1

Blockbuster Case Study

Introduction
2
This weeks case study involves Blockbuster, a large provider of consumer video and
game rentals. The company provides !s for rent nightly to the consumer, and also provides
video game rentals. Changes in the marketplace have directly impacted Blockbusters operating
model, and have caused the company to reconsider its position in the market. These changes
came about through the different competitive offerings of competing businesses, as well as a
slow change in the way consumers like to use the offered goods. This case analysis will e"amine
Blockbusters current situation, and seek to apply lessons learned to an e"isting e"ample
company.
#nalysis
Blockbuster video opened its first store in $%&'. The chain e"panded rapidly, and by
$%&( the company was trading on the )ew *ork Stock +"change ,The Street, -.$$/.
Blockbuster was 0uick into the movie rental market, and was solidifying its foundation as the
market reached maturity. The company continued to grow and e"pand through the $%%.s,
though there were bumps in the road. 1owever, around $%%% the video industry was identified
as being a dying marketplace, and Blockbuster began to slide ,The Street, -.$$/.
Shortly after this time, rival companies started to seek ways to recapture consumer
interest in video rental. Through this effort, a company named )etfli" began offering online
rentals of movies, where the consumer was able to choose movies online and have them
delivered directly to his or her mailbo". 2eturning the movies was 3ust as simple, and re0uired
only dropping their pre4paid container envelope in the mail. The )etfli" business model had a
tremendous impact on the brick and mortar store based video rental industry.
In -..5 Blockbuster chose to directly compete with )etfli" on the new online rental front
by adding an online video rental service to its e"isting offerings ,The Street, -.$$/. In addition
3
to a customer being able to go to a Blockbuster store and physically browse and pick a video in
the traditional method, Blockbuster customers gained the ability to rent movies online in a
manner similar to )etfli". The company also added the benefit of customers being able to rent a
movie online, then return it to the store and select their ne"t movie. This offering was an attempt
to offer an alternative to the )etfli" weakness of customers being forced to wait on mail delivery
in order to rent and return videos.
In another effort to stem customer defection to )etfli", and also in -..5, Blockbuster
eliminated late fees on rental videos. )etfli" offered a no late fee promise as part of its service,
and customers seemed to appreciate it. 1owever, Blockbusters promise of no late fees was only
partially true, and sparked a lawsuit regarding misleading business practices.
In the mid -...s, another video rental method was established via 2edbo". The 2edbo"
organi6ation installed video rental kiosks in highly populated areas, and offered instant nightly
movie rentals on the spot. Customers could watch videos overnight, and return the videos to any
available 2edbo" kiosk. This represented another shift in consumer video rental practices,
impacting both )etfli" and Blockbuster, and in -..% Blockbuster began installing similar kiosks
of its own ,The Street, -.$$/.
Solution
To remain competitive in the video rental industry, Blockbuster has tried numerous
tactics. The company sought to capture additional sales and stop customer loss by copying the
rental methods offered by its competitors. 1owever, by doing so Blockbuster positioned itself as
a follower rather than a market leader, and continued its downward slide in the marketplace.
In order for Blockbuster to remain competitive, the company should have sought ways to
innovate, rather than sticking to the things it had always done. If Blockbuster could have
4
matched the )etfli" model of online video rentals, then been the first to conceptuali6e and offer
the 2edbo" kiosk model of physical video rental, it would likely have returned to prominence in
the video rental industry.
This author works for 7*8 Corporation, a large importer and reseller of wholesale
goods. 7*8 Corporation is faced with a similar circumstance as it sits at a decision crossroads.
To one side is the path of continuing business as normal, and to the other side is the path of
innovative business practices that would offer uni0ue added value to the consumer. There e"ist a
limited number of ways a wholesale importer can add value to target customers, and 7*8
Corporation should seek to identify and take full advantage of as many of those methods as
possible.
7*8 Corporation should learn from the mistakes made by Blockbuster, and seek to avoid
a similar fate. 2ather than sit on the sidelines as peers innovate, rendering itself an ineffective
trend follower, 7*8 Corporation should seek out ways to become the market leader in its
specific wholesale industry. By offering uni0ue value to the customer, 7*8 Corporation can
ensure customer loyalty, and add directly to the bottom line.
9ustification
The :nited States economy started to slow in the late -...s due to poor lending practices
surrounding the housing market, as well as a sharp increase in gas prices ,;hitney, -.$./. #s a
result, many previously profitable companies found it impossible to continue business, and were
forced to close their doors. Companies which were strong enough to remain in business through
these tough economic times have likewise been forced to seek out ways to remain competitive in
an increasingly competitive marketplace.
5
This Blockbuster case study is a good e"ample of what companies are faced with in the
e"isting poor economic conditions, and what those companies can do to either sink or swim.
Continuing to do business as usual has resulted in the collapse of organi6ations, such as
Blockbuster, all across the :nited States. In order to remain competitive, companies should not
settle for business as usual, but should strive to capture any advantages available over their
competition. In this way, companies can become market leaders, and capture increased market
share that would otherwise remain unavailable ,<reitner = <inicki, -..&/.
7*8 Corporation would do well to pay attention to the lessons presented in the
Blockbuster case, and apply those lessons to their current business model. By increasing the
focus placed on innovation and value added activities, 7*8 Corporation can avoid Blockbusters
mistake, and remain relevant in the market. In this way, 7*8 Corporation can enable itself to
survive or even thrive as its competitors fall by the wayside.
Summary
The Blockbuster story illustrates how the consumer landscape can change in a given
market at any time through the introduction of new technologies and uni0ue business practices.
Blockbuster held a firm grasp on the video rental market as it e"isted when the company was
created. 1owever, as the market matured and new methods of rental became available to the
consumer, Blockbuster fell behind in both added value to the consumer as well as generated
revenue. Companies such as Blockbuster and 7*8 Corporation should continually strive to
position themselves as market leaders rather than followers of the competition. To do anything
less can result in business failure through customer attrition.
6
2eferences
<reitner, 2., = <inicki, #. ,-..&/. Organizational Behavior. )ew *ork> ?c@raw41ill .
The Street. ,-.$$/. Blockbuster timeline. 2etrieved -.$-, from The Street>
http>AAwww.thestreet.comAstock4market4newsA$.&'B5.(Ablockbuster4timeline.html
;hitney, ?. ,-.$., ec $5/. U.S. Economy Forecast 2010, he !ear o" Severe Economic
#ontraction . 2etrieved )ov $$, -.$$, from The ?arket Cracle>
http>AAwww.marketoracle.co.ukA#rticle$'B&5.html
Questions
7
Duestion $> I feel that the most important options available for movie rental today are price,
online availability, in person availability, convenience, ease of rental and return. Todays
consumer is less likely to visit a physical store to rent a movie, and would rather the
movie be available for rent online, or via the new kiosk method. The characteristic of the
consumer determines which option is more important. Eor instance, some consumers
may not have computers or Internet access, and would favor the kiosk method.
Duestion -> Some must have attributes of online and !C movie rentals are availability of
new releases, ease of rental or return, and no late fees. If a company offers movies that
are out of date, it will see a smaller customer base. 2ental and return of these movies has
also come to be e"pected to be easy, with mail and prepaid return being the norm. Fate
fees are also becoming a thing of the past, and seem to spark anger in current consumers.
Duestion G> Some techni0ues that could be used to teach consumers to plan ahead for their
viewing needs would be a commercial campaign showing peers doing 3ust that. This
would get consumers ac0uainted with the idea that they need to plan ahead, and think
about movies they might want to watch in the future. oing this would allow them to get
the most out of their entertainment choices.
Duestion 5> The benefits offered by brick and mortar stores are becoming uni0ue in the
industry. Blockbuster offers online rental with the ability for in4store e"change. This
cuts out any shipping delays inherent in mailing back a movie to get another one. There
may be times when a consumer wants to watch a movie on a Eriday night, but cant under
the )etfli" plan because the consumer hasnt yet mailed back an e"isting movie. This
would be possible under the Blockbuster scenario.
8
Duestion '> Blockbuster had a strength in offering video game rentals at the time of this
books publishing. #t the time, 2edbo" did not offer video game rental through its plan.
1owever, 2edbo" has now adopted video game rentals at its kiosks, which negates any
advantage Blockbuster had in this area.
Duestion (> Cnline or !C rental options re0uire either an Internet connection ,online/ or an
e"isting television subscription ,!C/. This represents a barrier to the decision for
customers that do not possess those options to swap to online or !C rental. 1owever,
those same barriers do not e"ist for kiosk rental.
Duestion B> Blockbuster could create a ! buyers remorse campaign through television ads
depicting consumers purchasing !s, and then being unable to purchase other items
because the money is already spent on an e"isting !. The campaign that comes to
mind is the irecT! ad campaign that includes commercials such as Hdont wake up in a
roadside ditch.I In these commercials a consumer makes a bad decision, and the
humorous chain of negative events unfolds in front of the audience. # similar campaign
could be used to highlight ! buyers remorse.