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RUNNING HEAD: Blockbuster Case Analysis

BlockBuster Case Analysis

Breacy’a Jackson

Indiana Wesleyan University

MGT-530-A, Strategy Formulation

MSM78

Dr. Robert Simpson

August 30, 2010

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Blockbuster

David Cook founded Blockbuster video in 1985, opening the first store in Dallas Texas

and has grown to become the world's number one video chain. Mr. Cook took the idea of video

rental and improved it by creating the video superstore concept. Blockbuster’s strategic plan has

always been to keep up with the competition. In the beginning, blockbuster opened video rental

locations nationwide. Blockbuster doubled their number of stores in 1990’s to 2001 for a total of

over 5500 stores. The general public would obtain a membership and videos could be rented.

Selling popcorn and candy to go along with the video rental purchase to give the consumer the

feel of being at the movies while sitting in his or her own home, was the family night picture Mr.

Cook wanted to paint. With the video gamming growing, the company began renting

videogames. DVDs came into the picture and the company embraced them. Being on top for so

long, Blockbuster could not take a risk losing market share, but it happened. “Frankly, we see

online subscriptions as a niche business, says a Blockbuster spokeswoman, we think the real

win-win will be a combination of an online and in-store service." (Forbes 2010) To regain its

market share, the company implemented market research strategies. In this day and age video

rental is evolving and will continue to evolve with new technology.

Key Success Factors

Key success factors for Blockbusters are that they now offer pay per view, called “On

Demand. Blockbuster competition Netflix offers a service of ordering your DVD online and the

DVD is then mailed directly to the consumer’s home. The consumer can keep the DVD as long
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as they wish and return it in a pre-paid envelope. Blockbuster figured they could offer a similar

service with advancement. The consumer can order the DVD online and receive it at his or her

home. Instead of mailing back the DVD, the consumer can take the DVD back to the

Blockbuster location closest to his or her home and pick up another DVD for viewing.

Blockbuster then realized that in order for them to continue to grow they needed to revamp their

marketing strategy. With declining sales and the closing of many of its stores, Blockbuster

performed an analysis of the market in which is serves and rethought its business plan. All in all,

Blockbuster’s strategic plan is to gain back the market share it lost with the implementation of

Pay Per View and Netflix movie watching services. The company markets its new products in

television ads, internet and print ads. All consumers now know the spectrum of Blockbuster’s

business ventures. The new Blockbuster accommodates all, those who prefer pay per view, those

who prefer to go to the rental location and those who like their movies by mail.

Porter’s Five Forces in the Video Rental Industry

In the video rental industry there are a couple of different renters. As the traditional

renter, Blockbuster has positioned itself with a heavy fixed cost infrastructure investment in

retail store locations. Due to this high fixed cost, the only way Blockbuster can lower its average

cost per item (be it a VHS, DVD or game rental) is to spread the fixed cost over many

rentals/sales. Blockbuster is competing to maintain its market share. Then you have the mail

order firms like Netflix, which has and entirely different cost structure. Netflix’s fixed costs are

primarily its distribution centers, web maintenance, and inventory. Their fixed costs are lower

than Blockbusters. Firm rivalry is also influenced by the industry being stagnant at this time. The

video rental business is just not growing, and its cost customers nothing to move between firms.
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Entry

Since the internet has taken off in the late 1990’s you can say that there were high entry

barriers in the video rental industry which limited competition. Another entry barrier would be

high quality and brand.

Substitute, Supplier/Buyer Power

There are plenty of substitute’s products to video rentals. Like, pay-per-view, on-demand,

streaming videos and more. As these all are other substitutes delivering a almost identical

product it plays the role of yet another intensifier. There is no room for price discriminating with

this wide presence of substitutes. The position of the buyer is strengthening while the factors

wear away the supplier power.

SWOT

Strengths Weakness

Loyal customer base High cost operating expenses

Brand familiarly Unsuccessful in home deliver system

No Late fees Closing locations

Cost leadership Market Rivalry

Customer focused

Marketing

Opportunities Threats
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Online Operations Competition

Create a successful in home delivery system Netflix

New Blue Box Red box

Online streaming On demand

In conclusion, what is competitive about Blockbuster is that they saw what the competition

was doing; they answered by revamping and offer a better option. As more and more people

become accustomed to the alternative methods of video purchase and rental Blockbuster will

need to meet the customers where they want to do business. Blockbuster has come a long way

since its inception. Change in consumer behavior did not bringing the company down, it’s

expanding its services. Once the leader in movie rentals, Blockbuster is now part of the

competition again and will try to work their way back to the top, to reclaim their market share.
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Reference

Blockbuster Corporate Website (2010) www.blockbuster.com

Blockbuster Takes on Netflix (2003) Forbes Magazine,

http://www.forbes.com/2003/04/21/cx_pp_0421bbi.html