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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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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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Profit Margin
Influence of Government Regulation
.11
.11
1
3
.11
.36
Productive Efficiency
Unit Costs Managerial Personnel Acceptance in Society
.09
.09 .09 .09
2
2 3 1
.18
.18 .27 0.09
IA Vs BS/CP Matrix
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
High
Medium
Low
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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
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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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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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
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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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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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