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Balanci ng Growth Implementi ng the 3C Strategy Shaun Sakhrani Sahil Tank Jenny Jao Joshua Wong Conquest Consulting

MMICC 2010 - USC

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Page 1: MMICC 2010 - USC

Balancing Growth

Implementing the 3C Strategy

Shaun SakhraniSahil TankJenny JaoJoshua Wong

Conquest Consulting

Page 2: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

Objectives

Page 3: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Overextension MarketSaturation

Long Term Growth

Objectives

Critical Issues

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

Page 4: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Overextension MarketSaturation

Long Term Growth

Reorganization

Objectives

Critical Issues

Solutions Hybrid Strategy Hotel Market

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

Page 5: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Overextension MarketSaturation

Long Term Growth

Reorganization

Objectives

Critical Issues

Solutions Hybrid Strategy Hotel Market

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

The 3 C Strategy

Correct

Change

Create

Page 6: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Value Added Establish new revenue streams while enhancing current internal operations

Overextension MarketSaturation

Long Term Growth

Correct(Reorganization)

Objectives

Critical Issues

Solutions Change(Hybrid Strategy)

Create(Hotel Market)

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

Page 7: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Value Added NPV of $234 million

Overextension MarketSaturation

Long Term Growth

Objectives

Critical Issues

Solutions

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

Correct(Reorganization)

Change(Hybrid Strategy)

Create(Hotel Market)

Page 8: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Company mission statement and target customer

Highly Educated(College Degree)

Higher Income Home Owner Traveler

Upper middle class adults with discretionary income who regularly attend live artistic performances such as opera and ballet

Typical Cirque Du Soleil Customer

Mission Statement:

Invoke, provoke and evoke the imagination, the senses and the emotions of people around the world.

Page 9: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Core Competencies

Keys to Success

Uncompromising Focus on Creativity and Quality

“Show Before Business”

Well Structured Contracts

Exclusive and Original Experiences“Clowns, yes. Clones, no.”

Strong Portfolio of Premium Partners

Page 10: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Reinforcing business model

Creativity and Human Capital

Partners

Custom ProductionsAnd Facilities

Unique ExperienceHigh End Clientele

Brand EquityPremium Prices

Page 11: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Reinforcing the model through the 3 C`s

Creativity and Human Capital

Partners

Custom ProductionsAnd Facilities

Unique ExperienceHigh End Clientele

Brand EquityPremium Prices

Correct

Change

Create

Page 12: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Correct1. Over-

extension

Generating Increase Returns

Increase Returns

Manage Costs

Drive Revenue

OperationalEfficiency

Shows

Other Channels

1. Residency2. Touring

Big Top3. Arena

1. Hotel2. Nightclub3. Spa4. Restaurant

Create3. Hotel

Partnership

Change2. Hybrid

Model

Page 13: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Correct1. Over-

extension

Generating Increase Returns

Increase Returns

Manage Costs

Drive Revenue

OperationalEfficiency

Show Venue

Other Channels

1. Residency2. Touring

Big Top3. Arena

1. Hotel2. Nightclub3. Spa4. Restaurant

Create3. Hotel

Partnership

Change2. Hybrid

Model

Page 14: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Cirque du Soleil Faces Overextension Problems

Overflowing with New Production

Issues

Don’t want to outsource

Maintain Centralized Model

Fear of Compromising Quality / Artistic Integrity

BUTNeed to

Grow With Complexity of Business

Move Departments into Surrounding Offices in

Montreal

Each Building will Focus on 1 of 4 Main Divisions

Keep Creative arm at Current HQ with

Management

Solution

Page 15: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Cirque du Soleil Faces Overextension Problems

Overflowing with New Production

Issues

Don’t want to outsource

Maintain Centralized Model

Fear of Compromising Quality / Artistic Integrity

BUTNeed to

Grow With Complexity of Business

Move Departments into Surrounding Offices in

Montreal

Each Building will Focus on 1 of 4 Main Divisions

Keep Creative arm at Current HQ with

Management

Solution

HQ

Page 16: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Correct1. Over-

extension

Generating Increase Returns

Increase Returns

Manage Costs

Drive Revenue

OperationalEfficiency

Show Venue

Other Channels

1. Residency2. Touring

Big Top3. Arena

1. Hotel2. Nightclub3. Spa4. Restaurant

Create3. Hotel

Partnership

Change2. Hybrid

Model

Page 17: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Saturated Vegas Market

Treasure Island

Bellagio

New York- NY

MGM Grand

The MirageAria

Luxor

Page 18: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Need to Expand Outside Vegas

Treasure Island

Bellagio

New York- NY

MGM Grand

The MirageAria

Luxor

Key Takeaway

Exclusive Contract with MGM

7 out of 7 Key Hotels

2 More Planned for Las Vegas

Need to Expand Elsewhere

Page 19: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Expanding Into Developed Markets

Smaller Venues on Rent Basis

Geographically Staged Expansion

Implementation

FactsResident• Benefit = Best Experience• Flaw = Limited Reach

Touring• Benefit = Wide Reach / Low Cost• Flaw = Lower Quality, Short Run

Facts

How to enter Mature Markets?• No Casinos• Business model?• Partners?

Solution

Hybrid Model• Lower Cost • Higher Quality• Wider Reach

Key Questions

Solution

Page 20: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Less Capital Intensive Allow Entry into Mature Entertainment Markets

Brings Cirque Du Soleil to CustomersQuick Entry

No Need for Casino Partner Combine Best of Both Worlds

Easy Exit Broaden Target Market

Entering Developed Markets

Benefits Impact and Results

Allow Successful Entrance into New Venues in Developed Markets

Page 21: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Potential Locations for Hybrid Shows

Page 22: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Top 50 Tourist Destinations

Alice Springs Cairns Kuala Lumpur Montreal Rome

Amsterdam Cairo Kyoto Munich Salzburg

Athens Christchurch Las Vegas Naples San Francisco

Auckland Costa del Sol Lisbon New York City Sydney

Ayers Rock Dubai London Nice Tokyo

Bangkok Dublin Los Angeles Oahu Vancouver

Barcelona Edinburgh Madrid Orlando Venice

Bayeux Florence Melbourne Paris Vienna

Boston Franz Josef Miami Perth Washington DC

Brisbane Geneva Milan Phoenix Zurich

Page 23: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Evaluation Criteria for Hybrid Implementation

Evaluation Criteria for Hybrid ImplementationGDP Per Capita Internet Penetration Rate Import / Export Percentage

Income Per Capita Government Expenditures Price of Crude Oil

GDP Real Growth Rate Cable Penetration Employment Rate

Central Bank Discount Rate Discretionary Spending / Capita Literacy Rate

Electricity Production Income Disparity Government Debt

Electricity Consumption Government Influence Heath Insurance Coverage

Oil Consumption Political Stability Life Expectancy

Luxury Expenditure Taxation Fertility Rate

Foreign Reserves Infrastructure Education Expenditures

Inflation Rate Oil Production Industrial Production Growth

Page 24: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Macro Evaluation Criteria for Hybrid Implementation

Macro Evaluation Criteria for Hybrid ImplementationGDP Per Capita Internet Penetration Rate Import / Export Percentage

Income Per Capita Government Expenditures Price of Crude Oil

GDP Real Growth Rate Cable Penetration Employment RateCentral Bank Discount Rate Discretionary Spending / Capita Literacy Rate

Electricity Production Income Disparity Government Debt

Electricity Consumption Government Influence Heath Insurance Coverage

Oil Consumption Political Stability Life Expectancy

Luxury Expenditure Taxation Fertility Rate

Foreign Reserves Infrastructure Education Expenditures

Inflation Rate Oil Production Industrial Production Growth

Page 25: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Final Decision Criteria for Hybrid Implementation

Entertainment Growth Tourism Growth

Market Maturity Prevalence of Arts

Final 4 Factors

Page 26: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Phase 1:

Sydney

Hong Kong

London

1

2

3

Many Cultural Activities, Bustling Night Life

Largest Percentage of Tourists 35-44 years old, followed by 45-54 years old

Overnight International Visitor Spends $101/night

Bustling Night Life

Overnight Visitor Spends Approx $700 / Night

Plethora of Cultural Activities

Top 2 Tourist Locations

Limited Space

Page 27: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Phase 1:

Sydney

Hong Kong

London

1

2

3

Phase 2:

1

2

3

Paris

Berlin

Amsterdam

Page 28: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Phase 1:

Sydney

Hong Kong

London

1

2

3

Phase 2:

1

2

3

Paris

Berlin

1

2

Phase 3:

Rio de Janeiro

Amsterdam

Moscow

Dublin3

Page 29: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Phase 1:

Sydney

Hong Kong

London

1

2

3

Phase 2:

1

2

3

Paris

Berlin

1

2

Phase 3:

Rio de Janeiro

Amsterdam

Moscow

Dublin3

Key Takeaway

2 Years of Development

1 to 3 Shows Developed Per Year

Complete Expansion to 9 LocationsIn 3 to 6 Years

Page 30: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Correct1. Over-

extension

Generating Increase Returns

Increase Returns

Manage Costs

Drive Revenue

OperationalEfficiency

Show Venue

Other Channels

1. Residency2. Touring

Big Top3. Arena

1. Hotel2. Nightclub3. Spa4. Restaurant

Create3. Hotel

Partnership

Change2. Hybrid

Model

Page 31: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

4 Types of Expansion

Hotel

Nightclub

Spa

Restaurant

Page 32: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Evaluating Expansion Options

Creative Challenge

Long Term Sustainable Partnership

ROI Social Responsibility

Hotel

Nightclub

Spa

Restaurant

Poor Fit Strong Fit

Page 33: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Hotels Meet Criteria for New Development

Creative Challenge

Long Term Sustainable Partnership

ROI Social Responsibility

Hotel

Nightclub

Spa

Restaurant

Poor Fit Strong Fit

Page 34: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Why Hotels

Hotel

Spa

Sustainable, Long-Term Investment

More Cross-marketing Opportunity

High Risk, but Much Higher Return

High Exposure to Target Demographic

Leverage Established Partnership

Page 35: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Why unsuccessful in the past

Why Unsuccessful?

Pre-Mature Market

Brand Equity Was Not as Strong

Wrong Approach

Page 36: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

How to become successful in the future

Why Unsuccessful?

Pre-Mature Market

Brand Equity Was Not as Strong

Wrong Approach

How to Become Successful?

Staged Entrance

Adhere to Core Competency

Choose Right Partner

Page 37: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Details for hotel implementation

Division of Strengths

Cirque du Soleil• Design • Production

Hotel Chain• Construction • Management

Deal Structure

Average Hotel Occupancy: 75%Cirque du Soleil Target: 25%

by

25%75%

Page 38: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Implementation

Implementation

• Establish Main Hotel Lobby

• Cirque du Soleil Experience with Separate Entrance

Notable Examples

•Venetian Venezia•Wynn•Mandalay Bay

FrontDesk

Main Lobby

Restaurant

Main Elevators

CirqueDu SoleilElevators

Security

Floor Plan

Page 39: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Example of floor plan

Floor Plan

FrontDesk

Main Lobby

Restaurant

Main Elevators

CirqueDu Soleil

Lobby

Check-in

Page 40: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Options for strategic partners

4 Criteria For Choosing Partners

Potential Partners

Cultural Similarities Luxury Brand Flexibility in

NegotiationAccess to

Capital

Hotels

PE/VC

Page 41: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Seeking partners

Why partner with hotel chain

Provide a Complete Cirque Du Soleil Experience

Leverage Brand Image of Hotel Chain

Increase Accessibility to Audience

Relatively Lower Risk Expansion Strategy

Innovative idea

Over 3MM spectaculars annually

Increased Occupancy Rate via Bundling

Luxury Brand Image

Successful Track Record in Show

Performances

Almost Successful in Entering Market Mature Market with Viable Entertainment OptionsLow Wealth DisparityFocus on Arts and Cultural ExperiencesHigh Flow of Tourism

Why partner with us

Why London

Page 42: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Timeline

Secure Leasing AgreementsCorrect: HQ Expansion

Concept DevelopmentLease NegotiationLaunch Show

Change: Hybrid Model

Find PartnersEnter NegotiationsDevelop and PlanFinancingConstructionLaunch

Create: Hotel Concept

Move

2010 2011 2012 2013

Page 43: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Timeline

2013

Secure Leasing AgreementsCorrect: HQ Expansion

Concept DevelopmentLease NegotiationLaunch Show

Change: Hybrid Model

Find PartnersEnter NegotiationsDevelop and PlanFinancingConstructionLaunch

Create: Hotel Concept

Move

2014 2015 2016 2017

Break Even Point: 2017

Page 44: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Financial AssumptionsAs

sum

ption

s

Create

4 offices surrounding

HQ

Renting

Cost of $4 M

per year

Staged release per

year

Initial Capex of $25 M per

city

Op. Income of $15 M per

year

Joint division of cost at

50/50

Revenue Sharing at

70/30

25% Premium

75% Occupancy

ChangeCorrect

Page 45: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

NPVAs

sum

ption

s

Correct Change Create

4 offices surrounding

HQ

Renting

Cost of $4 M

per year

Staged release per

year

Initial Capex of $25 M per

city

Op. Income of $15 M per

year

Joint division of cost at

50/50

Revenue Sharing at

70/30

25% Premium

75% Occupancy

Net Present Value with Sensitivity

$234 million $337 million$165 million

Page 46: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Value Proposition

Value Added NPV of $234 million

Overextension MarketSaturation

Long Term Growth

Objectives

Critical Issues

Solutions

Maintaining sustainable long term growth by leveraging partnerships and exploring new ventures

Correct(Reorganization)

Change(Hybrid Strategy)

Create(Hotel Market)

Page 47: MMICC 2010 - USC

Balancing Growth

Implementing the 3 C

Strategy

Shaun SakhraniSahil TankJenny JaoJoshua Wong

Conquest Consulting

Page 48: MMICC 2010 - USC

Appendix

Outline

Value PropositionTarget CustomerCore CompetenciesBusiness ModelDecision TreeCorrect Strategy

New MarketsBenefits & ResultsTop 50 citiesCriteriaFinal 4 Factors3 Phases

Create StrategyEvaluationWhy hotelsWhy unsuccessfulDetailsImplementation

TimelineFinancials

AssumptionsNPV

AppendixRisk, Mitigation, ContingencyWyndham PartnershipCustom designed eventsNot RestaurantsNot Night ClubNot SpaPlanned Expansion3D Movies?Not Amusement ParksReebokCurrent PartnershipsNot ArenasIdeas for New Shows

Methods of FinancingEntertainment Optionsin LondonNot Cruise ShipsNot emerging marketsin South East AsiaNot Casino’sCompetitive LandscapeNot ParisBerlinSydney

Page 49: MMICC 2010 - USC

Appendix

2007 Partnership: Official Hospitality Partner for Touring Shows (Saltimbanco, Kooza, Corteo)

Cross MarketingOver 3 million Cirque du Soleil Spectators

Alignment of Brands| Innovation | Flexibility | Dazzling Guest Experience|

Page 50: MMICC 2010 - USC

Appendix

Displays Word of Mouth

30% Discounted

Show Tickets

15% Discounted

Booking Rates

Current Marketing Mix Additional Marketing Channels

Higher Occupancy Rate

VIP Ticket Packages• Drinks

• Special Entrance• Meet Cast

Access to Unforgettable Custom-Designed Events

Cirque Du Soleil Party• Main Ballroom Transformed to fit

Cirque Du Soleil Theme• Performer Present at Event

Page 51: MMICC 2010 - USC

Appendix

Why Not Restaurants

Hotel

Nightclub

Spa

Restaurant

Difficult to Incorporate Dinning and Performance Arts Experiences

Expensive to Scale

High Risk

Average Failure Rate: 70% within 10 years

Source: “Why New Restaurants Fail”

Page 52: MMICC 2010 - USC

Appendix

Why Not Night Clubs

Nightclub

Short-term Success because of Nature of the Industry

Average Lifespan of Nightclub: 2-3 Years

Source: The Journal Record

Page 53: MMICC 2010 - USC

Appendix

Why Not Spas

HotelSpa

Spa Ambience Conflicts with Energy of Cirque du Soleil

Low ROI

Page 54: MMICC 2010 - USC

Appendix

Existing Residence Locations

Page 55: MMICC 2010 - USC

Appendix

Planned Expansion

2010 2011 2012

March 2010Banana ShpeelResidenceBeacon Theater, New York

April 2010Cirque 2010Touring Montreal, Quebec, and Toronto before Heading to Europe

Spring and Summer 2010Seasonal Touring ShowRadio City Music Hall, New Yorkand London or Paris

Page 56: MMICC 2010 - USC

Appendix

Planned Expansion

2010 2011 2012

Kodak Theatre, Los AngelesResidency ShowScheduled for 10 yearsMovie Theme

Page 57: MMICC 2010 - USC

Appendix

Planned Expansion

2010 2011 2012

Dubai, UAEResidency Show

Palm Jumeirah. DubaiScheduled 15 Year

Partnership with Nakheel

Page 58: MMICC 2010 - USC

Appendix

Appendix: Why 3D Movies?

Inconsistent with Focus on Exclusivity

Target Audience Expect Live Entertainment, not Digital Experience

Lack Demand

ConsPros

Low Cost

Build Brand in Cities Without A Show

Embracing New Technology

Unique Premium Experience

Page 59: MMICC 2010 - USC

Appendix

Appendix: Why not Amusement Parks?

Different Target Market in Income Levels

Dilute High-End Image

No Other Amusement Park With Premium Brand Image Like Disney

Reasoning

Top Theme Park Groups1. Walt Disney Parks 118 MM2. Merlin Entertainment 35MM3. Universal Studio 25.7MM4. Six Flags 25.3MM

Source: TEA/ERA Theme Park Attendance Report 2008

Page 60: MMICC 2010 - USC

Appendix

Jukari

Partner: ReebokVenture: Innovative Workout with the Music and Colors of Cirque du SoleilImplementation: April 2010 USA and EuropeLate 2010 Asia and Latin America

Page 61: MMICC 2010 - USC

Appendix

Appendix: Current Partnerships

Global Partnerships

CommercialsAutomotive Provider

Preferred TicketsUpgrade / Discounts

Exclusive Video Content

Operations

Regional Partnerships

France

Japan

Page 62: MMICC 2010 - USC

Appendix

Appendix: Why Not Arenas?

Arena

Touring

Brand Dilution• Lower Ticket Prices Undercut

Perception Premium Show

Important Part of Current Strategy

Less Central to Brand Identity

Already Aggressively Expanding with New Shows

More Growth Opportunity in Hybrid Model

Diversify Access Points

Page 63: MMICC 2010 - USC

Appendix

Appendix: Ideas for New Shows

Cultural Themes

Bollywood

Japanese Samurai Era

Mardi GraPop Culture

Page 64: MMICC 2010 - USC

Appendix

Appendix: Sponsored Events

• Corporate Events• Large Scaled

Parties

Hire Cirque du Soleil performers

Purpose Description

Page 65: MMICC 2010 - USC

Appendix

Appendix: Methods of Funding

Financing

Equity Debt

Company Unable to Make Interest Payments Cheaper Option

Company has Strong Asset BaseMore Expensive

Able to Make Interest PaymentsCompany Can Issue Shares

Page 66: MMICC 2010 - USC

Appendix

Appendix: Entertainment Options In London

Evening Entertainment

Theatre

Live Music

Play

Movie Theatre

Page 67: MMICC 2010 - USC

Appendix

Appendix: Why Not Cruise Ships?

Stage Limitations

Less Marketing Opportunity Limited Audience

Low Return

Page 68: MMICC 2010 - USC

Appendix

Appendix: Why Not EM SE Asia?

Guangzhou, China | Bangkok, Thailand | Ho Chi Minh, Vietnam

Pros

• High Tourist Growth

•Most Tourist Age Demographic Consistent with Cirque audience

Cons

• Political instability

•Tourists Expect Relaxing, Local Culture Experience Different from Cirque

Experience

• Most Tourists Aare Domestic who Spend Less Than $30/Day

Bangkok, Thailand

Page 69: MMICC 2010 - USC

Appendix

Appendix: Why Not Casino-Like Areas?

Lack High-End Brand Loyalty

Atlantic City

Lack Large Audience Base 11 Casinos in Total

High-End Shows Perform on

Temporary Basis

Page 70: MMICC 2010 - USC

Appendix

Why Not Paris, Berlin, Sydney?

Paris Berlin Sydney

Have Touring Shows

Never Entered with Resident Show Before

Not a Major Tourist Attraction

Not a Major Tourist Attraction

Page 71: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Competition

Concerts Plays Amusement Parks Live Performances

No Direct Competitors in Acrobatics, but Substitutes in Other Live Forms of Entertainment Exist

Page 72: MMICC 2010 - USC

Overview Correct Change ImplementationCreate

Risk Mitigation Contingency

Cannot secure office space

W refuses to partner with Cirque

Hybrid model is not profitable

Must look further away from HQ Decrease growth rate

More flexibility in negotation

Scale down production and performances

Revert to touring or arena model

Approach other luxury and contemporary-

themed hotels

Hotel construction delays

Careful planning and execution

Switch construction companies