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Comprehensive Five Competitive Forces Analysis
This chapter gives an analysis of the five competitive forces with respect to Cinemaplex business, followed with discussion of anticipated level of competition among the industry rivals.
1) Level of Rivalry in the Industry
The level of rivalry in the industry cannot be classified as intense as the overall industry has gone through structural changes recently; therefore, all of the players have been equally affected by it, and all are suffering from the lack of visits from an average customer.
The competing firms are classified under single screen and theater complexes, where companies with a single screen have nearly gone out of business and have reduced sharply in their overall number. On the other hand, the industry is primarily dominated by theater complexes. These are further sub-categorized under miniplexes that have 2-7 screens, multiplexes with 8-15 screens and megaplexes with 16 or more screens.
10 per cent of the theaters in the industry at present comprise of megaplexes primarily because of their popularity amongst the customers.
The number of theaters overall has, however, decreased by 15 per cent from 2000 to 2007, thus leading to reduced threat from rivals altogether.
The fact the theaters have increased in number, which has increased the number of screens in the overall industry, is more than what is necessary to make the industry profitable. The industry has, thus, overbuilt and overgrown and now it has lesser profits for the players to share and battle for. The overall industry is declining, having reached a quite maturity in the 1980s and 1990s.
The industry has consolidated where there are four key companies that own the majority of the screens in the country. There is Regal with its theater brands under the names of Regal; United Artists and Edwards AMC with its theater brands under the names of AMC and Loews; Cinemark with its theater brands under the names of Cinemark and Century; and Carmike with its theater brand under the name of Carmike. These companies control 42 per cent of the screens in the overall industry, and they are the dominant players in the industry.
2) Threat of New Entrants
The threat of new entrants is low. The industry is suffering from decline at present, which is a push factor for new companies to enter. The existing companies have consolidated under four groups, which have reduced the overall size of the industry and has fortified market share; this limits new companies to enter the market, unless they merge with the existing players. New players would have to have a strong financial back up to support extensive marketing and operational demands to counter the services of the dominating industry players, if they want to compete for a significant market share in the present condition of the industry.
Moreover, new entrants would have to struggle as the overall sales of the industry are declining rapidly, and this has nothing to do with the size of the companies or the number of screens they offer. The main reason is the changes in the social environment that has made consumers face the new forms of entertainment, which are alternatives for visits to movie theatres.
3) Threat of Substitute Products
The threat of substitute products is high. The substitute products in the movie theatre industry comprise of DVDs, movies shown on television, and online streaming of movies. Consumers have reduced the number of times they visit a theater and have increased their spending on stay-at-home options of watching movies. The biggest threat comes from movies shown on television. There is a wide variety of channels available that show movies in a short time after their release, which captures and sustains the customers’ involvement and interest in using this medium as their prime source of movies and entertainment.
4) Bargaining Power of Suppliers
The bargaining power of suppliers is moderate to low. The suppliers of the movie theaters comprise of movie producers. In the previous decades, companies such as Paramount and Universal Studios owned their own theaters and restricted showing of movies that were not made by the company. This gave them all the power to influence prices charged for their movies, and limit the choice available to consumers, to the movies produced by them.
This was an anti-competitive activity which was soon demolished by the authorities. Now, suppliers have several options between different types of movie theaters owned by independent companies with no direct links to the movie producers.
5) Bargaining Power of Customers
The bargaining power of customers is high. The economic influence has little to do with the customer’s intention to go see a movie. For this reason, even in times of recession, customers would still go see movies, primarily because of the cheap ticket for movies, and the comfort, food and entertainment that they receive as value for money spent on the ticket in the theater. However, because of the rise in the substitute products, such as DVDs, movies shown on television, and online streaming of movies, consumers have reduced the number of times they visit a theater, despite the value for money they get for the money they spend on each ticket.
Anticipated Level of Competition Among the Industry Rivals The prime reason for the reduction in interest to visit theaters is an increasing lack of time, on the one hand, and the availability of more convenient ‘stay-at-home’ options to get the same entertainment from movies, on the other hand. The social influence in the form of the overall move in the society towards laziness, and the search for reasons to stay at home due to little free time have reduced the public interest in visiting theaters. The trend led to reduced visits and has taken away the power from the hands of the theater companies, thus placing it in the hands of consumers, who now have the power to influence the prices set by the theater companies for movies and the service they offer.
Advantages and Disadvantages of Competitors’ Situations and Strategic Approaches
Advantages and disadvantages of competitor’s situation led to consolidation of the Industry as discussed below. Further to this, discussion suggests 4 strategic approaches, based on the top 4 competitors’ situations.
Consolidation of the Industry
Because of the falling of sales volume and the overall market size in terms of sales, the industry has moved towards consolidation where companies have merged operations and bought theater brands. This has reduced competition to a great extent.
The key advantage of this strategy is that the overall threat of competition has reduced.
The down side to this strategy is that the overall power of each competitor has reduced over the other, as they all are following the same strategy.
Differentiation Based on Segmentation of the Target Market
Companies have differentiated themselves based on the target market they serve. They have differentiated based on geographic segmentation. Regal focuses on mid-size markets in the country.
It charges the highest range of prices for movies in the industry. On the other hand, AMC concentrates on urban areas and large population centers. Cinemark serves smaller markets where it operates as a sole theatre business serving 80 per cent.
This strategy allows the competitors to differentiate themselves and attract different sets of consumers and signify increase their market shares.
However, since the companies are not present in the international markets, their geographic distribution is limited to the US.
Differentiation Based on Prices
Regal charges the highest prices while the rest charge average prices. This gives Regal the differentiation of being the expensive brand while the rest are cheaper theaters. Consumers tend to associate price with quality of services and form perception of the brand image based on the prices set.
Differentiation Based on Convenience of Location near Restaurants and Food Places
This is a healthy strategy as it acts to attract consumers to find a reason for visiting the theater as part of their plan to have fun with family or friends.
Finding feasibility to locate near restaurants and food places is another issue which needs to be examined before taking advantage of it fully.
Innovations in Services
Innovation in services in the form of quality of sound, picture, in-theatre experience, seating, food, etc, are a strategy that competitors use to gain an edge in the market against rivals.
However, innovations at present are limited in the industry, owing to the falling sales volume and falling profitability, which has restrained retained profits and availability of funds to re-invest in innovations.
Financial Considerations That Affect Profitability of Major Movie Theatre Business
The sources of revenue available for the theater companies are box office receipts, concessions and advertising of the movies being shown in the theaters. The number of customers on average visiting the theaters fall; therefore, advertisements are soon to be the prime source of earning, as feared by the companies, where receipts from the movies is sharply declining year by year. The sales from the concession stalls are co-related with the number of visits of the customers on average. Companies have a minimum of retained profits and funds, which they could re-invest in innovations, improvements of their services or business growth and expansion, owing to the falling sales and profitability. This is a grave concern for them at present as re-investments to aid in business expansion only spells growth in profitability in the future. With such limitations, future profitability becomes an obscure picture for the companies.
Strategic Options Feasible for the Company Given the Industry Situation
Three strategic options are feasible for companies in the industry at present.
Investments in Innovations
The key element the industry lacks at present is a dire lack of innovation in services which is pushing customers away.
Sales and Discounts
Offerings massive sales and discounts would also help companies to attract and engage more customers (Kotler & Armstrong, 1999).
The use of effective communication strategies can also help the company engage more customers and turn them back towards watching movies in theatres. PR campaigns in this regard, in the form of special events, held in theaters to compliment holidays, can also help boost sales (Doyle, 2002).
Conclusion and Recommendations for the Future Success of the Company
The key element the industry lacks at present is a dire lack of innovation in services which is pushing customers away. Deployment of tools to capture customers back on the part of each of the players is essential for the survival of the industry. The industry can compete with the changing social trends given the right marketing and innovations of services. The biggest weakness is the laid back, and conventional methods deployed, which have pushed the industry far back into darkness in terms of sales volume and profitability (Kotler and Keller, 2005). The players need to look into developing innovative ways to re-capture customers.