Marketing Analytics: Capacity Management

Sydney has owned a 200-seat movie theater in her hometown for the past two years. Even though it's the only movie theater in town, the theater is rarely filled to capacity. While Sydney is not in financial trouble yet, she feels like she would make a lot more money if she could just fill more seats. With only one theater, Sydney is limited to five showtimes a day, three in the nonpeak hours between 10 AM and 6 PM and two in the peak time between 7 PM and midnight.

Sydney has been debating a number of changes to price and promotion. One tactic she is considering is a $1 ticket price reduction, but she is worried that a price reduction will simply erode her profit margin. A second tactic she is considering is a loyalty program, which rewards customers with a free movie ticket after 10 tickets are purchased. A third option under consideration is offering $5 tickets all day on Thursday. Last but not least, she is considering advertising her theater with a billboard ad.

To evaluate the different strategies, Syndey constructs a spreadsheet and populates the cells with her best estimates.

The goal of this activity is to understand how a service firm can use marketing metrics for capacity management. For the movie theater industry, key metrics include average ticket price, revenue per screen, and admissions per screen.

Average ticket price = [(Total peak tickets sold per week X Peak ticket price) + (Total nonpeak tickets sold per week X Nonpeak ticket price)]/Total tickets sold per week

Use the formulas above and the spreadsheet below to help answer the questions that follow. The spreadsheet fields highlighted in yellow can be changed in order to determine possible outcomes. You can find the initial values in the corresponding blue cells in columns G to J. Start by entering the initial values into columns B to E. Then review the questions below and adjust the values in columns B to E to determine the correct answers.

1. Based on the data provided in the marketing dashboard, which promotion should Syndey run?

(Click to select) Promotion 3Advertising...Promotion 2$5 Thursdays...No promotion should be run...Promotion 1Loyalty program...Price change

2. Focusing on the admissions per screen per week metric, how do the results of the loyalty program compare to the results of the price change tactic?

(Click to select) The loyalty program resulted in greater losses from unsold tickets than the price change did...The loyalty program resulted in a lower average ticket price than the price change...The loyalty program increased ticket sales by 10% while the price change increased ticket sales by 20%...The loyalty program generated more incremental profit while the price change generated more incremental revenue...The loyalty program increased ticket sales by 20% while the price change only increased ticket sales by 10%.

3. Sydney negotiates a better billboard location, which will increase ticket sales by 2 percent over her initial estimates. Also, a competitive loyalty program launches nearby which will likely suppress the results of Syndey's loyalty program by 2 percent. Given these new conditions, what strategy should Sydney pursue?

(Click to select) Promotion 2$5 Thursdays...No promotion should be run...Promotion 3Advertising...Promotion 1Loyalty program...Price change

4. Reset the estimates to their initial values. Sydney is debating whether she should cut her ticket prices to $10 for peak tickets and $5 for nonpeak tickets. She estimates that if she does so, she can expect to sell 70 percent of peak tickets and off-peak tickets. Should Sydney pursue this price reduction to keep her theater in business?

(Click to select) Yes, because there is $0 direct cost associated with the price cut...No, because customers do not react to the price change with increased demand...No, because the price cut reduces both her revenue and her profit from previous levels...Yes, because the price cut maximizes her tickets sold...Yes, because the price cut minimizes her potential revenues lost from unsold tickets.

5. Sydney focuses on the loyalty program to sell more tickets and earn more profits. To increase the program's effectiveness, Sydney decides to spend $2000 more to promote it. What percent of tickets must she sell to reach at least 5000 admissions per screen and what is the ticket sales profit at that level?

(Click to select) Percent of peak and off-peak tickets sold per week must reach 72% and ticket sales profit will be $45,400...Percent of peak and off-peak tickets sold per week must reach 72% and ticket sales profit will be $43,400...Percent of peak and off-peak tickets sold per week must reach 71% and ticket sales profit will be $19,600...Percent of peak and off-peak tickets sold per week must reach 70% and ticket sales profit will be $42,000...Percent of peak and off-peak tickets sold per week must reach 71% and ticket sales profit will be $42,700.

A . B D E F G H I ) 1 Without Promotion Price Change Promotion 1- Loyalty Program Promotion 2- Promotion 3 $5 Thursdays Advertising Initial Value: Price Change Initial Value: Promotion 1- Loyalty Program Initial Value: Promotion 2- $5 Thursdays Initial Value: Promotion 3 Advertising $ 13 $ 13 $ 13 $ 13 $ 12 $ 13 $ 13 $ 13 $ 8 8 $ 8 $ 8 $ 8 $ 7 $ 8 $ 8 $ 8 $ 5 5 14 14 14 14 14 14 12 14 21 21 21 21 21 21 18 21 5 2 Peak time ticket price 3 Off peak time ticket price 4 Promotional ticket price 5 Peak show times per week 6 Off peak show times per week 7 Promotional om price showings 8 Number of thost theater seats 9 Secer Percent of peak tickets sold per week 10 Percent of off peak tickets sold per week 11 Percent of promotional tickets sold per week 12 Revenue per screen 200 200 200 200 200 200 200 200 200 60% 66% 72% 60% 63% 40% 44% 48% 40% 50% 70% $ 35.280 $ $ 0 $ 0 $ 0 $ 0 $ 35,112 $ 42,336 $ 33,740 $ 39,732 $ 0 $ 0 $ 0 $ 5,000 $ 1,500 $ 2,500 $ 35,280 $ 0 $ 0 $ 5 0 $ 0 $ 35,112 $ 37,336 $ 32,240 $ 37,232 $ 34,720 $ 0 $ 70,000 $ 0 $ 70.000 $ 27,888 $ 27,664 $ 26.260 $ 30.268 13 Cost of promotion 14 Ticket sales profit 15 Pote Potential revenue lost from unsold tickets 16 Admissions per screen per week 17 Average ticket price 18 3,360 0 0 0 0 0 3,696 4,032 3,580 3,864 $ 11 NaN NaN NaN NaN $ 10 $ 11 $ 9 $ 10 A . B D E F G H I ) 1 Without Promotion Price Change Promotion 1- Loyalty Program Promotion 2- Promotion 3 $5 Thursdays Advertising Initial Value: Price Change Initial Value: Promotion 1- Loyalty Program Initial Value: Promotion 2- $5 Thursdays Initial Value: Promotion 3 Advertising $ 13 $ 13 $ 13 $ 13 $ 12 $ 13 $ 13 $ 13 $ 8 8 $ 8 $ 8 $ 8 $ 7 $ 8 $ 8 $ 8 $ 5 5 14 14 14 14 14 14 12 14 21 21 21 21 21 21 18 21 5 2 Peak time ticket price 3 Off peak time ticket price 4 Promotional ticket price 5 Peak show times per week 6 Off peak show times per week 7 Promotional om price showings 8 Number of thost theater seats 9 Secer Percent of peak tickets sold per week 10 Percent of off peak tickets sold per week 11 Percent of promotional tickets sold per week 12 Revenue per screen 200 200 200 200 200 200 200 200 200 60% 66% 72% 60% 63% 40% 44% 48% 40% 50% 70% $ 35.280 $ $ 0 $ 0 $ 0 $ 0 $ 35,112 $ 42,336 $ 33,740 $ 39,732 $ 0 $ 0 $ 0 $ 5,000 $ 1,500 $ 2,500 $ 35,280 $ 0 $ 0 $ 5 0 $ 0 $ 35,112 $ 37,336 $ 32,240 $ 37,232 $ 34,720 $ 0 $ 70,000 $ 0 $ 70.000 $ 27,888 $ 27,664 $ 26.260 $ 30.268 13 Cost of promotion 14 Ticket sales profit 15 Pote Potential revenue lost from unsold tickets 16 Admissions per screen per week 17 Average ticket price 18 3,360 0 0 0 0 0 3,696 4,032 3,580 3,864 $ 11 NaN NaN NaN NaN $ 10 $ 11 $ 9 $ 10