Movie Theater Popcorn
The experience of watching a movie in theaters isn't replicable. There's the large screen, the comfy chairs, surround-sound systems, and most importantly, the popcorn. Yet, movie theater concession are notoriously overpriced. Why?
A study conducted by Stanford and UC Santa Cruz found that the strategy of pricing concessions high and keeping tickets low attracts more customers within a larger income range. By charging less to allow consumers to watch movies on a big screen, more people (especially those that are price-sensitive) are able to enjoy this experience. The movie ticket is a primary product in relation to a theater's profit model, and the snacks are secondary products: you don't have to buy concessions to enjoy a movie, but it certainly ups the overall experience.
Most theaters rely heavily on concession sales to keep themselves afloat. Due to low revenues from tickets (a portion of the profits go to movie distributers), profits from the sales of popcorn and sodas go 100% towards the theater itself. Thus, even though concession sales only make up around 20 percent of gross revenues, they represent some 40 percent of theaters' profits. And for those die-hard moviegoers who are willing to shell out $20 in concession sales each time they visit, the overpricing of food makes sense. After all, if theaters were to overprice tickets and keep concession prices low, the high prices would deter price-conscious moviegoers into watching movies at home.
And there's a clear reason why popcorn is sold by the bucket. Popcorn is a snack that has extreme diminishing rates of marginal utility. The smell of freshly buttered popcorn is enough to draw us in and make us take out our wallets, but after the first few bites, each kernel is no longer as satisfying as the first. Thus, theaters want to sell us as much as they can the first time around, which is why the largest buckets are given the most favorable light. By overpricing the small and medium and making it seem like the large is at a great discount, they're able to convince consumers to buy more popcorn than they can ever consume. In a way, the concessions stand monopolizes the sales of snacks: they're the only seller within the theater, so consumers must take whatever price they charge. And due to the low costs of making popcorn, their profit margins are lucrative.
So next time, when you're watching a movie, consider the reasoning behind why popcorn is so costly. Because of the overpricing of concessions, you're able to watch a movie at lower overall cost in a theater that can comfortably operate with total revenues above total cost.
Sources: https://www.gsb.stanford.edu/insights/why-does-movie-popcorn-cost-so-much
https://www.beyondcostplus.com/pricing-resources/pricing-examples-case-studies/diminishing-marginal-utility-popcorn
A study conducted by Stanford and UC Santa Cruz found that the strategy of pricing concessions high and keeping tickets low attracts more customers within a larger income range. By charging less to allow consumers to watch movies on a big screen, more people (especially those that are price-sensitive) are able to enjoy this experience. The movie ticket is a primary product in relation to a theater's profit model, and the snacks are secondary products: you don't have to buy concessions to enjoy a movie, but it certainly ups the overall experience.
Most theaters rely heavily on concession sales to keep themselves afloat. Due to low revenues from tickets (a portion of the profits go to movie distributers), profits from the sales of popcorn and sodas go 100% towards the theater itself. Thus, even though concession sales only make up around 20 percent of gross revenues, they represent some 40 percent of theaters' profits. And for those die-hard moviegoers who are willing to shell out $20 in concession sales each time they visit, the overpricing of food makes sense. After all, if theaters were to overprice tickets and keep concession prices low, the high prices would deter price-conscious moviegoers into watching movies at home.
And there's a clear reason why popcorn is sold by the bucket. Popcorn is a snack that has extreme diminishing rates of marginal utility. The smell of freshly buttered popcorn is enough to draw us in and make us take out our wallets, but after the first few bites, each kernel is no longer as satisfying as the first. Thus, theaters want to sell us as much as they can the first time around, which is why the largest buckets are given the most favorable light. By overpricing the small and medium and making it seem like the large is at a great discount, they're able to convince consumers to buy more popcorn than they can ever consume. In a way, the concessions stand monopolizes the sales of snacks: they're the only seller within the theater, so consumers must take whatever price they charge. And due to the low costs of making popcorn, their profit margins are lucrative.
So next time, when you're watching a movie, consider the reasoning behind why popcorn is so costly. Because of the overpricing of concessions, you're able to watch a movie at lower overall cost in a theater that can comfortably operate with total revenues above total cost.
Sources: https://www.gsb.stanford.edu/insights/why-does-movie-popcorn-cost-so-much
https://www.beyondcostplus.com/pricing-resources/pricing-examples-case-studies/diminishing-marginal-utility-popcorn
Wow this was a really interesting blog post! I was reading and it looks like a long time ago, movie theaters didn't want anything to do with the snack. Theaters used to be really nice places with nice rugs that attempted to replicate a real theater. But then the Great Depression hit and many theaters actually began to struggle. Popcorn was super cheap and contributed to many theaters staying afloat during the economic crisis. It's interesting how popcorn has integrated itself into American culture and how it has changed.
ReplyDeletehttps://www.smithsonianmag.com/arts-culture/why-do-we-eat-popcorn-at-the-movies-475063/
I really liked your post! I work at a movie theatre myself so I know first hand the crazy prices theaters charge. Icon Theatre focuses on having quality customer service so people can have the best time they can. Our tickets are fairly priced with the other theaters, but our concessions are expensive. A small water bottle costs $5.25! There is also an additional menu that has more of a variety in the food and alcoholic beverages. Prices for these items are more expensive, but individuals are willing to pay these prices for the "experience". This increases the total amount of concessions that the theatre sells. On Tuesdays, Icon sells tickets at half price, which draws a lot of customers in. This "special day" causes more people to want to go on that specific day, in order to get the lowest price.
ReplyDeleteIt's super interesting to think about this since I have never really given it much thought. Now that I think about it, I realized that my recent movie tickets have been super cheap. I used to buy popcorn at the movies, and every time I would get sick of the bag by the bottom, and I would feel super crappy after the fact because of how unhealthy it was. However, the urge to buy the largest possible bin was huge because it was just slightly more expensive than the smallest. The marginal cost of the largest bin is very small, and the perceived marginal utility of the largest bin is large even though it really isn't. This is a clever way to combine the entertainment industry with microeconomics. Great article!
ReplyDeleteThis was a super cool post! I love movie theater popcorn, but usually don't go to the movies a lot. I would disagree that popcorn has a quickly diminishing marginal utility though, haha. I didn't realize how much revenue movie theaters made from concessions alone! I found an interesting quote that sums up your article. Howard Edelman, owner of a cinema chain in the NY area said "Owners joke about being in the candy business. If you didn't have concessions at a movie theater, there would be no movie theater. We have movies just to get people in to buy popcorn and candy, where we make our money." Movie theaters make most of their money from movies in the opening weeks, but the rest of the time, concessions make up the majority of their income. Another aspect of movie theater concessions is that the supply is highly inelastic; if you want popcorn, you have to buy their popcorn. How do you think movie theaters could increase the marginal utility of buying tickets and concessions?
ReplyDeleteSource:
https://money.cnn.com/2002/03/08/smbusiness/q_movies/
Really interesting post! It's very interesting to see how much movie theaters have made much profit off of concession items to keep their business making lots of revenue. For movie watchers, it's almost a must to purchase concessions every time they go to the movies it feels like. I didn't know movie theaters relied and made almost all their profits from concessions which was interesting to see. https://abcnews.go.com/blogs/lifestyle/2014/03/what-does-a-trip-to-the-movies-really-cost-you-2/
ReplyDeleteThis is something that I have not thought about when I am going to the movies. I think it is also interesting to note that it is almost common sense to buy porn corn and sodas when walking into a movie. I think this established norm often times makes people ignore the high price of the popcorn. In a sense, the popcorn price is almost inelastic, where there will always be a demand for popcorn, even if prices are high.
ReplyDeleteThank you for sharing this new perspective on the business model of a movie theatre. I did not realize that the popcorn and other foods are how they make the most of their profits until I read your post. Then, I also realized that the market model of movie theatre is not similar to other business because movie theatre is not something people could easily own. In fact, there is a market share between the major companies include AMC Entertainment Inc., Cineworld Group PLC and Cinemark Holdings Inc.. Despite that, the competition also includes the number of broadband connections, such as the potential consumers use high-speed internet for accessing competing streaming platforms. So I think having a high price of the popcorn being sold in the movie theatre is their way of enhancing the movie theatre experience and making the best food accompanying the movie ticket is their method of competing for attracting their consumers from the similar companies.
ReplyDeleteSource: https://www.ibisworld.com/industry-trends/market-research-reports/information/motion-picture-sound-recording-industries/movie-theaters.html