Supersize Me: The economics of going large
My local movie theater offers popcorns in the following sizes:
Recently, when I ordered a small, the cashier rebuttled with, "Would you like to make that a medium for just 50 cents more?" Sure, why not.
Whoa! Slow down a minute there. How can you possibly offer me twice as much popcorn for only fifty cents more? That doesn't seem to make sense.
Of course, the movie theater isn't the only place where you might encounter seemingly odd pricing schemes. Coldstone Creamery operates a chain of ice cream parlors where the friendly employee behind the counter similarly offers to upgrade you from a "Like It" (small) to a "Love It" (medium) (and don't get me started on companies who need to come up with new words and phrases to replace small/medium/large) for the low low price of only fifty additional cents. And, yup, you guessed it, you'll get about twice as much ice cream. What a steal!?
Full service sit-down restaurants seem to have incorpated this "gimmick" as well. At Maggiano's, you can get an order of Fettucine Alfredo for $15.95, of a half order for $12.95. Or a Roast Chicken for $16.95, half order just $13.95 (exact prices may vary).
Does any of this make sense? It would seem that one of two things is going on here:
But then again, maybe it's not that crazy after all. Let's take a look at the numbers in the Popcorn example.
You'll notice that using these numbers, the profit margin (in terms of percentages) is identical for the Small and Medium is an identical 400%. Of course, an identical percentage yields a higher total profit (and revenue) for the theater. So maybe we're not really getting ripped off by "just" ordering a small after all. Maybe it's just going to the movie theater in the first place that's a rip off. After all, a bag of microwave popcorn will probably only run you 25 cents or so at the grocery store.
Play around with the numbers and see how things changes when you change the assumptions. InstaCalc was built by a friend and former co-worker of mine, it's a cool and useful site.
[Edit: Fixed InstaCalc link, thanks anonymous commenter]
| Small | $4.75 |
| Medium | $5.25 |
| Large | $5.75 |
Recently, when I ordered a small, the cashier rebuttled with, "Would you like to make that a medium for just 50 cents more?" Sure, why not.
Whoa! Slow down a minute there. How can you possibly offer me twice as much popcorn for only fifty cents more? That doesn't seem to make sense.
Of course, the movie theater isn't the only place where you might encounter seemingly odd pricing schemes. Coldstone Creamery operates a chain of ice cream parlors where the friendly employee behind the counter similarly offers to upgrade you from a "Like It" (small) to a "Love It" (medium) (and don't get me started on companies who need to come up with new words and phrases to replace small/medium/large) for the low low price of only fifty additional cents. And, yup, you guessed it, you'll get about twice as much ice cream. What a steal!?
Full service sit-down restaurants seem to have incorpated this "gimmick" as well. At Maggiano's, you can get an order of Fettucine Alfredo for $15.95, of a half order for $12.95. Or a Roast Chicken for $16.95, half order just $13.95 (exact prices may vary).
Does any of this make sense? It would seem that one of two things is going on here:
- The "Small" sizes are grossly overpriced.
- Larger sizes are being offered at a discount.
But then again, maybe it's not that crazy after all. Let's take a look at the numbers in the Popcorn example.
You'll notice that using these numbers, the profit margin (in terms of percentages) is identical for the Small and Medium is an identical 400%. Of course, an identical percentage yields a higher total profit (and revenue) for the theater. So maybe we're not really getting ripped off by "just" ordering a small after all. Maybe it's just going to the movie theater in the first place that's a rip off. After all, a bag of microwave popcorn will probably only run you 25 cents or so at the grocery store.
Play around with the numbers and see how things changes when you change the assumptions. InstaCalc was built by a friend and former co-worker of mine, it's a cool and useful site.
[Edit: Fixed InstaCalc link, thanks anonymous commenter]
posted by Paul at
6:37 PM
3 Comments:
bad link to InstaCalc (missing the .com in the href)
By
Anonymous, at 7:52 PM
Hey Paul, thanks for the writeup - I'm glad you like the site!
I've had a few friends that worked at movie theaters in high school -- they said that most of the profit actually comes from the food/drinks/popcorn, rather than the ticket price!
It was a little surprising but I think it makes sense... I'm not sure what fraction of the ticket sales goes back to the studio.
It seems the strategy is to make a business where lots of people will be hungry and thirsty, then sell them overpriced food... :)
By
Anonymous, at 1:29 PM
hey paul, let's host a marathon next year and charge $5 for water at the aid stations.
By
Anonymous, at 7:52 PM
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