10 Products With Big Markups
The Stanford Graduate School of Business and the University of California at Santa Cruz conducted research into the pricing of movie concessions. Popcorn, for example, often sells at a cost that reflects a 1,000-fold markup compared with the cost of the kernels.
Among their findings were that by charging high prices on concessions, theaters are able to keep ticket prices lower.
The findings seem to suggest an answer to 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)," the researchers said. "Putting the premium on the 'frill' items opens up the possibility for price-sensitive people to see films."The researchers also point out that cinemas rely on concession sales to keep their businesses viable. Although concessions account for only about 20% of gross revenues, they represent some 40% of theaters' profits, they said. While ticket revenues must be shared with movie distributors, 100% of concessions go straight into an exhibitor's coffers. -- Written by Joe Mont in Boston.
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