The multiplex boom ushered in a new era in the country’s entertainment industry and has transformed the landscape of movie-watching in India. The dynamics today are rapidly changing due to a rise in the standard of living as well as a plethora of choices offered by multiplexes and standalone cinemas. They co-exist, each one catering to a niche set of movie enthusiasts.
In metro cities, you have urban families who prefer the luxury of a multiplex, whereas in Tier II and III cities, it’s more about utility value. Having said this, India is still a very price-conscious market.
Consumers like value for money and loyalty towards a brand remains as long as it suits their budgets. Hence, differential pricing works in some ways and not in others. To explain this phenomenon further, the concept of differential pricing has its roots in economics – which is the demand-and-supply curve.
The price of a particular product/ service will vary until it settles at a point where the quantity demanded by consumers (at the current price) will be equal to the quantity supplied by producers (at the current price), resulting in an economic equilibrium of price and quantity.
The cinema business is a tertiary demand and is the last in the chain of decision-making from a consumer share-of-wallet perspective. Furthermore, price elasticity also has an effect on demand. The extent to which demand changes with price is known as ‘price elasticity of demand’. Inelastic products tend to be those that people must have, but they use only a fixed quantity.
However, demand for luxury goods, such as restaurant meals and cinema tickets is extremely elastic – consumers quickly choose to stop going to restaurants if prices go up.
In the cinema exhibition industry, supply can be increased but only up to an extent. Beyond that, it cannot be increased within a short period.
As I said earlier, the cinema industry is tertiary demand and also depends on the current market situation of other necessary products as well as the share of disposable income of the common man.
So ticket pricing is generally done in the way that it settles down at the point where consumers can still meet their demand and that it does not increase the profit substantially.
Finally, one has to bear in mind that for any movie, even if supply is good, demand does not go beyond a certain point due to elements such as content, production values, presentation of a story, performances of actors etc and the audience acceptance of the same.
Sunil Punjabi, CEO, Cinemax