How do you draw in consumers and then “upgrade them” to more profitable products and services? Research indicates that putting the premium on the “frill” items, indeed opens up the possibility for price-sensitive people to buy flagship products. That means you can expand your base of profitable customers by drawing new consumers into the fold with products with niche profiles. The age-old question of whether it’s better to charge more for a primary product (in this case, the movie ticket) or a secondary product (the popcorn) is a challenge most marketers face in their product portfolios.
In these challenging times, it’s also important to focus on your existing consumer base. Because your most profitable consumers are already engaged with your brand and hence the ROI for a marketing investment is likely to be dramatically higher. The strategy can also strengthen loyalty and increase sales among existing consumers.
Back to popcorn. Although concessions account for only about 20 percent of gross revenues, they represent some 40 percent of theatres’ profits. That’s because while ticket revenues must be shared with movie distributors, 100 percent of concessions go straight into an exhibitor’s coffers. Niche products tend to engage smaller, fragmented consumer segments.
There are many parallels to be found in your company’s consumer base. A great example is a strategy in household cleaning products. Lets say Brand X of company Y has excellent “green” credentials and appeals to an environmentally friendly consumer segment within company’s consumer franchise. These consumers are more likely to pay a premium for green products. Now leverage that insight with other behavioural insights. Our research indicates that green consumers are more likely to buy organic or products with a high local content, spend 30% more time on the internet, shop more often and are likely to be young adults or seniors. So if the product portfolio has other brands that target these segments, there may be a co-branding opportunity with another brand of Company X. P&G has applied the principle with, for example, “Tide with Febreze Freshness”, “Tide and Downy Total Care” and “Ultra Tide with Dawn StainScrubbers”.
Back to popcorn again. In a study examining Spanish theatres, researchers discovered: Moviegoers who purchase their tickets over the internet also tend to buy more concession items than those who purchase them at the door, by phone, at kiosks, or at ATMs (the latter option has not yet hit the United States). This is representative of the equivalent of unique behaviour patterns in specific consumer segments and product categories. Also, people who come to the movies in groups also tend to buy more popcorn, soda, and candy. While this, too, merits more investigation, it may be that such groups comprise families or teenagers. If that turns out to be the case, it may be that theatres will want to run more family- or adolescent-oriented movies to attract a more concession-buying crowd.
Is there a parallel in some product categories to engage consumers and bring them into a brand franchise with many products? Look at the Telecom sector and you can see the popcorn pricing strategy at work. With cell phone plans, once you signup for a contract, with a heavily discounted phone, the cost of the phone and revenue is recovered in a complex array of data and airtime plans. Structured pricing plans can also create a framework to manage risk. For example, with cell phone plans, its the consumer’s responsibility to utilize the minutes in the purchased plan. In this model the risk is shared with the consumer with upside for the telecom provider. Once your consumer has bought the discounted cell phone (movie ticket) bundling product offerings can increase a brand’s share of wallet with bundled offers and plans (popcorn, pop and other offerings). The life stage of a relationship with a consumer can offer many new opportunities to engage the consumer franchise.
Managing pricing and loyalty related risk in product portfolios work well in product categories with predictable purchase frequency, captive ongoing revenue streams and recurring purchase patterns. It can also work in other categories where customer acquisition is driven by discounted pricing at the front end of a relationship with a customer.
