History and market strategy of Blockbuster Inc
Based in America, Blockbuster Inc. chain of stores is concerned with distribution of videotapes, video games and DVDs. It recorded its best performance yet in 2009, when it had about 60,000 employees. In January of 2010, the company had over 5,000 stores in the United States and in 17 other countries. Its headquarters are based in Downtown Dallas in Texas, at the Renaissance Tower (Ferrell & Hartline, 2008). Starting out, Blockbuster Inc. enjoyed high profits. However, with entry of competitors in the video renting industry, particularly Netflix, it began experiencing significant drops in profit. Eventually, in September 2010, Blockbuster Inc filed for bankruptcy, resulting in a take-over of some of its outlets by Grapevine, GameStop, among other companies.
History and Background of Blockbuster
Founded by David Cook, the company acquired its first store in 1985 in Texas (Hill & Jones, 2008). Cook had a background in handling databases, an experience that helped him start Blockbuster Inc. After opening a few outlets, he constructed a warehouse in Garland, Texas, at a cost of USD6 million. The factor that contributed most to the rise of Blockbuster is that it was able to provide different packages for different neighborhoods. It understood the needs of each neighborhood and sought to meet these specific needs through the local stores. For instance, if a particular neighborhood was filled with children, then the local store would stock up with children films. In addition, it always had the latest arrivals in the video industry, and a wide range of products in it catalogue.
In the year 1993, Blockbuster Inc. suggested a merger with Viacom. However, after the fall in the shares of both companies, Viacom bought Blockbuster in 1994. Formerly known as Blockbuster Entertainment Corporation, the company rebranded itself as Blockbuster Inc. In the same stride, its outlets known as Blockbuster Video were changed to Blockbuster. In 1996, the company moved its headquarters from Fort Lauderdale in Florida to the current location at Renaissance Tower in Dallas. In 2002, the company bought the Movie Trading Company. This acquisition enabled Blockbuster Inc. to learn more about DVDs and video games, and introduce new products. In the same year, the company bought off Gamestation, a video game outlet in the UK (Ireland, Hoskisson & Hitt, 2008).
In 2004, Blockbuster broke off from Viacom, and began introducing new products into the market. The company initiated Game Pass and Game Rush, serving about 450 of its outlets. Thereafter, Blockbuster started trading in games and DVDs. After the exit of John F. Antioco as the company’s CEO, James W. Keyes, the incumbent, proposed new strategies for the business. Among them was doing away with Total Access, an online service which had long been unprofitable. In its place, he introduced a retail oriented in-store model (Chain Store Age). Furthermore, he introduced the use of check cards to obtain movies and video games. Come 2009, the company, in collaboration with National Cash Register, NCR, started to put up Blockbuster Express Kiosks in a bid to effectively compete with Redbox (Schermerhorn, 2009).
Blockbuster Inc’s Original Business Strategy and why it Failed
The company’s original strategy was to open up as many stores as possible in different areas. It thought this to be the best way to capture a huge share of the market. And true, it did get a large share of the market. However, this strategy was not suitable, as it led to increase in operating costs. The revenue generated was used to cater for the running costs. In essence, the company did not gain much; the huge profits made were used to cover the high cost incurred. Furthermore, a large chain of stores is harder to operate and co-ordinate than a smaller chain. Consequently, this strategy was proven ineffective.
The other strategy was to stock up on the latest releases in the movie scene. The company thought it was better to have more of the newer movies, and less of the older ones. Space taken up in storing old movies was cleared to store newer movies. While this strategy made complete sense, it failed because customers still demanded classic movies. The strategy failed because of the limited variety of games and movies in the store. In addition to the limit in variety, the numbers of copies of a particular movie are in limited supply.
The result is inconveniencing the customers, causing them to either wait until one of the copies is returned, or go to another store. This meant that they walked away with money that Blockbuster Inc. could have otherwise made. The end result is a loss of credibility and customers for the company. Blockbuster focused too much on newly released movies at the expense of the old ones, forgetting that classic movies can still be in demand. This contributed to the rise of Netflix and Redbox, its competitors. These two outlets had more enough stock on old and new movies, resulting in customer satisfaction.
The second reason for their failure is their unreasonably high prices. Blockbuster charges high prices for their movies, making room for competition, particularly from Redbox, the DVD kiosk. Redbox charges only $1 per movie, attracting a large number of customers. On the contrary, Blockbuster refuses to lower its prices, still charging $5 for a movie, even in the presence of such still competition. In addition to good prices, Redbox offers a wide variety of movies to choose from, both old and new releases. An even stiffer competition comes from Netflix. Netflix offers its customers a chance at subscribing for movies. At only $8.99 a month, a customer can access all the movies they want.
2011 Competitive Issues
Price remains one of the key competitive issues for Blockbuster Inc. the company refuses to lower the price of its movies, creating a niche for local movie stores. Netflix and Redbox have taken advantage of this opportunity and are charging a much lower price for the same products. For effective competition, these two companies have stationed their stores right next to Blockbuster stores in local neighborhoods. As a result, Blockbuster has lost a huge base of its customers.
With introduction of DVDs, cassette tapes have become obsolete. Blockbuster Inc. should look into completely adopting this new technology. To remain relevant to the changing times, the company must embark on having all its movies stored in discs, and discard cassette tapes to provide room for storing more discs. DVDs are far much cheaper to transport, and are more durable than cassette tapes. In addition, the cost implications of renting them out are lower than for tapes. Adopting DVDs, has led to the rise of Netflix and Redbox at the expense of Blockbuster. Failure to implement these changes will cause the total downfall of Blockbuster Inc.
2011 SWOT Assessment
Having been long established in the movie and video industry, Blockbuster Inc. enjoys the positives that come with brand familiarity. It is well renowned all over the world, and is easy for customers to identify. In this way, the company maintains its already existing wide customer base, and attracts even more. Another strength is in the diversity of the products it offers. Blockbuster offers movies and video games on a rental basis (Scarborough, Wilson & Zimmerer, 2008). The wide range of selection it stocks on these help inn attracting customers with different demographic characteristics. Products are available for the young, old, male, female, the rich and lower class levels, among many other groups.
The company is based in the United States, but has stores worldwide. It operates in 17 other countries, making its customer base even larger. There are no late fees charged by the company. Blockbuster Inc. does not penalize its customers for returning the products at a later date than agreed. In this way, it maintains and attracts its customers. The company developed two ways of delivering the product to the customer. One way is through its outlets; and the second way is through mail. The latter is a convenient mode of delivery for customers who are too busy to stop by the store. Blockbuster Inc. has a wide variety of movies and games. Therefore, it has become the first choice among customers as a source of entertainment.
Over the years, the brand name has been tarnished and therefore become weak. Consequently, its customer base has been on the decline. In addition, its in-home delivery system turned out to be a failure. Customers can no longer have products delivered at their door step, causing them the inconvenience of having to go to the stores physically. Due to poor planning and budgeting, the company has been incurring high operating costs, and as a result, reduction in revenue. Blockbuster Inc. should undertake cost-cutting measures if they desire to increase there efficiency and raise their profit margins.
Another weakness is in the number of stores the company operates. The large number of stores released in increasing costs more than increasing revenue. Due to the trend in poor performance, the company has lost investor confidence. Potential investors are turned away by the consistency with which the company makes losses. As a result, the company is unable to source funds to expand its operations. Furthermore, Blockbuster Inc. products are more expensive than those of Redbox. Owing to this price differential, customers turn to Redbox rather than Blockbuster.
There is the opportunity of fashioning a store experience (Alkhafaji, 2003). There is much more the company can do in order to offer customers personalized services and subsequently, products. For example, the stores personnel should keep track of regular customers, identify their preferences, and from this, recommend to them the products they might want to rent. This will help the stores knowledge on what movies to keep in stock, and which movies are in short supplies. Another gap is in online distribution. Customers should have an opportunity to make an order through the internet, one of the most convenient ways of transacting.
The company should capitalize on a strong in-home delivery system (Afuah, 2009). Because they distribute products for entertainment, they should be able to meet customers in the comfort of their homes. Furthermore Blockbuster should consider reducing its prices. This will enable it to compete effectively in the industry with companies such as Redbox and Netflix. The company has an opportunity to collaborate with television and blue-ray producers. In this way, it can facilitate downloading from the internet. There is also the opportunity to partner with Motorola. Such a partnership will help it provide movies to selected phone models, and hence make its brand more known and popular. Also, this strategy will help the company tap into a new market.
Present times have seen a rapid increase in the number of local stores engaged in renting out games and movies. Though based only in the local neighborhood, these stores present a great source of competition for Blockbuster stores. Huge companies in the industry are also a threat to Blockbuster’s survival, and in particular, Netflix (Ireland et al., 2008). If no precautions are taken, Blockbuster might find itself ousted by Netflix from the video and game industry. Redbox, a company that distributes DVDs, poses a threat to Blockbuster Inc. in terms of competition. Another threat is the internet. Nowadays, it has become possible to access games and videos right from the internet, negating the need for physical stores such as Blockbuster outlets.
With the advent of cable and satellite TV, movie lovers can watch almost any movie they want (Alkhafaji, 2003). The great variety of movies aired on TV is more than enough to keep a customer entertained. In addition, the wide variety of movies means that almost every group in the market can find what they need on TV. Another great threat is presented by 3D movie theatres. These have taken entertainment to a whole new level. They do not just focus on giving the customer a movie, but also provide the perfect ambience for watching the movie. Deem lighting, 3D goggles, and a good sound system all contribute to transforming movie-watching to a memorable experience.
Identity Five High Level Strategies that will drive Growth Based on the SWOT Assessment
Blockbuster Inc. should take advantage of its strong brand name (Hill & Jones, 2008). Being well-known among households could go a long way in revamping the company. For instance, they can put up DVD kiosks, like Redbox (Chain Store Age, 2003). This strategy will cause the company to be in closer contact with its customers, as they will be located in many areas in one geographical region. Customers will be able to get movies on the go, at their convenience. In this stride, they will have to reduce their prices to the same level or a bit lover than Redbox prices. Because it is already familiar to the people, undertaking these strategies will no doubt cause its revival.
The entertainment market is characterized by impulse buying habits (Ferrell & Hartline, 2008). People do not have the patience to wait for a movie to arrive in the mail. As such, putting up kiosks will reap huge returns from impulse buyers. Also, blockbuster should undertake to stock up on all the movies demanded by its customers. Customers not only want the latest releases, but classic movies as well. And if they cannot get it from Blockbuster stores, they will turn to other outlets among them Netflix and Redbox. Blockbuster can prevent this loss of customer base by widening its variety of movies.
Another strategy the company can employ is closing down some of its stores, which will drastically reduce the costs incurred (Ferrell & Hartline, 2008). It would be much better for the company to have a smaller number of stores that yield high returns as opposed to having too many outlets that increase the operating costs. Having fewer outlets will enhance management efficiency. Therefore, it will be easier to implement changes to keep up with the demands of a dynamic market. The resulting high returns will restore investor confidence; people will be more willing to buy shares in the company. Also, keeping up with the changing times will enable the company to attract and keep its customers.
The company should conduct an analysis of other strategies employed by other firms in the industry (Ferrell & Hartline, 2008). These will then be compared to and contrasted with the company’s own strategies. Upon this, the company can decide on what measures to implement, to do away with, or to modify. The company’s management should have an open mind, rather than striving to keep their long established modus operandi. With changing trends in the market, Blockbuster must try to change if it to continue existing.
The final strategy would be to sell out. Over the years, Blockbuster Inc. has been reluctant to change (Lussier, 2008). If this trend continues, the company will find itself absolutely irrelevant in the movie industry. With a downturn in profits, the only option left would be to shut down. However, the company can opt to sell out before it completely loses meaning in the market. Selling out will help to salvage some money, and hopefully, the company that will take it over will implement the necessary changes to keep up with the times. Perhaps a change in management is what the company needs (Hill & Jones, 2008).
For the above reasons, Blockbuster Inc. has filed for Chapter 11 bankruptcy, as specified in the Bankruptcy Code (Ireland et al., 2008). Under this, the company will evaluate its stores in the United States in a bid to increase their profitability in a bid to lower its $1 debt. It is uncertain as to whether its outlets, DVD kiosks, mail and digital businesses will remain open. Failure to close up some of its stores will plunge the company further into debt.
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