Pricing tiers: Should we rent a DVD tonight dear? 

Written by Joanna Wells, Author of TeamBuilder360 & Director of Taylor Wells – Experts in Pricing & Building Effective Teams

Following from the blog on the MayPac superfight I thought I would like to go into some detail on the pricing tiers and value propositions of attending a cinema, renting DVDs versus watching a movie on Netflix, downloading on itunes or god forbid- getting it for free from a torrents site! Of course you could wait a while and see it on subscription TV like Foxtel or for the truly patient check it out on free to air TV a couple of years later.

As I mentioned in the Mayweather Pacman blog – the PPV pricing tiers business model has been the mainstay of monetising championship boxing for the last 30 years. That world is changing as live streaming, Youtube, and of course torrents sites change the value proposition and price management of studios and distributors. There are many overlaps in watching a Hollywood blockbuster.  In this blog I look at the key avenues to watch the movie as well as consider whether the current advertising really captures the value (see customer value pricing) each method offers in those pricing tiers.

As an aside- I am glad my Mayweather prediction proved correct!

 

Pricing tiers – how you select your movie delivery method

 

Pricing tiers 1: Going to cinema

Attending a cinema in Australia costs around $17 and is generally accepted as the best way to see a film, the best sound, the big screen show the movie in the intended setting. There are other benefits from attending the cinema – a night out from the house, a cheap form of escapism, enjoyment of watching the trailers, a great “date” option, connotations with glamour, romance, family fun etc. You can enjoy the snack bar before hand and generally the atmosphere of the cinema lets you focus on the movie without distractions from the modern world such as mobile phones or worries.

I remember reading that the reason most movies seem to be aimed at brain dead teenagers is because in the US they represent the majority of the audience and they tend to consume more popcorn (now that is a pricing strategy!) Apparently, the profit margin is so significant that cinema chains prefer to show teen focused movies so they can make the profit margin on the snack bar. Warning – I have not checked the veracity of this story but I like the concept. It also helps explain why Hollywood movies are so dumb in recent years.

Of course “dumber” movies are more likely to be franchised and easily advertised. There is also the opportunity to sell associated merchandise lines like toys and the like. I will cover this in a later blog.

Parents of young kids tend not to visit the cinema as much as singles and older people (when the kids have left home). They tend to view the movie by other formats as below.

Main selling point: best way to experience movie, night out concept, escapism. I wonder whether it is priced accordingly – maybe some of my readers have opinions on whether the pricing is optimised enough. They do offer reduced price tickets for matinees, midweek tickets and season multi tickets. However the segmentation does not seem to be as big as I would expect on first impression i.e. no dynamic pricing, you pay the same no matter where you sit (unlike theatre and opera). In Australia, you also tend to pay roughly the same price no matter whether you visit a CBD multiplex or a suburban outlet. I wonder whether there is further room to apply dynamic pricing and more detailed segmentation to cinemas.

Gold and Platinum class:

Gold class is a hit with many people, but personally I do not really get it. The pitch to me seems to be,”you can have bar service and more privacy”. I can see the appeal for a romantic night out and it is a clear luxury pricing strategy but otherwise wonder if it is strongly enough differentiated from standard class to justify the price difference. I confess to not having much info on this.

In some way, standard class is actually too good to make you upgrade to Gold class. Unlike the famous French railway example (3rd class with no seats and no roof, 2nd class with a roof and wooden benches but no luxury & 1st class with thick red carpets and silver service) – where the segmentation strategy makes you want to pay as much as you can afford.

Main selling point: little bit of luxury, booze at your seat, more privacy for a cuddle?

Pricing tiers 2: DVD rental

Bit out of fashion and probably a bit like saying I rented a video among the younger generation. Your author was still renting DVDs until em, last week. Main sales points are good quality, ability to browse the shop (lesser extent with the newer box machines), ability to get advice from staff and see things you would not otherwise have checked out.

I think there was an intangible plus from actually having a tangible DVD in your hand – a bit like reading a real book rather than a book on a Kindle. I also enjoyed visiting the shop – bit less having to leave it back. The other big negatives were the fines if late and the quite high chance a scratch on the DVD would really ruin your viewing pleasure.

Main selling point: probably the expert advice of people in the shop. However, the market has proven this “value” to be quite low. I do have a sneaky feeling people will miss this value however and may ask for it back in one way or another. Could we see something like Movie Libraries or some sort of movie destination appear again in a couple of years. I think we may see a movie experience shop in shopping centres – after all shopping centres are becoming more experience destinations  than actually shopping locations. We go to the centre for coffee and to try on close, then we go home and buy it on line.

For technophobes – you also do not need a computer, broadband or a credit card. Would I be prone to generalisms to say this makes DVDs marketable to older, poorer and less technophile customers? I feel a bit self conscious for renting DVDs until, oh well I still rent them.

I find it interesting that the advert on rented Australian DVDs is the “Good on yer” one where various Aussi celebs thank you for not “stealing” intellectual property. I have doubts whether this really is a key value that DVD renters care about. Maybe.

Pricing tiers 3: Netflix or equivalent

Seems to be the concept of an affordable torrents concept i.e. we know you want to download a huge number of movies without really making up your mind. Netflix lets you do it cheaply (i.e.cheaper than DVD), in some way replacing the need for subscription TV, and removing the perceived risk of illegal downloads i.e. legal implications  and malware.

Time will tell whether the quality of the picture is a positive or negative i.e. is it on average better or worse than itunes.

Main selling point: has a cool cache at the moment, removes risk, reduces need for cost of pay tv. Get it if you can not make up your mind on what to watch etc. I actually think the pitch of Netflix and equivalent may be a bit short lived i.e. will the studios and other vested interests really like it. I also feel maybe the quality of wide choice may become a negative – all the choice in the word and I can not make up my mind!

Itunes

Linked to appletv – itunes and Google Play are a strong offering in the market. They seem to me to represent a half way house between Netflix / streaming options and the classic DVD. It is really a more high tech way to rent a DVD.

Negatives are the selection is sometimes a bit limited, like a Google search result you often see the same selection of movie. You also have no advice from a store assistant. You also do not get to /have to leave the house to rent one (a plus or minus depending on your individual circumstances). The quality is usually excellent – as long as you have the correct TV /monitor. The transaction is usually pretty easy and reliable.

Main selling point: reliability, high quality picture, just like a DVD without risk of fine, scratches or hassle of leaving it back. Plus the kids will not stand on it /drop goo on it / lose it down the back of the sofa.

Pricing tiers 4: Illegal streaming

I am not laid back enough to stream movies – I fear the risk of malware and someone stealing my personal data. I am also suspicious that the quality of image and sound will be low. It is a bit like buying a coffee – I will pay $3 for a nice cup even though I could get one at home (Blend 47) for much less. I should cover coffee at a later point – note to self. If I am going to invest two hours in watching a movie I want good quality.

Streaming lets you see movies not released yet, or still in cinemas. They cost is zero. However there is a “Value at Risk” concept i.e. will someone fine me for the illegal activity or will my computer get infected. Kim Dotcom seemed like such a trustworthy upstanding chap after all.

I assume some people get an intangible benefit from paying nothing – it lets them feel they are beating the system and would feel foolish paying when they know they can get it for free.

Main selling point: free, early access to movies, infinite selection, instantly available and did I say free?

Pricing tiers 5: Good ol’ TV

I actually like watching movies on TV – for the times when you do not want to watch a movie and can not stand the news, property porn or Spicks and Specks.

I have very little time to watch movies and often am doing one thing, reading, cleaning, ironing etc whilst the TV is on in the background.

For me TV movies are a very passive way to watch a movie. It is clearly a very poor way to watch a movie – commercial breaks, editing for the time slot, old movies, generally nothing challenging or non mainstream etc.

However, not having to choose what you want to veg out to can sometimes be a positive.

Main selling point: you are lazy and can not think of anything else to do. You really should read a book or something.

See our blog on what we can learn from pricing page best practice.

Should we rent a DVD tonight dear is written by Joanna Wells, Author of TeamBuilder360 & Director of Taylor Wells – Experts in Pricing & Building Effective Teams

Taylor Wells is a specialist advisory firm that has developed a search, evaluation and recruitment process in the field of pricing, commercial and analytics.  Our business was started after identifying weaknesses in the traditional agency recruitment model.  Our purpose is to support management and HR to eliminate the risk of a bad hire. Our workshops and diagnostics ensure pricing or commercial teams are deeply engaged with the sales and marketing teams to achieve greater levels of margin and earnings growth.  We have developed our own digital platform to identify and evaluate talent and we partner with subject matter experts to help us operate efficiently.

 

Joanna Wells

Director

BA/ MA Psych. CANTAB, Msc Org. Psych, Dip.Couns Psych

TeamBuilder360

From losing good staff, changing the businesses’ commodity mindset, dealing with procurement, making sense of complex pricing arrangements and managing talent and skills gaps, you face many challenges daily. The pressure of business, work and everyday life is unprecedented. It is now more difficult than ever to choose the right path for the business.

The right pricing and commercial teams can help you generate low risk, and sustainable revenue, margin and profit growth.

Leading companies like GE, DuPont and Caterpillar have all invested in their people and pricing. Over the past 10 years, they have improved their HR initiatives to build powerful and rare pricing teams to drive revenue, margin and profit growth.

TeamBuilder360 shows you how to build teams that work together to drive revenue, margin and profit growth using a teambuilder360 canvas and a wealth of real life examples. It also gives you advice and guidance on how to build a more productive and successful career in pricing without compromising on important career choices and goals.

Check out our blog on why smart price control can liberate you from loss making behaviours.