Popcorn = Luxury

Most people have noticed how expensive popcorn is but what most people do not know is why? You can not say it is because it is more expensive for movies to make popcorn or even in most cases that movie theatres provide great quality popcorn.

That begs the question what is it? This is from Jennifer McNulty at the Stanford School of Business:

"The findings empirically answer the age-old question of whether it’s better to charge more for a primary product (in this case, the movie ticket) or a secondary product (the popcorn). Putting the premium on the "frill" items, it turns out, indeed opens up the possibility for price-sensitive people to see films. That means more customers coming to theaters in general, and a nice profit from those who are willing to fork it over for the Gummy Bears."

This ends up being basic price discrimination. If you want to see the movie but are very poor you will not buy popcorn at any price. This allows them to keep the price of the movie ticket down while making up for it on its most loyal wealthy customers. There is also another reason:

"Indeed, movie exhibition houses rely on concession sales to keep their businesses viable. Although concessions account for only about 20 percent of gross revenues, they represent some 40 percent of theaters’ profits. That’s because while ticket revenues must be shared with movie distributors, 100 percent of concessions go straight into an exhibitor’s coffers."

They have also found that even when there was low attendance, they made large profits.

The next time you go into the movie theatres think about that.

Published in: on March 10, 2008 at 3:18 am  Leave a Comment  

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