Background and Challenge
One of the largest movie theatre chains in North America was facing a unique and difficult operating environment. The company had no direct control over the quality or timing of available content (i.e., theatrical releases), and little ability to drive increased loyalty for specific locations. The company asked L.E.K. Consulting to identify tangible opportunities to increase company revenues, decrease costs and deliver long-term value creation.
Approach and Recommendations
In this case, the L.E.K. team undertook the following:
1. Isolated the decision factors most important to movie-goers and developed initiatives that could improve the elements that were both meaningful and under management's control
2. Generated a novel customer segmentation approach to help direct the company's efforts toward the audiences it could best reach, and with the most impact
3. Developed a revolutionary loyalty program for the theatre business that has the potential to change the movie-going experience (and significantly enhance the customer/theater relationship)
4. Designed a new specialty programming concept to bring niche films to specific theater locations where they can be successful and yield significantly better margins for the company
5. Uncovered the huge potential for a subscription pricing model that could drive both attendance and profitability
6. Debunked some common myths about film exhibition costs
7. Developed a clear path for the company to monetize the most valuable asset available to them The client received a validated and prioritized list of key initiatives across many areas (e.g., driving attendance and guest loyalty; optimizing costs and resource deployment; managing studio relationships and optimizing film costs; and maximizing guest experience and per capita guest spending). L.E.K.'s findings showed that these prioritized growth initiatives would create large increases in incremental annual profit.
L.E.K. developed and validated six “big idea” growth initiatives that could generate over $200 million in incremental shareholder value (and evaluated over 30 additional opportunities), potentially increasing run-rate EBITDA by up to 84%. The L.E.K. team also found immediate cost savings that generated a payback of 40 times greater than the project cost.