Saturday, 17 October 2015

Why high prices of food at PVR are justified?

High cost of eatables is justified at PVRs because there are 2 powers involved here and they need to be balanced out in order for PVR to make profits.
1. Power of choice. (Consumers have this)
2. Power of scarcity. (PVR has this)

Let me explain, how.

1. Power of Choice : You have the choice to not buy anything at all. To be honest, there are 3 types of movie goers: first who can easily exercise their choice of buying nothing; second who have to unwillingly buy something (maybe due to kid's persistence, extreme thirst/hunger or impressing the date); third who have no issues in spending money to buy the items. But even in the case of second and third kind of customers, there is a power of choice on amount of money they are willing to spend.
2. Power of Scarcity : There are various reasons why outside food is not allowed, but right now just focus on the profit part. Strategy: You can choose not to buy from us but if choose to buy from us, we control the show.

Now imagine scenario 1, in which a movie ticket is sold for Rs. 200, a medium popcorn is sold for Rs. 100 and a cold drink is sold for Rs. 50 at the PVR. These items cost merely Rs. 40-50 to PVR but still selling price is Rs. 150. (Possible unhappy customers - second group)

Imagine scenario 2, in which PVR decides to increase the selling price of ticket to Rs. 275, with a medium popcorn and a cold drink included. But the only catch is that you cannot opt for a movie ticket only. Everyone who buys a ticket has to pay Rs. 75 extra and will get medium popcorn and a cold drink. Now who is happy and who is not?
PVR is happy because since they managed to sell the snacks to every person (earlier only a fraction of customers were buying), they are still making profits. First kind of customers will definitely be not happy as they could have easily saved this extra Rs. 75 which they are now made to forcefully shell out. Second and Third kind of customers may be happy or not happy depending on the total amount they spent on snacks before and after. (Remember earlier they had a choice to limit their purchase, e.g. Rs. 100 but now they have to compulsorily spend Rs. 75 per ticket they buy). So now PVR is making profit like before but it has more unhappy customers. (Possible unhappy customers - first group + some fraction of second group + some fraction of third group)

Imagine scenario 3, where the tickets are sold at Rs. 200 and snacks are sold at moderate prices. Now the sales of snacks might be more than scenario 1, but since people have the choice to not buy at all, there are chances of low profits.
So that's why they have implemented the business model (scenario 1) where they target the second and third group with higher prices and make huge profits at the cost of a few unhappy customers.

PS: In no way, I support such a monopoly.

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