lifetime value

30 BoxOffice® Pro The Business of Movies JANUARY 2015

by Mark de Quervain, Action Marketing Works Ltd.by Mark de Quervain, Action Marketing Works Ltd.

A good question? I thought so when

this came to mind. Why? Be-

cause we spend a lot of time

talking about how to grow

cinema-attendance frequency:

if only we could make occasional

cinema-goers go one additional time each

year, we would all be more successful.

But how does one know that this is ac-

tually achieved amid the clutter and

noise of the peaks and troughs of

our business, and whether the po-

tentia profit is ort t e expense

HOW MUCH IS A CUSTOMER WORTH OVER A LIFETIME OF CINEMA-GOING?

Jan15_CustomerWorth.indd 30 12/30/14 7:34 PM

JANUARY 2015 BoxOffice® Pro The Business of Movies 31

It is worth bearing in mind that in most major established mar-kets, audience attendance remains stubbornly �at in spite of extensive marketing activity, new cinemas, and new technologies; achieving signi�cant growth seems an elusive goal.

Making money from driving incremental attendance is certainly hard. I have spent years looking at new ideas that are supposed to drive frequency, but it is always di�cult to make them work, on a spreadsheet let alone in actual trials. �e reason is that the short-term incremental revenue is often too small to make it worthwhile or even measure, resulting in ideas never passing the “so-what” test or being stopped after trials. Marketing budgets are also limited due to the small returns, which probably compounds the challenge and impacts the result and follow-up actions.

LIFETIME VALUE

To derive the value of a lifetime of cinema-going, I have had to make a number of assumptions:

1I have taken an annual frequency of 6 times per annum as the starting point—a number that represents an occasional cinema-goer.

2The numbers chosen are aligned to the U.S. market but can be easily changed to any country or company.

3 Average ticket price plus sales tax/VAT Year 1 of $9.00

4 inus cost of fi m renta 5 %

5 nnua tic et price in ation of 3% per annum

6 rofit per ead from retai concessions sa es 1 5

7 nnua retai concessions price in ation of % per annum

8 at sa es tax of 7 5%

defined a ifetime as 3 years given t at t ere may be periods of non-cinema-going or infrequent going.

THE NET LIFETIME REVENUE (ASSUMING THE TABLE AT LEFT) IS ONLY $1,663.

I am not sure how this feels to you, but I was surprised how small this number actually is, particularly since it includes 30 years of in�a-tion. Imagine working for a major supermarket or car manufacturer or clothing company—the number would be multiple times bigger. �e amount also excludes deductions for operational costs, utilities, and other overheads we take into account for EBITDA (earnings before interest, taxes, depreciation, and amortization).

Even a person going one time per month only doubles the above revenue at $3,326.

Interesting, too, that the price of a ticket rises from $9 to over $21 in 30 years!

So what does this mean? Does it change anything?

I think it actually does. For a start it forces me to think longer term and to more carefully consider the customer journey from young to old and how we could, as a marketers and cinema operators, nurture cine-ma-going in such a way as to build frequency and revenue over a longer time period. �is approach would certainly change things, not least our view of marketing payback models, which tend to be more short term, and whether marketing investment makes sense.

Of course one issue is that many investor windows are �ve years at best, so any conversation about 30-year value could easily be meaning-less to them. Not so! Why? Because if you have many customers, all at di�erent places on their cinema road map journeys, it’s likely that, even over a �ve-year period, there is signi�cant upside in revenue from incremental cinema attendance. (continued on next page)

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SETTING TARGETSSetting realistic targets for driving frequen-

cy over time is important, not least because they will drive what you do and when. �ey also allow you to measure success, and this will require putting in place touch points in the customer journey that provide the neces-sary data to allow you to know if what you are

doing is working as intended.In terms of setting a frequency target, it

might help �rst to see what di�erence certain assumptions could make to the net revenue over the 30-year period. �is will help you set the investment and expectations in terms of ROI over time.

If one assumes that it will take �ve years to

increase frequency one visit per annum (from six to seven in a steady state), then over six blocks of �ve years (total 30 years), the actual net revenue in real terms goes from $1,633 to $2,643—a growth of 37 percent. Over ten years this would be a 10 percent net real increase. Not that ambitious, perhaps, but achievable considering that in the last �ve-year block of the


FIG 2The chart shows how cinema-go-ing over a cus-tomer’s lifetime is more complex than a straight linear progres-sion. It allows for a 2-year gap of zero attendance.

12

11

10

9 9

8 8

7

6 6

5

0

STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6 STEP 7 STEP 8 STEP 9 STEP 10 STEP 11 STEP 12

Years 3 3 3 3 3 2 2 3 3 3 2 2

Frequency 18 24 33 36 27 0 10 24 27 30 14 12

Cum. Frequency 18 42 75 111 138 138 148 172 199 229 243 255Cum. Average Frequency 6.0 7.0 8.3 9.3 9.2 8.1 7.8 7.8 8.0 8.2 8.1 8.0Cum. Average Frequency % Change 17% 19% 11% -1% -12% -4% 0% 2% 3% -1% -2%

11

10

9

8

7

6

STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6

Step = 5 years

Starting Frequency 6x, Ending Frequency 11x per annum

FIG 1Cinema-going frequency increasing by 1x per annum every 5 years drives 37% increase in operating profit

HOW MUCH IS A CUSTOMER WORTH?

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30, frequency would have grown from six times per annum to 11 times per annum, which is ac-tually quite high, in e�ect moving an occasional cinema-goer to a frequent cinema-goer.

�is is very over-simpli�ed as it assumes a linear growth every �ve years over a 30-year period. See Fig. 1, on page 32.

In reality, of course, we know that a person’s cinema-going frequency can vary considerably over such a long period, with possible periods where he or she stops going altogether due to having a family, for example. A customer’s attendance may also peak earlier and then decline. Fig. 2 shows how this might be taken into account when looking at a cus-tomer road map and his or her lifetime value. Clearly this is much more complex!

In this example (Fig. 2), the average frequency per annum grew from six times to eight times over the customer’s lifetime, an increase of 25 percent. �is includes a period of frequent cinema attendance (Steps 4 and 5) peaking at 12 times per annum. �is model drives a net revenue of $2,493 (excluding gap-year in�ation), an increase of 34.5 percent, which is close to the linear model shown in Fig 1.

�e chart also shows how tricky it is to measure and track changes in frequency when we have natural variances in attendance each year. However, the cumulative average annual

frequency and percent change can be used as the KPIs (key performance indicators) for ensuring the customer is on track, particularly if benchmarked against market admissions.

THE EARLIER THE BETTER: THE IMPORTANCE OF CHILDREN AND TEENAGERS

�e sooner one can get a customer to join the road map the better. �e younger we get people into our plan, the more likely we can drive change and the more valuable they will be to us now and in the future, resulting in more revenue generated.

�e implication of this cannot be clear-er—we need to engage and drive attendance among the younger generation.

Bear in mind, of course, that we see rap-idly aging populations is many EU countries and the United States. I reported in a previous article for BoxOffice that in the EU-25 by 2020, the number of over-65-year-old people is set to increase by 15.9 percent, while the 0- to 14-year-olds are set to decline by a modest 1.4 percent (2010 vs 2020 EU-27).

�is article will not cover how we might drive cinema-going with youngsters; it will show a good reason why. Su�ce to say that it is a signi�cant challenge given lifestyle changes and how young people consume �lm. It must be a major priority for any cinema company

to have a clear audience-development plan for families with young children and teens up to 17 years old.

SO WHAT ABOUT MORE MATURE AUDIENCES?

Cinemas are catering to more mature and discerning audiences, and this is seen through the success of “quality” movies and of opera, ballet, and theater. More mature audiences may also seem, in certain circumstances, to be less price sensitive than, say, a family with two children, a teenager, or a student, who require potentially di�erent content, scheduling, and even di�erent environments.

Chasing and growing attendance among the more mature audience is certainly bene�-cial, but if we don’t have younger cinema-go-ers in the pipeline, our business will face a major challenge in the near future.

THE IMPORTANCE OF DATA CAPTURE

Given that we are looking at occasional cinema-goers, i.e. customers who attend a cinema on average six times per annum, the importance of data capturing as many as possible and having an active and engaging dialogue with them cannot overstated.

Many cinemas do, of course, do this already, but many may not have a clear under-

NOVEMBER 2013 BoxOffice® Pro The Business of Movies 57

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standing of the monetary value of an active, en-gaged customer versus a customer who’s in the database but inactive, or not in the database at all. With so much marketing e�ort and budget being put into data capture and CRM (custom-er relations management), it would be good to know what this incremental bene�t is, not least for ROI, forecasting, and performance measurement. A strong number may actually allow companies to justify spending more.

�e number of customers in the average company’s database tends to be a percentage of the total customer base, perhaps 20 to 25 percent. �ese may, of course, be skewed to more interested and engaged people who may or may not be high-frequency visitors.

It would seem logical that if a person is receiving 52 e-mails a year, there is a good chance of generating an incremental visit that results in a group attendance of at least two, so the net bene�t can quickly be seen. �e key question is whether we know if what we do creates real incremental revenue and how the overall activity �ts (if at all) into a formal audience-development plan.

LOYALTY PROGRAMSLoyalty and reward programs do entice

sign up and generate active CRM. However many companies struggle to quote a formal ROI number because of the di�culty of evaluating member bene�ts versus incremen-tal visits and amount spent. �e upside is

potentially eroded by the most frequent and loyal customers signing up �rst and being rewarded for actions they would have taken anyway. �e less active and engaged occa-sional cinema-goers may be less attracted by a program that is built to minimize pro�t leakage by giving away unnecessary rewards. Most programs I have looked at seem to lack a database that covers most customers but skews to customers who generate around 50 percent of attendance, thus leaving a large pool of customers untouched by the o�er.

A bene�t of a good reward program is the ability to build a pro�le of �lm choice so that recommendations can drive retail spending habits. It can take several years to get enough data for accurate pro�ling, however, which can slow down the e�ectiveness of the program.

Retail spending habits are probably more quickly predictable and easier to incentivize than spending on cinema, not least because of the margins involved.

BENEFITS LINKED TO REGISTRATION

It is certainly possible to drive wider sign-up into a CRM program by making sure that any “bene�t of worth” requires regis-tration. Bene�ts can be a mix of all types of things, ranging from pricing (cheap days for example) to exclusive screenings and special events. “Ring fencing” special o�ers (having customers register and, perhaps, log in) is

good practice, as this secures data capture and reduces pro�t leakage.

Certain incentives, such as making online purchases cheaper than o�-line, can drive data capture. In fact when using such a strategy, Cineworld in the U.K. reported a doubling of its customer database in two years, so that the majority of their customer base is now registered.

Such strategies can work separate from or alongside a loyalty program.

CUSTOMER SEGMENTATIONCustomer segmentation quickly follows

on the heels of data capture. Without a good segmentation strategy and plan, all communi-cation would be at best “vanilla,” or at worst badly targeted, thus driving ine�ciency in spending and possibly disengaging customers. Meaningful, well-targeted messages will en-gage more customers and drive more positive outcomes.

One possible segmentation strategy might be for the business to plan something for each of its “segments” at least one time per month or every six weeks, not least because of the frequency target we are trying to achieve. A person going six times per annum may need 12 opportunities/choices in a year; a person going seven times would need 14 opportunities, and so on.

Note that customer segments can overlap and thus share content. �e more segments

Customer Journey Road Map

Data Capture

CRM

Segmentation

RelevantContent

Touch Points

THE WHOAllows us to identify and talk to people in a relevant way they understand and like

This enables us to do what we want

THE WHATReason to go and return

TRACKING & MEASUREMENTNPS/CSI, Loyalty Frequency, Rate Return, VFM WOM

FIG. 3Summary

HOW MUCH IS A CUSTOMER WORTH?

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you create the more complex the work be-comes, so choosing your segments in the �rst place is critically important.

�e content o�ered to each segment can be new, recently released, or brought back, old(er) for special events such as ladies nights, sneak previews, early limited releases, and al-ternative content. �e use of digital projectors is a great enabler of this strategy as it allows for more content �exibility.

�e challenge is that this approach requires time, resources, money, and e�ort to deploy e�ectively. It also certainly requires the full buy-in of the �lm-buying team, as they will not have to �nd content but schedule it appropriately.

�ere are some exhibitors who are already doing this and seeing encouraging results.

SEGMENTATION SUMMARYIt is beyond the scope of this article to ex-

plore segmentation in more detail. At Action Marketing Works we are developing a new way of approaching customer segmentation, which we hope to reveal at CinemaCon next year. It combines learnings from other in-dustries with how television stations segment their audiences and applies it to cinema.

TOUCH POINTSAlong with data capture, CRM, and

segmentation come touch points. �ese are

prede�ned points at which you can measure attendance in relation to the targets set for them, measure what customers are up to—which �lms they see, what retail they buy, whether they attend special events and/or re-spond to promotions, which days of the week and show times they prefer, what groups they go with—and �nd out what they think.

Without touch points, your ability to measure success—to check where customers are along the road map of lifetime of cine-ma-going—becomes impossible.

Importantly, all data collected that go into a database need to be properly analyzed and used. Too much data and you drown very quickly; too little and the database becomes impotent. �e key is to get the balance right: just enough information to get what you want, when you want it.

I would certainly include ring-fenced o�ers (content, events, pricing, promotions, and retail) as touch points and combine them with an online-purchasing strategy. It would also be bene�cial to add customer feedback and CSI (customer service index) into this matrix.

SUMMARYSo what has this article covered? It has quanti�ed the value of a lifetime

of cinema-going (30 years), which might be lower than expected. �is is why short-

term actions can be hard to justify, not least because it involves very little money.

It suggests ways to measure cinema-going frequency targets, even if the road map is not linear but more complex.

It suggests that it might be necessary to re-evaluate one’s marketing expectations in the short-, medium-, and long-term and how, perhaps, a slightly longer view would help marketers set more realistic workloads and more justi�able budgets. It may also allow marketing teams to show how what they do generates revenue and then attach a revenue number to it.

It suggests that we should have a pre-de�ned detailed road map for our customers, without which we will end up with uncon-nected short-term actions leading to nowhere in particular.

It emphasizes the importance of getting young people into your road map, as this will increase revenue and protect future business.

It looks at the importance of data capture, CRM, customer segmentation, and touch points, how they coexist, and why.

Most importantly, it talks about giving all customers—children, teenagers, and mature cinema-goers—a reason to come back after visiting our cinemas within a prede�ned time-frame so that cinema-going becomes a more important part of their lives. And that has to be good news for all of us. n


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