Thursday, July 3, 2014
If you're a business, one of your primary financial responsibilities is to understand the risks behind the decisions you make. For example, if you put one of your products on sale, you have to weigh the benefit of the increased volume of business against the possibility that so many people will respond to the offer that you will actually lose money by offering the product too cheaply.
In the case of most sales, however, it's a good risk. Even if you do lose a little money in the short term because you're selling products at too close to your cost to obtain them -- or really, just making less money on them than you should be, and thereby creating a domino effect on your other costs -- the long-term gain usually outweighs it. By getting people to become customers for the first time, you are gambling on the likelihood that they will buy from you in the future, even when there's not a sale on.
Apparently, even this is too much risk for Hoyts.
I just noticed in my latest email from Hoyts -- which operates dozens of theaters throughout Australia, as well as the kiosk rental business being advertised in this email -- that a certain "2 new releases for $5" deal is a bit too good, in their estimation, to present it to customers without preconditions.
See if you can see what I'm talking about here:
That's right, that bottom line of legalese includes, after the date, the words "unless withdrawn earlier."
They can't even commit to the fact that this sale won't bankrupt them for the next 18 days until the offer expires?
I call bullshit on that. It's a "have your cake and eat it too" philosophy of running a business. And though it may be pragmatic in many ways, it's also something that people like me should call them on.
What they're essentially saying is that if people respond to this deal too much, Hoyts reserves the right to simply rescind it. If it's such a good deal that people get in riots in order to rent up every last copy of Free Birds, and it starts to effect their bottom line, then poof! The offer's over.
This is why you have risk departments and analyze deals like this exhaustively before you present them to the public. You try to figure out what your exposure is. You forecast the worst-case scenario if you massively underestimate the interest level. And then you make provisions for that worst-case scenario in the parameters of the deal -- such as shortening its length so that you'll minimize the damage if you miscalculated.
Eighteen days not short enough for them?
And then they actually have additional paramters in place, which is that the deal is limited to "eligible titles." In other words, it's a way to move older shit that's not renting that well anymore. Anything new likely doesn't even qualify for this deal.
What I find most absurd is that this is not even a deal involving a finite amount of consumable items. Movies being rented from kiosks are an inexhaustible resource, to a point. Sure, after x number of uses they may cease to function properly, or get scratched and become unreliable. But only the latter is a realistic concern when we're talking about a six-month lifespan inside a kiosk. The likelihood of scratches increases the more you expose your product to numbskulls who don't care for it, but let's be honest -- most of us do our best to handle DVDs properly.
And it's not even that good of a deal. Two movies for $5 is only a total discount of $2 from what it would normally cost. And because you have to get two, the reality is that it's actually a $1.50 profit per customer, since most people only plan to rent a single movie at a time, if all else is equal. You're getting them to spend more without costing yourself any more, except for the barely perceptible financial loss associated from a customer not being able to find the title they wanted and just deciding not to do the deal altogether.
While I'd like it to be my support that's "withdrawn" from Hoyts, the truth is that their kiosk is one of my best and cheapest (even at $3.50 a pop) avenues for getting new releases, and I'll be doing that quite a bit for the rest of the year. The two for $5 deal would even intrigue me if I ever had the chance to watch two movies in one day, a near impossibility between work and children. The deal I'd really like is two movies for two nights for $5.
Of course, that would certainly end in Chapter 11 for Hoyts -- or whatever the Australian equivalent of Chapter 11 might be.