1) Blockbuster entered its industry of rental videos at a time when its competitors consisted largely of small, independent stores with a customer range of a few blocks. Accordingly, its business boomed, leading to the use of a custom software system for each of its 9100 stores. This software was created to simplify the rental/sale transactions utilizing an automated point-of-sale system, in which a laser scanner reads the data off the items being purchased or rented, and from the customers’ Blockbuster ID cards. This data then reaches the Blockbuster corporate computer center, where it is used by management in monitoring sales and in analyzing demographics and rental/sales patterns in each store, which in turn aids in making crucial marketing decisions. Overall, Blockbuster’s business model is based upon an in-store experience in which the customer will physically go to one of the many stores to rent or purchase a video or DVD from a wide variety of genres. This model, which emphasizes product differentiation, has proven to be quite successful for Blockbuster historically. When it was first established, it gained an excellent market share, reaching 40% of the US’ video rental market by 2004 (about $7 billion to $9 billion for rentals, $16 billion for sales). However in the wake of a new business model in its industry, Blockbuster has been taking a hit.
3) Blockbuster’s solution to its fierce competition involves adopting a new business model. It offers an online rental service, Movie Pass (a monthly subscription service for in-store customers), Game Pass (a subscription service for video games), a trading service for movies and games, and it implements a “No More Late Fees” program. It essentially chose to integrate two concepts of adapting to the changing times and providing online service, all the while adhering to its traditional service of providing in-store products. Millions of dollars were poured into developing a new information technology department for its online services, and this department was kept separate from its existing corporate offices. It adopted a strategy of cutting prices and being able to distribute products much more rapidly due to the presence of thousands of stores that Netflix does not have. Online customers are also offered coupons for in-store rentals/purchases, to further emphasize Blockbuster’s desire of melding the online and in-store experiences together. This idea is excellent, however it did not work out so well due to the significant increase in expenditures. The costs of maintaining all the stores already erect, in addition to the costs of providing its online services, all the while offering lower prices than Netflix, has proven to be very heavy of a burden for Blockbuster. Rather than trying to offer the best of both worlds, Blockbuster should narrow its focus on a specific customer niche and offer its products either traditionally for those customers who appreciate it, or it should find an innovative way to make money. Offering similar services to its competitor will not help Blockbuster get very far. It should allocate a portion of its funds for offering the technology capable of supporting the variety of genres available directly online. Perhaps they can find a way to overcome bandwidth and surpass the numerous other competitors present in the industry.
4) In 1998, Netflix Inc. introduced a new business model to the video rental industry by offering online rental services catered to those customers whose main priority is convenience. There exist no physical store locations, so all interactions take place online and via postal service. For a monthly service fee, each customer can be mailed up to three movies at a time, which can be kept for as long as desired with no late fees. The customer can mail his movie back, once finished, in a pre-stamped packaging provided by Netflix. As soon as the company receives the returned movie, the next one is mailed out. Therefore, with this model, customers have access to the same variety of genres Blockbuster offers with the added bonuses of lower costs and never having to leave their homes. This business model has proven to be very successful, reaping revenues of $522 million in 2004, with projected increases to $3 billion in the following years, as well as gains in the market share from 2% to 7%. Its success has proven Netflix to be a significant competitor for Blockbuster.
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