A Horror Show at the Cineplex
Perform a comprehensive analysis of the five (5) competitive forces. Discuss what level of competition can be anticipated amongst industry rivals.
There are five competitive forces that should be analyzed in order to forecast the profit margin of a company and its return on equity. These include ease of entry, rivalry between existing competitors, pressure from substitute products, bargaining power of buyers, and bargaining power of suppliers.
In regards to the ease of entry, there are many factors that a new entrant faces while trying to enter the movie theater industry. These factors include capital requirements, economies of scale, secure distribution channels, strong brand identification, government policy, technological differences, expected retaliations, and absolute cost advantages (Mukherjee, A., & Kadiyali, V., 2011). The cost of entering the movie theater industry is substantially high, particularly with the evolving introduction of new technology. Additionally, there are operational barriers to entry due to problems in obtaining access to movie products from major distributors (Mukherjee, A., & Kadiyali, V., 2011).
The number of competitors, relative strength of the competitors, strength of the competitor’s relationship with film distributors, the industry growth potential, concession product differences, and the difference between entertainment qualities all affect the rivalry between existing competitors. Competitive rivalry within the movie theater industry is medium to highly competitive. Movie theaters that are located geographically close to one another have fiercer competition among them, while theaters that are not located by others have to worry about less competition. If there are two or more theaters that are located close to one another, the similarity of the products and movies they offer is most likely going to resemble one another so the patron will likely choose the theater that is closest to their home. However, if one theater offers price cuts on new films or discounted package prices with concession stand items, this will further increase the rivalry between the theaters located in the same areas.
The threat of substitute products in the theater industry is high and could possibly devastate the industry. Because watching a movie is considered a leisurely activity, there are numerous other leisure activities that one could replace for going to a movie theater. Additionally, the availability of movies on demand, DVDs, cable television, Internet movies, and Netflix are highly substitutable for the movie theater experience and are also less expensive to the consumer.
The bargaining power of buyers is relatively low in areas where only one theater operates because most consumers will not be willing to travel long distances to other theaters. However, if the consumer is so displeased with a theater, they could wait until the movie was released on DVD, which would give the buyer more power over the theaters.
The bargaining power of film distributors is high due to no substitute suppliers available. On the other hand, the bargaining power of concession supplies is relatively low because there are many different suppliers available. Describe the advantages and disadvantages of each of the top four (4) competitors' situations and strategic approaches.
The top four competitors in the industry are Regal, AMC, Cinemark, and Carmike. Because there is little differentiation between the offerings of movie theaters, competition is based on the location of the theater to consumers homes, the convenience of parking, and the proximity to restaurants (Hitt, Ireland, & Hoskisson, 2011). Regal’s strategy focuses on mid size markets using multiplexes and megaplexes, with the highest ticket price and cost per screen among the competitors. One advantage to this strategy is...