Analysis of Cineplex Odeon Corporation

Through Trilogy Framework

Objective
To analyse the strategies adopted by Cineplex Odeon Corporation from the Trilogy Framework: 1. Corporate Strategy 2. Business Strategy 3. Functional Strategy

Case Background
This case describes the strategies adopted by Cineplex Odeon Corporation , a market leader in Motion Picture Viewing Industry in the mid 1980s when the industry itself was in a state of decay. The case describes how the corporation from a humble beginning aggressively expanded in foreign markets by offering a differentiated and unique experience to the customers driven by a brash dynamic and visionary leader

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Cineplex Odeon Corporation

Motion Picture Industry Attractiveness

Parameter: Over All Market Size Weight: .11 Score : 2 Value: .22 Reason: This industry is in the business of providing recreation to its customers other alternatives being Cable TV, VCRs in the visual mass entertainment section and other form of recreation like skiing, boating, cycling etc. Market size of theatre is above alternative recreation but less than cable and VCR Parameter: Market Growth Rate Weight: .11 Score : 2 Value: .22 Reason: Overall market growth rate is low in this case. A general downward trend in attendance has been observed over the years
Parameter: Sensitivity to Price Weight: .11 Score: 2 Value: .22 Reason: Sensitivity to price is high as customers have alternative forms or substitute for entertainment Parameter: Bargaining Power Of Suppliers Weight: .11 Score: 2 Value: .22 Reason: Bargaining Power Of Suppliers is high as the success of the theatres depends on the quality of movies rather than quantity. Number of movies produced also are less than the capacity of the exibitors
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Cineplex Odeon Corporation

Motion Picture Industry Attractiveness

Parameter: Barriers to Entry Weight: .11 Score: 3 Value: .33 Reason: Barriers to Entry is high because it requires huge investment of capital. It is also impossible on the part of small players to survive as large players take advantage of economies of scale Parameter: Economies of Scale Weight: .12 Score: 4 Value: .48 Reason: Economies of scale exist in the fields of operating cost, advertising costs, executive compensation etc. Parameter: Competitive Intensity Weight: .11 Score: 2 Value: .22 Reason: Its a highly competitive industry due to the presence of cable TV and cassettes which have eaten into the market of visual mass industry. In the theatre industry there are five major players along with smaller players.

Parameter: Profit Margin Weight: .11 Score: 1 Value: .11 Reason: Average Profit Margin has declined over the years , it being 8.7% in 1987 compared to 9.3% in 1979. Many companies like Carmike and General Cinema were suffering for lower margins. About half of the chains were unprofitable in 1980.
Parameter: Influence of Government Regulation Weight: .11 Score: 3 Value: .33 Reason: The industry is affected by government regulations. Example being the passage of consent decree which opened up competitive bidding of films produced by Hollywood
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Cineplex Odeon Corporation

Motion Picture Industry Attractiveness

Parameter Over All Market Size Market Growth Rate Sensitivity to Price Bargaining Power Of Suppliers Barriers to Entry Economies of Scale Competitive Intensity Weight .11 .11 .11 .11 .11 .12 .11 Score 2 2 2 2 3 4 2 Value .22 .22 .22 .22 .33 .48 .22

Profit Margin
Influence of Government Regulation

.11
.11

1
3

.11
.36

Total Score= 2.38 Industry Attractiveness is medium

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Cineplex Odeon Corporation

Business Strength of Cineplex Odeon

Parameter: Market Share Weight: .1 Score: 4 Value: .4 Reason: In North America Cineplex stands second according to market share trailing only United Artists Communications Parameter: Share Growth Weight: .09 Score: 3 Value: .27 Reason: Growth in Market Share has been high as it has expanded rapidly over the years starting from 18 screens in Canada to acquiring 6 companies in USA Parameter: Brand Reputation Weight: .09 Score: 3 Value: .27 Reason: Its brand reputation is high as it is positioned as a premium player with superior movie viewing experience compared to other players. Parameter: Product Quality Weight: .09 Score: 3 Value: .27 Reason: Product quality is highly superior as evident from differentiated ambience in the theatres like mirrored ceilings, hand painted murals, neon lighted interiors etc. Seats are refurbished in red and white velvet for a Carnegie hall experience. Also a customer has an option of consuming high quality refreshments during the show at the theatre itself Parameter: Bargaining Power w.r.t Suppliers Weight: .09 Score: 3 Value: .27 Reason: Bargaining Power is high due to its size and scale. When Columbia pictures temporarily pulled off The Last Emperor from distribution Cineplex retaliated by removing its blockbuster Leonard 6 from the screens.
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Cineplex Odeon Corporation

Business Strength of Cineplex Odeon

Parameter: Promotional Effectiveness Weight: .09 Score: 2 Value: .18 Reason: Promotional Effectiveness is high as before the premiere of every film it is screened among a select few guests comprising the whos who of the city thus further bolstering its premium positioning Parameter: Productive Capacity Weight: .09 Score: 3 Value: .27 Reason: Capacity is very high as it has approximately 1800 screens next only to UAC communications Parameter : Productive Efficiency Weight: .09 Score: 2 Value: .18 Reason: It is high as the company has trained personnel managing the operations adhering to highest possible standards Parameter : Unit Costs Weight: .09 Score: 2 Value: .18 Reason: Unit Costs are high as there are large fixed costs involved due to the maintenance of the ambience of the hall. However it is offset by economies of Scale Parameter: Managerial Personnel Weight: .09 Score: 3 Value: .27 Reason: The company is being led by a highly dynamic and charismatic leader named Grath Drabinsky who is the greatest visionary in the industry currently Parameter: Acceptance in Society Weight: .09 Score: 1 Value: .09 Reason: The high priced ticket charged by Cineplex is not viewed in good light by the common mass in general as there has been instances of picketing to protest the same
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Cineplex Odeon Corporation

Motion Picture Industry Attractiveness

Parameter Market Share Share Growth Brand Reputation Product Quality Bargaining Power w.r.t Suppliers Promotional Effectiveness Productive Capacity Weight .1 .09 .09 .09 .09 .09 .09 Score 4 3 3 3 3 2 3 Value .4 .27 .27 .27 .27 .18 .27

Productive Efficiency
Unit Costs Managerial Personnel Acceptance in Society

.09
.09 .09 .09

2
2 3 1

.18
.18 .27 0.09

Total Score= 2.65 BS/CP is Average

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Cineplex Odeon Corporation

IA Vs BS/CP Matrix

Business Strength/Competitive Position (BS/CP)

Position Of Cineplex Odeon

Strong
1 2

Average
Growth Concentration via Horizontal Integration 5 Growth Concentration via Horizontal Integration Stability No Change or Profit Strategy 8 Growth Conglomerate Diversification

Weak
3 Retrenchment Turnaround

Industry attractiveness (IA)

High

Growth Concentration via Vertical Integration 4

6 Retrenchment Captive Company or Selling Out 9 Retrenchment Bankruptcy or Liquidation

Medium

Stability Pause or Proceed with Caution 7

Low

Growth Concentric Diversification

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Cineplex Odeon Corporation

Strategies Adopted
As Cineplex Odeon was placed in the fifth cell it should either adopt a growth strategy via horizontal integration or adopted a strategy for stability. It went for horizontal Integration It acquired the following companies
Odeon Plitz Theatres RKO Century Theatres Walter Organisation Circle Theatres Septrum Sterling Recreation Maybox Movie Theatre Major Countries: US, UK, Europe and Latin America

The investments were funded by capital infused from investors like Odyssey Partners, Claridge Investments and Company and MCA Inc Reason Behind Acquisition: Increased Bargaining Power + reduce competition
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Strategies Adopted
However Cineplex Odeon also went for conglomerate diversification (corresponding to cell no:8 in the Matrix). It engaged in TV and film production, distribution and theatre Theatre: Acquired Pantages Theatre in Toronto for screening Phantom Of The opera Film Production: Began a 414 acre motion picture entertainment and studio complex in Orlando, Florida. It also entered into a JV called New Vision Pictures to produce 10 films over a 2 year period. Distribution: It also entered into TV and films distribution. Major films were The Changeling, Sign Of The Times. It also distributed Hitchcock's 1989. Reasons for Diversification: Cineplex Odeon, being a market leader was able to transfer and leverage competencies when it diversified in the above mentioned industries. It was also able to achieve vertical integration and further leveraged through economies of scale. Consequences: In Order to fund these Cineplex had raised debts which became unsustainable. It had to sell stakes in majority of the above ventures after some time i.e. 49% stake of New Vision Pictures was sold to Rank Corporation even when it was profitable
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Business Strategy
Cineplex Odeon created value for its customer through Focussed Differentiation Low Cost Differentiation

Broad Target Narrow Target

Cost Leadership Cost Focus

Differentiation Focussed differentiation (Cineplex Odeon)

Geographical Segment: US , UK , Europe, Latin America Buyer Segment: Citizens of the baby boomer generation who have crossed the age of 40 and are reasonably wealthy Product Line: An unique movie watching experience better than any alternative form of recreation Pricing Position: Premium

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Business Strategy
The basic building blocks of the differentiation strategy Innovation and quality: supported by the best infrastructure in the industry Customer Insight: The target customer segment i.e. wealthy baby boomers were ready to pay a premium provided they had a unique and satisfying experience
Cineplex Odeon Strategy Price Differentiation Image Differentiation Support Differentiation Quality Differentiation Design Differentiation High Cost Premium Food + Beverages Most Superior movie viewing experience Completely unique ambience of the theatres

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Business Strategy: Sustainability of the Advantage

Costly to Duplicate Product Feature Yes Easy to Duplicate

Product Complexity Product Mix

Brand Technology Distributor Network Customer Service Location Yes Yes

Yes Yes
Yes Yes Yes

Thus it can be concluded from the above table that the sustainability of the advantage is medium and Cineplex must continue to innovate and maintain superior quality in order to remain in business

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Business Strategy: Scope Strategies

Penetration Strategy: Cineplex did not adopt any penetration strategy. Bundling Strategy: Cineplex offered dining and snacking experience along with movie viewing experience. Market Development Strategy: Cineplex targeted new markets in US, UK, Europe and Latin America and specifically concentrated on wealthy baby boomers who were looking for unique experience and ready to pay a premium. Market Development Strategy: Cineplex did not pursue in developing any new product from scratch. However it improved the movie viewing experience by investing in state of the art technology like Dolby Digital and 70 mm projector. Diversification Strategy: Cineplex diversified into theatre, production and distribution business. It offered state of the art studio complex to be rented for film production.

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Functional Strategy
Cineplex Odeon created value for its customer through Focussed Differentiation Current Industry Trends: Urban theatres were generally in the state of decay. New theatres being build were Spartan and utilitarian in nature. Cineplex Odeon completely redefined the movie watching experience into a pleasurable one making customers desire for it the next time also. For this it also charged a premium. However the Product Differentiation was achieved through the following aspects

Efficiency Quality Innovation Customer Responsiveness

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Functional Strategy: Achieving Efficiency

Economies Of Scale: Cineplex Odeon is a market leader in the theatre industry with 1800 screens and allows it to achieve economies of scale in terms of operational costs, staffing employees, advertising expenses. Large multiplexes create demand for less popular films by generating curiosity among customers coming to visit the popular films. Typically one auditorium housed 900 customers thus reducing the average fixed cost.

Learning Effects: After building the chain of 16 multiplexes in Canada, Cineplex Odeon replicates the same strategy whenever it acquires or builds a new theatre in other markets thus leveraging on learning from previous experience
Marketing: Due to the unique ambience (Egyptian style, Neon lightings, Dolby Digital Sound) and elevated experience (Customer can sip a cappuccino or taste an exotic tea blend) a first time customer always desires to come back and have this experience again, thus reducing the customer acquisition cost Superior Infrastructure: Cineplex had the most superior infrastructure among its peers. The technology adopted was state of the art like dolby digital sound and credit card payment facility went a long way in enhancing customer satisfaction
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Functional Strategy: Achieving Quality

State Of The Art Infrastructure: Cineplex Odeon built world class multiplexes either through renovation or by building them of their own. All screens are wide screened with dolby sound and 70mm projector. Its art dcor design was augmented with post modern features such as marble floor, panel colours and neon accents. Some theatres re rendered with murals of Egyptian style thus providing an ancient ambience. In New York the screens have an ambience of Carnegie hall. Customer can also sip premium quality cappuccino or taste an exotic tea blend from the in theatre cafeteria

Functional Strategy: Achieving Superior Innovation

Infrastructure Leadership: The unique ambience (Egyptian style, Neon lightings, Dolby Digital Sound) and elevated experience (Customer can sip a cappuccino or taste an exotic tea blend) were the first of its kind in the entire motion picture industry

Functional Strategy: Achieving Responsiveness to Customer

Customer at the centre: Cineplex catered to post baby boomer generation who were past their 40s and had money to spend. They demanded differentiated, unique and a premium experience. This was achieved through state of the art infrastructure and quality manpower.

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Value Creation Function

Value Creation Function
Infrastructure Production Marketing Materials management

Achieving Efficiency

Quality

Innovation

Responsivene ss to Customers

R&D
Information Systems Human Resources

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Recommendations
Financing: Cineplex should fund its expansion more through equity and less through debt as it is eating away into its profits Geographic Expansion: Cineplex should expand into emerging markets and target the wealthy customers of that particular region R & D and Vertical Integration: Cineplex should vertically integrate by acquiring animation studios which are cheap and also provide high value and thus increased profit. Information Systems: Cineplex should invest in Technology like IT/Infrastructure systems such that the movie viewing experience is further streamlined i.e. establish e-commerce platforms.

Human Resources: Cineplex is virtually driven by a brash and dynamic leader. However for sustainability it must hire exceptional talent from within as well as outside the industry
Marketing: Cineplex should leverage the power provided by IT to design its promotional strategies. IT can give deep insights into customer demographics and preferences thus enabling it to better bundle its offerings and promoting it to their customers .

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