
AMC is charging more for The Batman than other motion pictures currently showcased in its theatres. At AMC Burbank, a regular ticket for The Batman cost $18.49, compared to $16.99 for all other movies.
Figure 1: General Admission tickets at AMC Burbank 16 & IMAX. 125 E. Palm Ave., Burbank, CA
AMC successfully charges a premium because they understand the phenomena of The Batman brand increases customers’ willingness to pay. The value is found in the franchise’s trusted storytelling and personal connection with the main character. In terms of movies, the title is the film, is the product.
Compare this value-based pricing to the food and beverage sector. Consider a major brewery that makes both cheap value beer and high prices small-batch craft IPAs. Despite being sold by the same manufacturer, the price for both products differ. Willingness to pay is based on the customer’s perceived product value, and AMC knows that The Batman has that added value compared to other mainstream films.
Premium ticket pricing is good business for AMC. It makes sense, as the operating costs for the theaters stay the same but revenue grows. You don’t need to pay more to turn on the power or pay staff extra to run the projector for The Batman. The entire price premium from the increased ticket sales goes straight to the profit margin.
2. Watching Experience
AMC also unlocks profitability by segmenting the movie-going experience. Audiences can choose between a regular ticket or an IMAX admission offering higher resolution, better sound, larger screens and recliner seating.
Pricing for The Batman in IMAX has a higher price by about $1.00 to $1.50, putting ticket prices upwards of $23 in top markets such as Los Angeles and New York.
Figure 2: IMAX vs General Admission tickets at AMC Burbank 16 & IMAX. 125 E. Palm Ave., Burbank, CA
AMC has capitalized on the augmented product delivery by identifying customers who are willing to pay more for an IMAX experience. In 2007 AMC first partnered with IMAX to bring IMAX large-screen, digital projection systems to AMC locations across the country. Last year alone, AMC cashed over 100 million just from IMAX ticket sales
3. Where You Sit
AMC has created mix assortment through premium Prime Seating. The model is like taking a flight. Different seats have different value to certain customers, each with varied prices. Airline passengers have the opportunity of a luxury first-class experience, including champagne and personal space, or being packed in a sardine can for a bargain economy ticket, sans peanuts. Each person is still going to the same destination, but the experience is valued differently.
Figure 3: Prime Seating vs General Admission tickets at AMC Burbank 16 & IMAX. 125 E. Palm Ave., Burbank, CA
Premium Prime Seating includes AMC Signature Recliners and reserved seating, allowing customers better control over their watching experience. This upgrade also increases customers’ costs by approx. $1.00. To maximize value, Prime Seating ticket holders have access to a dine-in delivery, including a server, offering personal concession service right at your seat.
|Premium Prime Seating||$18.99||$20.99|
AMC boosts revenue for the main product by creating ancillary services. Through identifying a consumer’s wants of luxury and convenience, AMC offers various increased pricing tiers and strategically meet demands.
Proper mix management creates greater opportunities for revenue increase. By understanding specific customer segments, a business can estimate and forecast what their buyers are willing to pay for. Various pricing tiers targeted at the consumers’ perceived value will maximize profit.
RML helps clients optimize and adjust mix to influence customer decisions. First, we identify the top purchase drivers, to find a strategy that creates demand while covering production costs and generating a profit. We’ll answer how to optimize your mix for maximum revenue increase. Contact us, we’re not Batman, but we sure can save your pricing strategies.
ABOUT THE AUTHOR Michael Stanisz is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Michael at email@example.com