Friday, April 5, 2019

What Opportunities Made Cinemexs Success Possible Finance Essay

What Opportunities hold up Cinemexs Success Possible Finance Essay some(prenominal) divisors make it possible for Cinemex to emerge as a highly successful exhibition movie theatre chain. First, the Mexican exhibition market was highly adjust for decades and these regulations established a fixed, low tatter damage. This provided a disincentive for exhibition owners to invest in their properties since they were otiose to raise shred sets to compensate for their investments. The end-result was a growing collection of old and dilapidated theatres. When the regulations were lifted, Cinemex co-founders Matt Heyman, Adolfo Fastlich, and Miguel backer Davila believed that an opportunity to provide a high-end movie watching experience by growing state-of-the-art theatres existed. The team followed a strategy of differentiation through branding. Cinemex improved moviegoers experiences by inst all in alling larger screens, providing better sound, employing courteous staff, and fashi oning former(a) improvements over what was considered the typical Mexican exhibition. Based on the information available, this quality advantage seemed to withstand at least until Cinemex was acquired by Canadian buyout firm Onex.Next, Cinemex capitalized on the declining value of the peso in fresh 1994 and early 1995. This dec hound allowed Cinemex to purchase land at a cheaper price. Furthermore, it fortuitously (for Cinemex) discouraged potential competitors in the high-end field, such as AMC and Lowes, from entering the Mexican market. The value of the Mexican Peso continued to substantially decline. This made it continuously cheaper for Cinemex to design US Dollars to purchase new land to build Mexican movie theatres. Further, the improving Mexican economy, population growth in Mexico City, and continued emergence of kernel class in Mexico all provided opportunities for Cinemex.Graph the time series of attention and prices for each Wednesday in 2001. What factors account for the week-on-week diversions in attention for Cinemex and the urban center as a whole? What is the interpretation in terms of a necessitate curve?Several factors account for the week by week exits in attending for Cinemex and Mexico City theatres. Factors such as the ticket price, time of the year, popularity of current films, local weather conditions, and timing of holidays all made attention highly covariant from week to week. In terms of the requirement curve, it may move out or in depending on the combination of the above variables.In Spring 2001, Cinemexs main competitor introduced 2-for-1 fix. Describe, in conceptual terms (and victimisation a look at diagram), the printing this had on Cinemexs demand curve. In the akin diagram show the effect of Cinemexs price response.Conceptually, when Cinemexs competition introduced 2-for-1 pricing, the demand curve for Cinemex moved in (or unexpended). At a given ticket price, a certain percentage of moviegoers who would typically choose to see a film at Cinemex would sort of choose to forego the additional quality of Cinemexs theatres and take advantage of Cinemexs competitions lower prices.In the chart below, D0 (blue line) is the demand at a given price for Wednesday showings at Cinemex before the 2-for-1 pricing was introduced by competitors. D1 (red line) represents the reduced demand for Cinemex after 2-for-1 pricing was introduced by competitors. terminally, the bullet point outlined in yellow on line D1 reflects Cinemexs new Wednesday 2-for-1 price.0 Equilibrium before price changes2 Cinemex lowers price on Wednesdays1 Cinemex demand moves left aftercompetitors introduce 2-for-1 pricingCProgram FilesMicrosoft OfficeMEDIAOFFICE14BulletsBD21298_.gifCProgram FilesMicrosoft OfficeMEDIAOFFICE14BulletsBD21434_.gifCProgram FilesMicrosoft OfficeMEDIAOFFICE14BulletsBD21434_.gifCProgram FilesMicrosoft OfficeMEDIAOFFICE14BulletsBD21434_.gifCProgram FilesMicrosoft OfficeMEDIAOFFICE14BulletsBD21298_. gifPlease none, D1 is shown to the left of D0 since we argon speaking in conceptual terms. In actuality, other factors beneficially preserveing Cinemex may place the straightforward location of D1 to the right of D0. Further, the price change took place over a year after the initial placement of D0. Therefore, there is some time for beneficial factors to have a sum impact that is relatively more positive than the negative impact Cinemex competitors price drop would have. We explore these possibilities in later answers.How would you construct a counter-factual scenario for what would have happened had this 2-for-1 pricing by competitors not occurred? Suggestion one useful place to start ability be to compare 2001 to 2000. Explain your answer in terms of the diagram you drew in the anterior question.The 2-for-1 pricing by Cinemex competitors did not occur until after week 13 in 2001. Therefore, by canvass the weeks 2 through 13 in 2000 and 2001, we can estimate the step-up in attending from alike(p) plosives in the remaining weeks. This growth factor, or proportionality, can then be applied to the 2000 attendance figures in order to estimate what the attendance in 2001 would have been if Cinemexs competitors had not put forth the 2-for-1 deal. Applying the growth factor eliminates the effects of Cinemexs competitors 2-for-1 deal and creates counterfactual data that takes into account other socioeconomic factors driving profitd attendance over time. These socioeconomic factors include low unemployment, low inflation, population and GDP growth, and the continued emergence of the middle class. Essentially, this methodology allows our team to reconstruct the original demand curve (D0) and account for growth in the boilersuit market.Construct this counterfactual for attendance. Discuss how you isolate the effect of the competitors price change from the effect of all the other things pushing demand around (the stuff you discussed in part (b)). Be clear ab out the uttermost to which you are able to do this (remember no synopsis of real data is ever perfect in this regard, but it is important to be able to spot the limitations of whatever methodology you do employ).The table below illustrates attendance at Cinemex on Wednesdays. Weeks 2 through 13 can be analyzed between 2000 and 2001 to determine a growth factor for Cinemex. This growth factor is determined by taking the ratio between the bonnie attendance numbers of 2000 and 2001 for break 1. In this case, the growth factor is equal to 1.09 (it is the same between 2001 and 2002). The predicted Cinemex attendance for 2001 (depicted in the table below) is determined by multiplying the 2000 attendance numbers, for ends 2 through 5, by 1.09. The result of this calculation gives the attendance numbers that Cinemex would have seen had its competitors not established the 2-for-1 deal.Wednesday attention Figures Cinemex20002001 (without 2-for-1)2001 (with 2-for-1) counteractWeeks effe ctive (Avg)Predicted (Avg) developed (Avg)12 to 13516025644556445214 to 22607626623157305323 to 27666267262267124428 to 3497717106511105479535 to 484619550353*60642NOTE The year was broken trim back into 5 blocks in order to better analyze the effect of seasonal demand. Week 1 and weeks 49 to 52 were omitted referable to the volatility of the holiday seasons attendance. Also, predicted and actual numbers defend for Block 1 due to this period being utilized for determination of the growth factor. *- Indicates that twain Cinemex and its competitors are using 2-for-1 pricing.Using this counterfactual, measure out the impact of competitors 2-for-1 pricing in Cinemexs Wednesday attendance?Our team analyzed the difference in predicted and actual periodic attendance on Wednesdays at Cinemex during the time period when Cinemexs competitors utilized the 2-for-1 deal and Cinemex maintained its pricing (Blocks 2, 3 and 4). The data indicates that the competitors 2-for-1 deal adversely s queeze Cinemexs actual attendance. We observe attendance figures that are lower than the predicted attendance figures. The below table quantifies the fair(a) hebdomadal impact of the competitors 2-for-1 deal. To arrive at the estimated dollar impact, we multiplied the difference between predicted and actual attendance by the average ticket prices during each Block. For example, the average ticket price during Weeks 14 to 22 was $20.98. Therefore, $20.98 times 8962 equals $187,288.41.Weekly Impact on Cinemexs Wednesday Attendance200120012001BlockWeeksPredicted minus Actual (Avg/week)%Dollar Value of lost Attendance (Avg/week)12 to 1300.00%$ 0.00214 to 228926-13.48%$ 187,288.41323 to 275498-7.57%$ 114,216.15428 to 341032-0.97%$ 21,552.93Please note, Block 5 was not included in this impact analysis because it encompasses the time period during which Cinemex matched its competitors 2-for-1 deal.Cinemex was most adversely impacted during Weeks 14 to 22 and Weeks 23 to 27. Fortunately f or Cinemex, the 2-for-1 deal offered by competitors had only a minimal impact on the summer months. This is likely due to the premium quality of socioeconomic conditions and movies offered during this time (i.e, summer blockbusters). It appears that individuals are willing to pay a higher price to watch superior movies in a superior environment.Overall, Cinemexs actual attendance during Weeks 14 to 34 was 1,589,718. Our team predicted that had the competitors not implemented a 2-for-1 pricing strategy, Cinemex would have had attendance numbers of 1,704,766. This represents an impact of 6.7%, or 115,048, on attendance over the 21 week period in which Cinemex did not offer a 2-for-1 deal and its competitors did.Taking the average ticket prices during Blocks 2, 3, and 4 ($20.98, $20.77, and $20.88 respectively) and multiplying it both actual and predicted revenues allows us to evaluate the dollar impact. Total actual revenue was $33,213,977 and predicted revenue was $35,621,524, a dif ference of $2,407,547 or 6.76%.Building on the strategy you developed, quantify the impact of Cinemexs own 2-for-1 deal on its Wednesday attendance? Discuss your methodology in terms of a demand diagram framework.Cinemex matched its competitors 2-for-1 deal in Block 5. Based on the data, it appears that this time period has reduced demand compared to the summer months. Demand appears to be exchangeable to Block 2 (Weeks 14 to 22). Therefore, had Cinemex not matched the 2-for-1 deal and maintained their prices, we assume that their attendance numbers for Block 5 would have dropped by the same percentage as Block 2, or 13.48%.Wednesday Attendance Figures Cinemex2001No 2-for-1 swapsBoth Use 2-for-1Only Competitors Use 2-for-1BlockWeeksPredicted (Avg)Actual (Avg)Predicted (Avg)535 to 48503536064243565As illustrated in the table above, Cinemexs actual average weekly attendance during this period was 60,642. Cinemexs predicted average weekly attendance for Block 5, assuming no 2-for-1 deals, is estimated by using the aforementioned 1.09 growth factor. This provides an estimate of an average weekly attendance of 50,353. If Cinemex had not engaged in the 2-for-1 deal, and its competitors did engage in the 2-for-1 deal, then we predicted the average weekly attendance for Cinemex would decline the same as it did in Block 2, by 13.48% of the No 2-for-1 Deals figure, or a inwardness weekly average of 43,565. This decrease is identical, in terms of percentage (13.48%), as the predicted impact of competitor pricing on Block 2. Blocks 2 and 5 represent the worst case scenario for Cinemex in terms of attendance totals and represent the point of highest demand elasticity.Overall, Cinemexs actual attendance during Weeks 35 to 48 was 848,988. Our team predicted that if Cinemex chose to not use the 2-for-1 promotion, attendance would have been 690,910. This is a difference of 239,078.The actual average ticket price for Block 5 was $15.20. Our team assumed that the average tic ket price would have remained roughly the same in Block 5 as it had been in Blocks 2, 3, and 4 had Cinemex not chosen to do the 2-for-1 promotion. The average ticket price for Block 5, therefore, would have been the same as the average ticket price for Blocks 2, 3 and 4, or $20.88. This results in actual ticket revenue of $12,908,555 versus predicted revenue of $12,734,921. The 2-for-1 promotion improved ticket revenue by $173,634.h) Extending the analysis from the previous question, provide an estimate of Cinemexsdemand elasticity (with respect to its own price) for Wednesdays.Extending the analysis from Part G, devil points on the D1 demand curve have been established and the elasticity (within the 2-for-1 market) can straight off be estimated for Wednesdays. At the $15.20 ticket price, elasticity is -0.75. This represents a relatively inelastic demand and Cinemex should increase price.Demand Elasticity appraisal CinemexBlock 5 AttendanceBlock 5 AttendanceCinemex Not Using 2-f or-1Cinemex using 2-for-1Attendance4356560642Price$20.88$15.20Elasticity-0.75The equation for the 2001 Cinemex Demand Curve is , or, in other words, . Knowing that we can determine elasticity at any point of the curve.Taking the derivative of the Demand curve gives us and so the elasticity equation becomes for any point along the demand curve.Bottom line Was Heyman right to match the 2-for-1 pricing? DiscussOur team believes that Cinemex should not introduce yearly 2-for-1 pricing. As illustrated in the chart below, our team developed a scoring system to determine which pricing strategy would be most effective.Cinemex Employs 2-for-1 Deal2-for-1 customerRegular customer20.43%79.57% tax revenue rag Price$15.20$15.20Concession Per soulfulness$10.00$13.96Other Revenue Per Person$0.20$0.24Total Revenue$25.40$29.40 outgosConcession Expense Per Person$2.70$3.77Payroll Per Person$3.82$3.82Supplies Per Person$3.18$3.18 line of work Expense Per Person$6.10$6.10Total Expenses$15.80$16.87T otal Income Per Person$9.60$12.53Weighted Average$11.93x20.43% Attendance GrowthFinal Score$14.37The following assumptions were madeWe took year 2000 actual attendance for Block 5, multiplied by the evaluate growth rate of 1.09, and arrived at 50,353. From here, we saw the actual attendance in 2001, when Cinemex did match prices, to be 60,642. This is an increase of 20.43%. Therefore, on average, we expect a 20.43% increase in attendance as a result of the 2-for-1 promotion. This increase in customers would be made up of a stingier group of individuals. These individuals, instead of paying $13.96 on average for concessions, would pay $10.00. Also, the other revenue would drop by roughly the same proportion to $0.20. We found the average income per moviegoer and arrived at the weighted average of $11.93. Then, seeing as attendance increased by 20.43%, we arrived at a final score for this solution of 14.37. Finally, we assumed screen advertising would stay the same since Cinemex is n ow playing to more full theatres rather than half-empty theatres. Argument can also be made that weighing machine could reduce per-ticket costs, but we did not believe the attendance boost was substantial enough for that.In contrast, had Cinemex not implemented 2-for-1 pricing, the final score would be higher, 18.51.Cinemex Does Not Employ 2-for-1 DealRegular customerIncomeTicket Price$21.18Concession Per Person$13.96Other Revenue Per Person$0.24Total Revenue$35.38ExpensesConcession Expense Per Person$3.77Payroll Per Person$3.82Supplies Per Person$3.18Occupancy Expense Per Person$6.10Total Expenses$16.87Total Income Per Person / Final Score$18.51The final score here is 18.51, higher than 14.37. This is because Cinemex cant discriminate against the type of customer. By reducing the ticket price for all customers, it negatively impacts its box office revenues. 80% of the customers would have attend had prices not been reduced. Furthermore, our assumption that the growth will be fuel ed by stingier customers reduces concession stands sales. These factors combine to make it a money-losing final cause to offer 2-for-1 deals. If Cinemex could somehow strategically target certain Wednesdays or certain customers, the 2-for-1 proposal may be more viable.Overall, as it stands now, Cinemex should not offer a 2-for-1 deal for all Wednesdays.

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