Pricing Strategies of Vie Show Cinemas

1. Pricing Strategies of Vie Show Cinemas 103266001 趙培源 103266002 樊蘊婕 103266003 曾鈺婷 103266005 葉祖昀 103305037 阮清秀

2. Outline • About Vie Show Cinemas • Pricing Strategies of Vie Show Cinemas • AM Show • Popcorn Set • Group Ticket • Concession Ticket • Price Discrimination in Difference Cities • Conclusion

3. About Vie Show Cinemas • The biggest franchise movie theaters in Taiwan • 12 cinemas in Taiwan • 3 in Taipei City • 1 in New Taipei City • 3 in Taichung City • 2 in Hsinchu City • 2 in Tainan City • 1 in Kaohsiung City • 119 theaters in Taiwan • More than 25,000 seats

4. About Vie Show Cinemas • Main Competitors

5. AM Show • Difference prices based on the effect, consumer's’ identity and showtime of the movie in Vie Show Cinemas Taipei Hsin Yi: LOWER and LOWER

6. AM Show Approximately the AM show ticket price is lower than the normal one by 50 dollars.

7. AM Show While pricing different movies differently is not possible, movie theaters can and do charge different prices. Therefore, movie theaters do practice price discrimination. They sell the morning shows at a discount bringing price sensitive customers who are willing to make the trade-off (Second degree).

8. AM Show Consumers who are able to watch movies in the morning have a higher elasticity of demand for they don’t have to go to work (they might have a lower income.) To maximize the revenue, movie theaters lower the ticket price of the morning show to draw as more consumers as they can.

9. AM Show When cutting down the price from P1 to P2 (by 50 dollars on the AM show ticket), the quantity sold will then increase from Q1 to Q2.

10. AM Show The quantity sold to the consumers who have a elastic demand while price is increasing from P2 to P1 is relatively larger than the quantity sold to the consumers who have a relatively inelastic demand.

11. AM Show Therefore, Vie Show would decrease the ticket prices of the AM show to make higher profits by drawing more consumers who have a elastic demand.

12. Popcorn Set •In Vie show, they not only sell movie tickets, but they also sell… •popcorns, churros and hotdogs •Cold & hot drinks

13. The price for popcorns in Vie show

14. Popcorn Set •Popcorn single prices: (example: sweet) S: 100 M:120 L:130 •Drink single prices: (Coke) S: 50 M: 55 L:65 How about buy it with movie tickets???

15. Popcorn Set In Vie show, you can buy your movie tickets with sets!

16. Popcorn Set •A set includes: small popcorn+ medium coke + hot dog = 180 NTD! •What about we buy it seperately? small popcorn (100) + medium coke(55) + hot dog(90) = 245 NTD > 180 NTD •We can save 65 NTD if we buy the popcorn set with movie tickets!

17. Popcorn Set •What’s the pricing strategy for Vie show? →Mixed bundling! →Mixed bundlingallows customers to purchase the goods either together as a bundle or separately. → Why does Vie show take mixed bundling as pricing strategy??

18. Mixed Bundling •Assuming two consumers in Vie show : A & B •A’s willingness to pay: Hot dog: 60 NTD small popcorn: 100 NTD, medium coke: 30 NTD A’s budget = 190 NTD •B’s willingness to pay: Hot dog: 100 NTD small popcorn: 60 NTD, medium coke: 60 NTD B’s budget = 220 NTD

19. If they buy them separately… With bundling, Vie show can receive 360 NTD which is higher than selling them separately!!

20. With Bundling With bundling, Vie show can receive 360 NTD which is higher than selling them separately!!

21. Advantages of bundling • Bundling can increase the seller’s profit as customers have varied preferences. • Bundling does not require knowledge of individual consumers’ reservation prices, but only the distribution of consumers’ reservation prices.

22. Group Ticket • 50 movie tickets a pack • Availability period: half year

23. Group Ticket • 10 Food tickets a pack - Super concession voucher Medium coke + Small popcorn = NT 140 --- NT 80 Total: NT 80 x 10 = NT 800 - Deluxe concession voucher Medium coke + Small popcorn + Hot dog = NT 225 --- NT 120 Total: NT 120 x 10 = NT 1200

24. Group Ticket • Why there are group tickets? -When the cost of a movie ticket increases from NT 320 to NT 350, we can assume that as a result of this change in price ticket sales decrease from 100 per day to 10, a decrease of 90%. The elasticity of demand for movie tickets is 3, making it highly elastic. The nature of this change in demand illustrates that consumers feel that going to the movies is something they can easily sacrifice in response to an increase in price. -Goods with high elasticities of demand are often described as luxury goods; that is, things that consumers feel they can go without. They also may be goods that are readily available in the market place or have plenty of substitutes.

25. Group Ticket • Who would be more likely to buy and use group ticket? - consumers who are sensitive to the price and watch movie frequently • Therefore, the theater can get certain amount of consumers regularly.

26. 2nd-degree Price Discrimination • Price varies according to quantity demanded. Larger quantities are available at a lower unit price. This is particularly widespread in sales to industrial customers, where bulk buyers enjoy higher discounts. • Sellers are not able to differentiate between different types of consumers. Thus, the suppliers will provide incentives for the consumers to differentiate themselves according to preference, which is done by quantity "discounts", or non-linear pricing. This allows the supplier to set different prices to the different groups and capture a larger portion of the total market surplus.

27. Concession Ticket • Who are eligible for concession ticket? • Student • Military • Police • How much? • 20~30 dollars cheaper than the original price

28. Concession Ticket • Why would Vie Show Cinemas offer them a discount? To increase their revenue! But.... How?

29. Market Characteristics It is an oligopoly market in Taiwan, because • the barriers to entry are high (the facilities are costly) • a few suppliers in the market (main suppliers: Vie Show Cinemas, Ambassador Theater, Showtime Cinemas) • price setters rather than price takers

30. 3rd-degree Price Discrimination • Suppliers can effectively distinguish consumers from different markets • Tickets are not resellable to avoid arbitrage => Consumers are eligible for concession tickets, for example, students are more sensitive to the price of tickets since they are not financially independent; other consumers, for example, salarymen are less sensitive to price

31. 3rd-degree Price Discrimination • For D1, if Vie Show Cinemas decides the price of the ticket despite the elasticity of demand -> equilibrium price =P*; revenue=red shaded area If they increase the price to P1, the revenue will increase to the green shaded area • For D2, revenue=red shaded area if Vie Show Cinemas decides the price of the ticket despite the elasticity of demand; If they increase the price to P2, the revenue will increase to the purple shaded area

32. Other Examples There are many examples of third-degree price discrimination in our life • Charge different electricity price for different kind of uses - price for electricity per unit for family use is lower than industrial use • Taiwan High Speed Rail offers college students 30~50% discount

33. Pricing Strategy - Concession Ticket The pricing strategy behind offering discount for concession tickets is that they can increase the revenue by using third-degree price discrimination to charge consumers with different price elasticity with different ticket prices

34. Price Discrimination in Difference Cities Price in 3 theaters in different cities ( for General ticket - NTD ) The theater in Taipei has the highest price Source : http://www.vscinemas.com.tw/

35. Price Discrimination in Difference Cities Why not the same price in different cities ? Supply = MC Supply = MC Supply = MC Equilibrium Equilibrium Equilibrium Demand Demand Demand Taipei Taichung Kaohsiung

36. Price Discrimination in Difference Cities • Different operating cost ( rent cost, salary... ), Taipei has higher cost while Taichung/Kaohsiung has lower cost • Cost of living higher in Taipei => Customer in Taipei is willing to pay more Why not the same price in different cities ?

37. Price Discrimination in Difference Cities What if Taipei has the same price as Taichung ? Supply = MC Supply = MC Equilibrium Equilibrium New equilibrium Po Demand Demand P* Excess demand Taipei Taichung Demand exceeds supply in Taipei

38. Price Discrimination in Difference Cities What if Taipei had the same price as Taichung ? Supply = MC • Buyer surplus before reducing price : ABG • Buyer surplus after reducing price : ACFD => Buyer surplus gain BCFE Loss : EFG Equilibrium A D Demand Po New equilibrium E G B P* Consumer gains more buyer surplus by reduced price F C Excess demand Taipei

39. Price Discrimination in Difference Cities Taipei has higher price than other cities ? • To extract consumer surplus • Maximize profit

40. Conclusion • As an oligopolist in Taiwan, Vie Show Cinemas has delivered different kinds of pricing policy to attract various types of consumers and met everyone's demand. - 1st-degree price discrimination by time - 2nd-degree price discrimination by quantities - 3rd-degree price discrimination by groups • Also, it provides choices of food which makes consumers more convenient and helps to earn profit. - Bundling