It has been a very rough few months for MoviePass. Since I last wrote about the company, theater operator AMC entered the subscription market, to early success, and MoviePass took out and paid back a $6 million emergency loan and flip-flopped both its pricing and its product. Lately the company has resembled a fish out of water, gasping for breath.

Will MoviePass survive? The broad answer is yes; the specific answer is more complicated. It could still manage to remain as a stand-alone business (though it’s unlikely); it might survive as part of another business (through an acquisition); it’s already surviving, in a sense, by having its basic model adopted by companies like AMC. And whether it survives as a corporate entity or not, it will surely be remembered in business lore as a case study or cautionary tale.

I’ve watched a lot of movies that lack the plot twists that MoviePass has been serving up lately. Regardless of what happens, here are five lessons we can learn.

First, MoviePass is a testament to the power of price elasticity curves. At $49.95 per month, MoviePass had 20,000 subscribers. At $9.95 per month, it grew to 3 million in a matter of months. What will happen now that it’s still at $9.95, but with a three-movies-per-month cap? (We’re ignoring the few days that MoviePass raised the price to $14.95 before flipping back.) Should MoviePass have matched AMC at $19.95 per month, a price-value equation that has already brought the newer service 200,000 subscribers? It depends on the shape of the price curve.

Pricing is so powerful that playing with it requires great skill and precision. MoviePass should have done its price experimentation at the outset and on a local basis. It could have optimized the price points and tested alternative pricing models quietly, instead of jerking millions of customers around. Even a slight tweak — such as moving to a club pricing model like Costco’s — might have solved its cash-flow problems.

These kinds of tweaks could also have enabled the company to consider regional pricing strategies, given that its cost of goods (the full price of movie tickets, which it pays theater operators) varies from $8 in Nebraska to over $15 in New York. This case is also a good reminder that the United States has local profit pools. It is silly to think that a one-size-fits-all national strategy is the right approach for a market as ethnically and economically diverse as the United States.

Second, MoviePass serves as a cautionary tale of treating consumers with a transactional mindset. Its grand vision was to accumulate millions of consumers so that it could monetize them through advertising. This ad strategy led to its quest to scale as quickly as possible, given its cash burn. This meant MoviePass had to grow much faster than its customer support could keep up with. The constant price and product changes clearly show how little it understood what consumers wanted — and it’s likely the last straw for many now fleeing MoviePass. To scale, companies need the right infrastructure to keep consumers happy.

Third, MoviePass failed to recognize how the behavior of superconsumers, customers who are highly engaged with a category and a brand, differs from that of average consumers — and how, if not anticipated, this difference can create problems for a company’s cost model. It can especially be a problem if the company uses a “buffet” model of fixed price and unlimited quantities, as MoviePass did. Consider Nicholas Norfolk, a movie superconsumer who published his goal of seeing 100 movies. Before MoviePass, he attended 13 movies a year, so he was a movie superconsumer already. But going forward, he’d watch 10 movies per month — meaning his consumption would expand ninefold. MoviePass clearly didn’t anticipate this behavioral shift when it forecasted its costs and devised its pricing. Other companies can learn from this mistake.

Fourth, MoviePass failed to fully consider that the ticket to a movie is only one part of a consumer’s cost to attend, so it failed to find ways to create revenue opportunities around other parts of that spending. Consider the excellent willingness-to-pay analysis done by Price Intelligently on over 12,000 current, former, and prospective users of MoviePass or AMC. They found that the willingness to pay for a night out at the movies if you’re going by yourself was $51.39. However, if it was a “date night,” then your willingness to pay for the night was $101.49. And if it was a “family night,” then your willingness to pay jumped to $148.96. (Willingness to pay includes not just the cost of the tickets, but also a Lyft ride, dinner, and drinks.) Ideally, MoviePass needed to find a model that gave it access to a bigger chunk of that spending, not just the ticket piece of it.

For instance, MoviePass could have chosen to collaborate with willing partners. For example, it could have looked to category creators like Studio Movie Grill, a rapidly growing $200 million movie theater that provides full meals during the show. Since Studio Movie Grill sells appetizers, main dishes, desserts, and drinks that have to be pretty good, it likely has far greater flexibility to offer discounts than a traditional exhibitor like AMC, where consumers buy just one or two vastly overpriced items.

Finally, MoviePass’s struggles provide evidence that bullying is a bad business plan. At the core of MoviePass’s strategy was the goal of scaling enough to have the power to shake down movie theaters for concession profits or reduced prices on tickets. It didn’t work. Its attractive price-to-value proposition attracted early attention and customers, but it wasn’t a viable long-term model.

from HBR.org https://ift.tt/2MyRkxw