Blockbuster's business model primarily consists of two main factors, low cost leadership and superb customer service. The price of renting videos at Blockbuster remains consistently lower than that of Netflix. For example, a 3-month movie plan at Blockbuster would cost $14.99 while the same plan at Netflix would cost about $2 more costing $17.99. Blockbuster also encourages customer relationships between the store and customer by offering coupons for in-store rentals, a fail-proof way to keep the customers coming. In addition to Blockbuster's physical stores, they have created an online rental store where customers would find it more convenient to purchase movies. However, after not doing so well with the method of online rentals, the company's employees feel that Blockbuster should stick with the traditional renting techniques and strategies they started with, even though thats quickly dying down due to technical advances.
How Successful is Blockbuster's Business Model?
Blockbuster's business model proved not to be so successful. In fact, the most costly factor was the "No More Late Fees" campaign launched in January of 2005. This strategy did lure in more customers, but all together created more problems than it resolved. The company's cost of paying for late fees amounted to more than what the cost of renting DVDs were. In other words, the company was losing money faster than it could earn it. This disadvantage to the company also caused customer dissatisfaction, becuase they were under the impression that no charges would incur when really their credit card would be charged.
What industry and technology forces have challenged Blockbuster's Business Model? What problems have they created?
Blockbuster already has a main competitor, Netflix, with Amazon.com on a quick come-up. Blockbuster's technique of online rentals proved to be inferior to that of Netflix most likely because it was a new concept, whereas Netflix came in the industry as an existing online rental company. Blockbuster's main competitor, Netflix, offers its customers the convenience of online rental and prepaid envelope so that customers could return the movie and in turn, order another movie on their wish list. The use of advanced technology will eventually, if not already, hurt the video rental industry. Blockbuster created an online rental system, but found that it was difficult to maintain due to the fact that the information systems department had trouble recognizing the new late fee rules. The information systems department also had trouble keeping record of up-to-date inventory, rental volume, and sales.
With the use of advanced technology on the rise, it has become increasingly common today that people burn there own movies. Even if you don't own your own computer, it is very easy for you to get a hold of a bootleg DVD. Practices like these can really hurt video rental companies, as individuals would most likely prefer to download a movie for free rather than pay for it. Other technology advances such as the introduction of cable's video-on-demand allows you to watch movies that have not yet been released on DVD and TiVo, a program used to record shows have the potential to put business like Blockbuster out of service.
Is Blockbuster developing successful solutions to its problems? Are there other solutions it should have considered?
Blockbuster's solution to its problem was to stay close to the cutting edge of technology. By doing this, the company is attempting to remain in good standing with the rest of competition. Blockbuster has decided to improve sales by expanding its in-store DVD trading program as well as its focus on new markets, such as video game rentals (Laudon). By focusing on a specific strategy such as increasing game rentals, the company can be more focused on recovering fees that were lost during their "no late fee" campaign.
Blockbuster should have considered banning the "no late fee" campaign when it first started to notice trouble with the policy. This way Blockbuster could have prevented having suffered such a drastic loss in late fees. Even if they were to keep the campaign, Blockbuster should have included with it the fact that there would be late charges applied if the item was kept for more than a certain amount of days. Wording in fine print is bad business and leads to false advertisement. This policy created a bad reputation for Blockbuster, and the company and its employees would soon face the effects of poor public relations. Blockbuster should have thought twice about this strategy and learned from the mistakes of its competitors.
Do you think Blockbuster will succeed in the future?
I think Blockbuster has a fighting chance to do well in the future if the company continues to think strategically in terms of staying up with competition, keeping up with advanced technology, and overall, maintaining customer satisfaction. If the company can get a good head start and keep at it, then eventually Blockbuster can recover the loss of late fees and start producing profits that will keep it on the same level as its competition. On the other hand, there is also a good chance that video rental stores will become completely obsolete by the use of technology. In this case, the fate of Blockbuster is unknown as outside factors are uncontrollable, as well as unpredictable.
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