CINEPLEX ENTERTAINMENT: THE LOYALTY PROGRAM
Renée Zatzman wrote this case under the supervision of Professor Kenneth G. Hardy solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail firstname.lastname@example.org. Copyright © 2008, Ivey Management Services
Version: (A) 2009-05-15
Sarah Lewthwaite, marketing director for Cineplex Entertainment, was approached by chief executive officer (CEO) Ellis Jacob in August 2006 to resume the development of a loyalty program. The movie industry yielded inconsistent revenues each year, and Jacob wanted to increase and stabilize Cineplex’s revenues. As chair of the Loyalty Steering Committee (the committee), Lewthwaite was scheduled to present her recommendations to the committee the following week. She would need to make a persuasive argument that included recommendations on program development, the reward structure and the type of promotional campaign that would be most effective under the existing budget constraints. Finally, she needed to suggest whether the program should launch regionally or nationally. Her recommendations would be reviewed by senior Cineplex executives to ensure that the recommendations aligned with their criteria.
Cineplex Entertainment (Cineplex) was founded in 1979 as a small chain of movie theaters under the Cineplex Odeon name. In 2003, under the direction of Onex Corporation, a Canadian private equity firm that held a major ownership claim in the company, Cineplex merged with Galaxy Entertainment Inc. (Galaxy). The CEO of Galaxy, Ellis Jacob, took over the newly merged company. In late 2005, Cineplex Galaxy acquired its largest competitor, Famous Players, and became Cineplex Entertainment — Canada’s largest film exhibitor. With a box-office market share of 64 per cent, the chain enjoyed approximately 40 million visits per year under the Cineplex Odeon, Galaxy, Famous Players and Cinema City brands.1 Cineplex’s corporate mission focused on offering movie-goers “an exceptional entertainment experience.” In addition to seeing a movie, customers could eat at various branded concession counters or play in the arcade. In 2005, Cineplex expanded its strategy to focus on developing new markets, using the theaters’ 1
Cineplex Galaxy Income Fund 2005 Annual Report,http://dplus.cineplexgalaxy.com/content/objects/Annual%20Report% 202005.pdf, accessed January 3, 2008.
large screens to showcase live events, such as major hockey games, wrestling matches and the Metropolitan Opera. These events contributed greatly to Cineplex’s success, which was measured primarily on customer traffic and revenue per guest (RPG), which was in turn composed of box-office and concession revenues.
In 2005, weak box-office attendance throughout the movie theater industry had affected Cineplex’s operating performance (see Exhibit 1 for Cineplex’s income statements for 2003, 2004 and 2005). Following the acquisition of Famous Players in 2005, Cineplex executives adjusted the pricing and products in the food and beverage concessions in 2006. With these moves, Cineplex was able to increase its average box-office RPG to $7.73 and its average concession RPG to $3.44 (see Exhibit 2). A GROWTH OPPORTUNITY
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