GROUP PROJECT
#1
Team #5
Edit by Brody Song, Wei Le, Silin Chen, Shanna Nichols
| Date: March 20, 2023
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Question a) What opportunities made Cinemex's initial success possible? Did
these opportunities last? (Brody Song & Silin Chen)
1. Opportunities that made Cinemex's initial success possible:
a. Regulatory changes: The lifting of regulations, including fixed (low) ticket prices,
created an opportunity for Cinemex to enter the market with a high-end chain of
theaters.
b. Poor quality of existing theaters: The low quality of existing theaters in Mexico
City allowed Cinemex to differentiate itself by offering a superior experience with
better facilities and amenities.
c. Economic collapse: The economic collapse in 1994 made land cheaper and
scared off potential competitors like AMC and Loews, allowing Cinemex to
establish itself in the market.
d. Differentiation through branding: Cinemex focused on providing a high-quality
experience, with modern amenities and excellent customer service, including
including bigger and better screens, complete carpeting in all rooms, wellilluminated interiors, emergency lights on the floors, modern light cards for
promotional placards, and attractive marquees. This sets them apart from
competitors.
e. Technological innovation: Cinemex was the first movie chain in the world to
introduce its own system for customers to purchase and reserve tickets by
telephone and the internet and was the only chain with 100% digital sound.
2. Did these opportunities last?
Some of the opportunities that initially contributed to Cinemex's success
persisted, while others evolved or diminished over time.
a. Regulatory changes: Although the regulatory changes that initially created an
opportunity for Cinemex remained in place, allowing the company to continue
operating in a market without restrictive price controls, competitors are benefitting
from this too and are giving attractive offers.
b. Poor quality of existing theaters: As competitors began to imitate Cinemex's topof-the-line exhibition venues, the gap in quality between Cinemex and its
competitors began to narrow. This reduced the opportunity for Cinemex to
differentiate itself based solely on the quality of its theaters.
c. Economic collapse: The economic conditions in Mexico eventually improved,
making the market more attractive for both domestic and international
competitors. This reduced the advantage Cinemex had in terms of facing less
competition.
d. Differentiation through branding: While Cinemex's commitment to quality and
branding continued to be an important part of its strategy, competitors started to
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adopt similar approaches, making it more challenging for Cinemex to maintain its
edge in the market.
e. Technological innovation: As technology continued to advance and competitors
started adopting similar systems for ticket purchasing and digital sound,
Cinemex's initial technological advantage became less unique.
Question b) & c) Preliminary (Wei)
In order to eliminate other effects of attendance, we need to do some data preprocessing first.
From the postscript, we know that Heyman sold Cinemex to a Canadian buyout, so the change
of owner might have an impact on the attendance of Cinemex. Thus, the attendance data
starting from July 2022, in other words, starting from week 27 in 2002 (week 131 in all), are not
used to analyze.
From notes, Week 12 in 2001 and Week 18 in 2002 were holidays and were not eligible for the
2-for-1 deal. But at Week 12 in 2001, no 2-for-1 deal was in the market as the competitors’ deal
started at Week 14 in 2001. Hence, week 18 in 2002 (week 122 in all), should also be excluded
from the analysis.
Therefore, we can divide the attendance into three parts:
Part I: weeks 1-65 without any deal.
Part II: weeks 66-86 with only competitors’ 2-for-1 pricing.
Part III: weeks 87-121 and 123-130 with both deals existing.
Question b) How large was the impact of the competitors' 2-for-1 pricing on
Cinemex's attendance (i.e., provide an estimate of the gain or loss in the number
of Cinemex customers)? (Wei & Shanna)
Figure 1 indicates the attendance per week of Cinemex, the average attendance per week in
Part I before any 2-for-1 deal was 433,350, and in Part II was 512,106. The absolute weekly
attendance change is 78,756, and the relative change is 78,756/433,350 = 18.17%, which is a
huge increase. However, the average city attendance per week in Part I was 864,795, and in
Part II was 1,076,207, the relative change is (1,076,207-864,795)/864,795=19.64%, which is
higher than Cinemex.
Figure 2 indicates the attendance per Wednesday of Cinemex, the average attendance per
Wednesday in Part I before any 2-for-1 deal was 62,410, and in Part II was 75,700. The
absolute Wednesday attendance change is 13,290, and the relative change is 13,290/62,410 =
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21.29%, which is very significant. However, the average city attendance per Wednesday in part
I was 143,665, and in Part II was 196,480, the relative change is (196,480-143,665)/143,665
=36.76%, which is much higher than Cinemex.
Figure 3 indicates the percentage of attendance per week of Cinemex, the average percentage
of attendance per week in Part I before any 2-for-1 deal was 50.11%, and after was 47.58%.
There is a 2.53% decrease in the percentage of attendance after competitors’ 2-for-1 pricing.
Figure 4 indicates the percentage of attendance per Wednesday of Cinemex, the average
percentage of attendance per Wednesday in Part I before any 2-for-1 deal was 43.44%, and in
Part III was 38.53%. There is a 4.91% decrease in the percentage of attendance after
competitors’ 2-for-1 pricing.
In a nutshell, though the average attendance of Cinemex on Wednesdays and per week in Part
II increases a lot, Cinemex lost a lot of market share both on Wednesdays and per week after
competitors’ 2-for-1 pricing.
Question c) How large was the impact of Cinemex's own 2-for-1 deal on its
attendance (i.e., provide an estimate of the gain or loss in the number of Cinemex
customers? (Wei Le)
Figure 1 indicates the attendance per week of Cinemex, the average attendance per week in
Part II before its 2-for-1 deal was 512,106, and in Part III was 453,204. The absolute weekly
attendance change is -58,902, and the relative change is -58,902/452,581 = -11.5%, which is a
big drop.
Figure 2 indicates the attendance per Wednesday of Cinemex, the average attendance per
Wednesday in Part II before its 2-for-1 deal was 75,700, and in Part III was 89,742. The
absolute Wednesday attendance change is 14,042, and the relative change is 14,042/75,700 =
18.55%, which is very significant.
Figure 3 indicates the percentage of attendance per week of Cinemex, the average percentage
of attendance per week in Part II before its 2-for-1 deal was 47.58%, and in Part III was 47.42%.
There is a 1.6‰ decrease in the percentage of attendance after applying its 2-for-1 deal.
Figure 4 indicates the percentage of attendance per Wednesday of Cinemex, the average
percentage of attendance per Wednesday in Part II before its 2-for-1 deal was 38.53%, and in
Part III was 45.10%. There is a 6.57% increase in the percentage of attendance after applying
its 2-for-1 deal.
In a nutshell, Cinemex gained a lot of attendance on Wednesdays after applying the 2-for-1
deal, however, its percentage of attendance per week, i.e., market share per week almost
remains.
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Question d) An estimate of Cinemex's demand elasticity (with respect to its own
price). (Brody Song)
Based on the provided data, we will estimate Cinemex's demand elasticity with respect to its
own price for both Wednesdays and the overall attendance throughout the years. We calculate
the price elasticity of demand (PED) for each period (2000-2001 and 2001-2002)
Price Elasticity of Demand (PED) for Wednesdays:
Period between 2000 and 2001:
% Change in Quantity Demanded (Wednesday Attendance) = (3,786,674 - 3,166,358) /
3,166,358 * 100 = 20%
% Change in Price (Wednesday Ticket Price) = ($19.35 - $19.29) / $19.29 * 100 = 0.3%
PED (2000 - 2001) = 20% / 0.3% = 66.67
Period between 2001 and 2002:
% Change in Quantity Demanded (Wednesday Attendance) = (5,765,282 - 3,786,674) /
3,786,674 * 100 = 52%
% Change in Price (Wednesday Ticket Price) = ($17.60 - $19.35) / $19.35 * 100 = -9%
PED (2001 - 2002) = 52% / (-9%) = -5.78
Price Elasticity of Demand (PED) for Overall Attendance:
Period between 2000 and 2001:
% Change in Quantity Demanded (Total Attendance) = (23,958,074 - 22,226,374) / 22,226,374
* 100 = 7.8%
% Change in Price (Average Ticket Price) = ($27.20 - $25.50) / $25.50 * 100 = 6.7%
PED (2000 - 2001) = 7.8% / 6.7% = 1.16
Period between 2001 and 2002:
% Change in Quantity Demanded (Total Attendance) = (25,161,712 - 23,958,074) / 23,958,074
* 100 = 5%
% Change in Price (Average Ticket Price) = ($28.39 - $27.20) / $27.20 * 100 = 4.4%
PED (2001 - 2002) = 5% / 4.4% = 1.14
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The PED values calculated above represent the estimated demand elasticity for Cinemex's
attendance during the two periods, considering both Wednesday and overall attendance. These
values indicate that the demand for Cinemex's attendance was relatively elastic in both periods,
meaning that changes in ticket prices had a noticeable impact on attendance.
However, it is essential to note that these estimates are based on the data provided and may
not fully capture all the factors that could influence the demand elasticity. Factors such as the
introduction of the 2-for-1 pricing deal, changes in the quality of the movies being screened, or
other external factors might also have an effect on attendance and should be taken into
consideration when interpreting these results.
Question e) Was Heyman's decision to match the 2-for-1 pricing the right thing to
do? (Brody & Wei)
Based on the provided data, we can analyze whether Cinemex CEO Matt Heyman's decision to
adopt the same 2-for-1 pricing strategy as the competitors was the right move.
First, let's look at the data for Wednesdays. After Cinemex adopted the 2-for-1 pricing strategy,
the number of Cinemex attendance on Wednesdays increased from 75,700 to 89,742. At the
same time, Cinemex's market share on Wednesdays rose from 38.53% to 45.10%. This
indicates that on Wednesdays, Cinemex's decision was effective in attracting more customers
and gaining a higher market share in the competition.
However, the situation is slightly different for the data for the entire week. After adopting the 2for-1 pricing strategy, Cinemex's weekly attendance increased from 512,106 to 453,204, but the
market share slightly declined from 47.58% to 47.42%. This suggests that, within the scope of
the entire week, Cinemex's 2-for-1 pricing strategy did not significantly improve its market share.
Additionally, looking at the total number of city attendance, the weekly attendance dropped from
1,076,207 to 955,691 after Cinemex adopted the 2-for-1 pricing strategy, while the attendance
on Wednesdays increased from 196,480 to 199,002. This indicates that the 2-for-1 pricing
strategy had no significant impact on the total number of city attendance.
Taking into account the previously calculated PEDs, it can be found that Cinemex's audience is
relatively sensitive to price changes. Based on this data, we can conclude that on Wednesdays,
it was the right decision for Cinemex to adopt the 2-for-1 pricing strategy, as it helped increase
attendance and market share. However, within the scope of the entire week, the effect of this
strategy on improving market share was limited. Therefore, Heyman's decision was correct to
some extent, but there is still room for improvement. For instance, Cinemex could try
implementing more targeted pricing strategies for non-Wednesday dates to increase market
share within the entire week.
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Appendix
Week 1-65
(Before any deal)
Week 66-86
(Only Competitors’
deal)
Week 87-121, 123130
(Both deals in effect)
Average
Cinemex
attendance per
week
433350
512106
453204
Average City
attendance per
week
864795
1076207
955691
Average
percentage of
attendance of
Cinemex per
week
50.11%
47.58%
47.42%
Average
Cinemex
attendance per
Wednesday
62410
75700
89742
Average City
attendance per
Wednesday
143665
196480
199002
Average
percentage of
attendance of
Cinemex per
Wednesday
43.44%
38.53%
45.10%
Table 1: some statistic numbers of average attendance and average percentage of
attendance(market sharing)
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Figure 1: Attendance per week of Cinemex from 2000 to June 2002
Figure 2: Attendance every Wednesday of Cinemex from 2000 to June 2002
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Figure 3: Attendance percentage per week of Cinemex from 2000 to June 2002
Figure 4: Attendance percentage every Wednesday of Cinemex from 2000 to June 2002