Hi there,

So I wouldn’t go for either structure. The question being asked is ‘how should the client spend the $50M to drive profit improvements’.

If you look at a traditional profit issue tree it’s not going to get you to any insights:

1. Cost per ticket. So you may be able to use the investment to buy more expensive films / put in upgrades to the theater which allows you to charge more. But looking at cost per ticket is not going to give you any insights into what they should do.
2. Number of tickets sold. This is where investment could make a big difference. But what are you going to invest in? This lever doesn’t get you there
3. Costs. There may be some costs where you need an upfront investment to lower costs (e.g., putting in a more energy efficient air con). You could get some insights from this but less your cinema infrastructure is really run down, it’s unlikely to get you there

So the other framework you suggest is customer, company, competition etc. This is generic, but ok. 

1. Competition - you’d see what they offer and if our offering matches it ( or alternatively doesn’t differentiate at all); where they’re located and if it’s right on our doorstep; how they price
2. Customer - you’d want to know what they want according to different segments, where they’re located and if we’re located in the right places
3. Company - do we have the right talent, what are our facilities like

But I think that you can make a more specific framework. They way that I like to do this is by running through the things that you do when you’re both a customer, and an owner of a company and decide to watch a movie.

Customer:

1. Decide what film you want to see -> customers, what are our segments, what films do they want to see?
2. Decide where to go to see the film -> marketing, location and viewing times and potentially viewing mode (do they want to watch films at home?)
3. Get to the movie theatre -> transport links, parking
4. Buy the ticket -> purchasing systems (online and in person), sales reps, pricing
5. Buy popcorn -> ancillary sales 
6. Sit in the theatre (and maybe go via the bathroom) -> facilities
7. Watch the movie -> quality of the theatre and the other people in the movie theatre (do you want to ban children from some films?!), security
8. Leave and tell all your friends how great it was -> referral programmes, online review centres

Company: All of the above plus:

1. Pay the bills for the theatre -> cost reduction opportunities
2. Ensure that you’re complying with all regulation -> regulatory environment 

You then want to look at all the levers and bring them into buckets:

1. Customers: What are the segments, what films do they watch, what mode do they watch them in, where are they and what times do they want to watch films, what other clientele  do they want to be around?
2. Venues: Where are they and how does this compare with competitors, what are the transport links, what state of repair are they in and what facilities do they have?
3. Product: What films are we showing (and does this match what customers want?), what ancillary sales do we have
4. Marketing: What review platforms do we have, what marketing do we do, how does this compare with competitors? 
5. Costs: Are there fixed or variable costs which require an upfront investment to reduce?
6. Regulations: What is there regulatory environment and are there revenue / cost opportunities (e.g., do we pay a particular licensing fee to sell alcohol but actually alcohol sales are v., low?)

Hope that helps! 

So the investor wants to upgrade the theaters. 

My suggestion would be to first consider the potential upgrades you can do. Then setup a framework to consider the impact in terms of revenues and costs.

To consider the potencial upgrades I would think about the assets the theater has (usually considering a kind of customer experience or process tree): you buy a ticket at the counter, you buy some popcorn, you pick a movie, you watch some commercials, etc. All of these involve assets that can be upgraded.

You can also think about revenues and costs. Revenues would be capacity x occupancy x average spend (ticket + extras). Some advertising revenue as well.

So you go and think about upgrades that can increase capacity (adding chairs), occupancy (better billboard, better ticket purchase experience, redesigning the theater layout so you have more rooms, or more capacity at the “premieres”), or sell more extras sold (change layout so you can have more stuff, or that you can have more people selling thus reducing the waiting lines). 

Then think about costs (types of labour, energy, maintenance, distribution fees, …).

I think the 2nd approach (going through revenues and costs, but one won't do a good job without actually thinking about the specifics of the theathers assets, which is the 1st approach I suggested).

Please note the difference between what I've done and what you are suggesting. You are suggesting approaches to improve profitability. I am suggesting approaches to improve profitability by investing in theater upgrades. Meaning that you are not answering the case's specific question , which would ultimately lead you to fail the interview.

(edited)