Cineplex Entertainment - The Loyalty Program - Case Study Example

?Cineplex Entertainment- The Loyalty Program In 2006, Sarah Lewthwaite, the market director for the Cineplex Entertainment, is going to present her recommendation to the committee of senior executives in the coming week. The presentation should contain persuasive arguments regarding loyalty program development campaign considering the movie industry which is having inconsistent revenues each year. She had to suggest, considering the budget constraints, whether the campaign should be launched regionally or nationally, which loyalty partner should be used, the structure of rewards and its promotional campaign. Sarah Lewthwaite has crafted four possible combinations of rewards for the customer and received proposals from three different suppliers, which were having experience in managing customer data banks. Sarah Lewthwaite also had to decide the structure and richness of the program, and the likely response rate so that the financial feasibility could be determined. Cineplex entertainment was founded in 1979 as a small chain of movie theaters. In 2005 Cineplex acquired its largest supplier and become the Canada’s largest film exhibiter. The market share of Cineplex after that acquisition jumped up to 40 million visits of customer per day. Cineplex also started giving value added services to its customer like food at branded concession counters, arcade games, etc. In the same year they also expanded their strategies and entered into new markets which generated customer traffic and boosted their revenue per day. Although the revenue appreciated a lot in the year 2005 compared to the previous years but cost of operation got high as well which shrined the net income of the company. Cineplex Entertainment had issued Elite cards to the customer which offered them rewards like free movie viewing after they accumulate a certain number of points. Cineplex had no CRM capabilities which could help them in driving customer traffic. According to the survey in 2005, 95% respondents wanted to have movie reward offer back. Considering that option for further investment Sarah Lewthwaite gave option of starting a loyalty program to the committee. Cineplex needed a loyalty partner because creating their own data system it would have cost them about $5.5 million in the first year. So they looked went on to look for a partner. Flight Miles, having 72 percent of Canadian active members, had the top loyalty program in Canada. Flight Miles can give Cineplex an opportunity to get access to their data bank of seven million customers which would certainly help them in targeting their market. Flight Miles program would cost yearly about $5 million and $0.09 on every point issued to the customer. Flight Miles executives offered Cineplex $250,000 to make the deal more attractive. Scotiabank approached to Cineplex as a potential partner for the loyalty program. It is amongst the top five bank of Canada having 6.8 million customers and 950 branches in Canada. The Scotiabank proposed a 50-50 cost sharing and expected naming rights on three theatres. They offered a three card reward strategy as well. The estimated cost portion of Cineplex was about $3 million in the first year and $1.7 million and $1.9 million in the later years. Sarah Lewthwaite has now three options to look for loyalty program and had to work on them to finally get the best option. She will have to see the benefits as well as the constraints of the three options. She also restructured the reward program. Sarah performed a sensitivity analysis in the concession revenue per guest which might increase by 5 to 15 per cent and also thought of having a nominal one time or annual membership fee of $2 to $5. Sarah Lewthwaite also knew the fact that only 40 per cent of the points earned by the customer in the loyalty program would be redeemed annually. Lewthwaite then drafted reward structure that contained a preliminary list of four options but she was not sure that which option will click in the customer mind. Loyalty program required a data base vendor who could manage the customer data and the electronic communication site as well. For this Cineplex issued a request for proposal to the three major companies in Canada. Alpha, Kappa and Gamma responded differently to the proposal. The approximate investment cost provided by Alpha was $500,000 and a per month website maintenance cost of $40,000. The proposal given by Kappa to Cineplex on database was a cost of $1 million approximately whereas Gamma offer was attractive as it included a fixed price but Gamma was unable to provide the cost required for the data management. Gamma was just able to give the initial planning and design cost that was around $200,000 approximately. Cineplex wanted to enroll 500,000 customers per year and for the next three years. To meet this sizable target they needed to create awareness of the program. Lewthwaite had a budget constraint and only have $300,000 for the marketing campaign. Although Lewthwaite knew that they have served 5.3 million unique visitors in 2005 with 7.5 visits per guest. Newspaper will cost $1200 - $3600 weekly and with a development cost of $850. Radio Advertising will cost around $160 to $225 of 30 sec commercial and development cost of around $1100. Online Advertising varies differently from Cdn$17 to Cdn$29. Considering the scenario and using the facts and figures obtained by Sarah Lewthwaite about the target market, movie industry, future perspective of the investment the best vendor for data management and the loyalty partner should be decided. For data management the vendor that will fulfill the requirements of Cineplex is Gamma. As they have a good track record of making CRM program also they provided with a different and interactive platform that will support all aspects of e-marketing and e-communication campaign. This type of CRM will provide Cineplex to track their customers on an ongoing basis. It also provides CRM at a fixed price and is a fixed time model. With these much of benefits and a low cost of as low $300,000, Gamma is the best suited choice for Sarah. When considering the best choice for the marketing campaign we see that Cineplex is going to have website which falls under the category of visual advertising. We have to select amongst three options and we see that online customers will be attracted through website so there is no need to go for online marketing. Since website and newspaper are visual advertisings so the last option that is very different yet very attractive should be opted to get customers from a different channel of communication i.e. Radio and also not to forget the financial limit for the marketing campaign is only $300,000 so marketing campaign should be done through Radio advertising. Now the most difficult decision that Sarah has to take is to select the loyalty partner. In this regard Sarah should look on the grounds that will bring more customers to them. For this Flight Miles would be best option for Sarah as Flight Miles is also doing a business of loyalty so they are well experienced in this concerns and have a big number of excited, fun loving and related customers whereas the customer group of Scotiobank will of mixed categories but not in case of Flight Miles. Flight Miles is customer oriented whereas the Scotiobank does not understand the needs of customers of loyalty program and is offering cards which is not a suitable idea to go with. The price of the deal offered by the executives of the Scotiobank on the whole is expensive and reaches to about $6.6 million in three years where as Flight Miles has offered a very attractive deal with a cost of $5 million and also offered $250,000. Not to forget the legal aspect of the partnership, the terms of Scotiobank are a bit hard to digest whereas Flight Miles are flexible. The income statement of the year 2005 shows that the cost of operations was huge. The plan that now has been prescribed to Sarah is low cost yet very effective. It contains the all the ingredients that Cineplex executive committee requires in the Sarah’s presentation. Fact and figure and comprehensive analysis for the loyalty program indicates that it will prove fruitful. Read More