looney consulting group, inc. providing complex solutions to simple problems analysis of royal...

Looney Consulting Group, Inc. Providing Complex Solutions to Simple Problems

Analysis of Royal Theater’sPractice of Showing

Commercials

Presenters: Dr. Rymsza and Dr. Gunther


Agenda

Background: Rymsza The Case for Fraud: Rymsza Survey Goals: Gunther Survey Results: Gunther Ethical Issues: Gunther Strategic Issue: Gunther Conclusions: Rymsza Recommendations: Rymsza


Background

A Patron (Tommy) is dissatisfied with his recent experience in a Royal Theater.

– Having to sit through 20 minutes of commercials before the movie actually started

Allegation of fraud on Royal Theater’s part

Threatens to file class action lawsuit.


Misrepresentation vs. Fraud

Fraud distinguished from misrepresentation

Prima facie case for fraud


Prima Facie Case for Fraud

A plaintiff alleging fraud must prove:

• A representation was made• The representation was false• When made, the representation was known to be false• The plaintiff relied on the representation• The plaintiff REASONABLY relied on the representation• The plaintiff suffered damage (economic loss) as a result


False Assertion of Fact

Assertion – “Movie begins at 1:00 pm”

Assertion is false


Knowledge & Intent

Knowledge of the falsity– Theater sets starting times

Intent to deceive– Want Tommy to act on the given information


Actual Reliance

Complaining party acts on the assertion

– Tommy made sure he was seated by 1:00pm


Justifiable (Reasonable) Reliance

Reliance must be reasonable– Starting time specified in:

Newspaper ad Marquee Employee Movie ticket

– General public knowledge


Damage – Economic Loss

Damage resulting from reliance

– Opportunity cost - 20 minutes of lost time• Nominal• Punitive Damages


The Case for Fraud

Conclusion:– First four elements easy to establish

– Difficulty establishing reasonable reliance and damage

– Tommy HAS A WEAK case for fraud.


How Widespread is Discontent with Commercials?

Your theater’s reputation and financial viability depend on your patron’s opinions of this behavior.

Objective – estimate the percentage of all theater patrons resenting commercials.

– If less than 5% resent the commercials, Royal Theater should consider going to trial and defending any lawsuit.

– If between 5% and 20% resent them, cut showing time of ads by 50% provided Tommy files lawsuit.

– If more than 20% resent the commercials, Royal Theater should consider settling with Tommy and discontinue ads.


Interpretation of 1st Survey Results

A survey is a sampling of the population. Out of 100 responses: 12 patrons or 12%

resent the commercials.– We can be 95% confident percentage of

moviegoers who resent commercials is between 5.6% and 18.4%

– Results indicate that Royal Theater should cut showing time of ads by 50% if Tommy files lawsuit.


Interpretation of 2nd Survey Results

Out of 300 responses: 60 patrons or 20% resent the commercials.– We can be 95% confident percentage of

moviegoers who resent commercials is between 15.5% and 24.5%

– This answer extends across two of the decision rules: either cut the ads by 50% or discontinue ads entirely and settle with Tommy.


Ethical Issues

Decision to state movie starting time as 1 p.m.

Traditional View - Costs vs. Benefits

Impact of decision on STAKEHOLDERS: patrons, owners of theaters, employees


Costs

Potentially agitated customers

Potential legal liabilities

Perception of “tricking” a captive audience to increase revenues


Benefits

Increased revenues

Public service announcements

Buffer grace period

Entertainment


Conclusions

Survey a larger population before making any decision regarding Tommy’s lawsuit.

– Estimates of percentages will be more precise (smaller interval) making it clearer whether to reduce ads 50% or settle.

Tommy’s case for fraud is weak, but Royal Theater should be prepared to respond.

Royal Theater is behaving in an ethical manner, but opinions of patrons must be considered for longer term viability.


Conclusions: Royal Theatre Should Apply Strategic Thinking

The Whole Picture: Long term changes in business environment that could affect Royal’s profitability:

– Consumer attitudes about commercials prior to films– Economy– Competing forms of entertainment– Competing theatres– Changing demographics– Changes in government regulations

A Sense of Direction: All of these could impact future decisions to show commercials.


Long Term Recommendations

Consider changing theater operations to avoid future lawsuits and attract more patrons– Advertise movie starting times more clearly.– Reconsider the number of commercials shown

before each movie.– Treat consumer complaints courteously– Consider innovations to bring in more

customers – “continuous improvement”


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