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Assess whether providing luxury seats is the best way for cinemas to increase added value. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 3
Question 1
Assess whether providing luxury seats is the best way for cinemas to increase added value.
Worked Solution & Example Answer:Assess whether providing luxury seats is the best way for cinemas to increase added value. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 3
Step 1
Added value is the difference between the price and the total cost
Answer
Added value refers to the difference between the price charged for a product (in this case, luxury cinema seats) and the total cost incurred in providing that product. By offering luxury seats, cinemas can augment their existing standard offering, potentially allowing them to charge a premium price that reflects the enhanced experience.
Step 2
Benefits of luxury seating for cinemas
Answer
- Higher Revenue Potential: Luxury seating enables cinemas to charge higher ticket prices, thereby increasing overall revenue.
- Enhanced Visitor Experience: These seats can significantly enhance the cinema experience, allowing patrons to enjoy greater comfort, which can lead to repeat visits.
- Assurance of Income: By allowing advance booking for luxury seats, cinemas can secure income upfront, helping with cash flow and reducing the impact of no-shows.
Step 3
Counterarguments to luxury seating
Answer
- Price Elasticity of Demand: The increase in ticket prices may deter some customers if the demand for cinema attendance is price elastic, meaning that a higher price could lead to a significant drop in attendance.
- Profitability Concerns: Initial costs for upgrading seating may outweigh short-term profits due to installation costs and the risk of not attracting enough customers.
- Alternative Factors: Customer preferences can vary; some may prioritize the film itself or availability of food options over seat luxury.
Step 4
Judgement on effectiveness of luxury seating
Answer
While luxury seating does enhance the cinema experience and can potentially boost revenues, it may not be the best strategy for all cinemas. Depending on the target audience and local competition, cinemas may find alternative ways to increase added value, such as improving overall service quality, promotional events, or enhancing the food and beverage offerings. Moreover, during peak blockbuster seasons, traditional cinema features can still attract dedicated audiences, rendering luxury options less impactful.