The Demise of Blockbuster Case Analysis

The Demise of Blockbuster Case Analysis

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KE WANG

TZU-YING CHANG

RONGAN JIN

ZHUOSHENG PAN

YUHAO ZHENG

Foisie School of Business

Worcester Polytechnic Institute

100 Institute Road

Worcester, MA 01609

September 2017

Contents

Company Background        3

Supply Chain Strategy Analysis        3

Strategic Fit:        3

Blockbuster VS. Local Video Rental Stores        3

Efficient vs. Responsive Supply Chains        4

Primary Goal:        4

Product Design Strategy:        4

Pricing Strategy:        4

Inventory Strategy:        4

Financial Performance Analysis        5

Conclusion        5

References        6

Tables        7

Company Background

Blockbuster was an American-based provider of home movie and video game rental services through video rental shops, DVD-by-mail, streaming, video on demand, and cinema theater. Blockbuster became internationally known throughout the 1990s. At its peak in 2004, Blockbuster had 9,094 stores. Blockbuster began to lose significant revenue during the 2000s, and in 2010, the company filed for bankruptcy protection. The following year, its remaining 1,700 stores were bought by satellite television provider DISH Network. The eventual demise of Blockbuster was because of competition from the Netflix mail-order service, Redbox automated kiosks, and video on demand services.

Supply Chain Strategy Analysis

Strategic Fit:

Blockbuster VS. Local Video Rental Stores

The video rental market was fragmented before Blockbuster stepped in. National advertising makes Blockbuster differentiated from local stores. There are there aspects Blockbuster did better on knowing and satisfying its customers than local stores:

• Less cost with a broader and deeper inventory:

At that time, most of the rental stores were family operations, so there were a limited number of tapes compared to Blockbuster, who had 8,000 tapes covering 6,500 titles. Since the scale of Blockbuster was bigger, the average rental fee was lower than other stores.

• Convenient locations:

Blockbuster has chain stores and it was easy for people to get tapes in their communities or on the way from work to home.

• Latest supply:

Blockbuster provided movies during initial release periods, which met customers demand. Though there was uncertainty of how many customers would rent, yet it extended the supply period to the max.

Blockbuster applied technology and understand their supply chain capability better than local stores. The store operations were greatly streamlined by a computerized system for inventory control and checkout. Blockbuster would often custom-tailor a store's inventory to its neighborhood, based on local demographics. In this way, Blockbuster could replenish and exchange the supplies between different chain stores more efficiently than other local stores.

Blockbuster VS. Netflix & Redbox

Blockbuster aimed at movie fans who were chasing variety of titles and titles coming out freshly, not necessarily price-sensitivity. Blockbuster built stores spreading over neighborhoods, open 24/7. However, there was uncertainty in inventory assurance, which means that the title customer requested was not available at that moment.

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Netflix aimed to provide large variety of titles, personalized recommendation engine at a relatively low price. Netflix was able to charge on a subscription base. Customers could watch as many titles as they want at the price of renting 2 tapes at Blockbuster. Although Blockbuster was able to provide more options than other local stores, they were less than one-tenth of those available on Netflix. Moreover, Netflix utilized lead-time strategy - there were about 60 distribution centers across the states and sophisticatedly interactive recommendation systems to make up the possible passive impact on customer experience, which could be generated by less responsiveness than brick-and-mortar like Blockbuster. Hence, we figure Netflix achieved better strategic fit than Blockbuster. Netflix realized their supply chain uncertainty and took actions to lift its capacity.

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Regarding of Redbox, it stressed their easily accessible locations and non-subscription model for video renting. Because of this innovative strategy, Redbox can install a kiosk for discount or even for free. Redbox also levered strategy to reduce operating cost by high utilization of movie titles. Although Redbox still faced risk of uneven-spreading inventory, it was in line with its supply chain strategy.

Efficient vs. Responsive Supply Chains

Primary Goal

Video rental industry provides functional products; the local stores was relatively modest family operations that carried a small selection of former big hit movie. In 1985 Blockbuster invested a lot to integrate the resource and found a 24-hour rental outlet in Dallas and gradually expanded the territory globally. As time goes by, with the invention of DVD, the companies like Redbox and Netflix found out a way to make the efficient supply chain to be more profitable. The lower cost in supply chain should be their first priority.

Product Design Strategy

In 1990s, people who served by the local stores, had limited resource. According to this fact, Blockbuster developed its responsive strategy. With much broader and deeper inventory, Blockbuster outperformed the nearest competitors who is normally family owned carrying a small selection of former big hit movies mainly due to the high cost distributors. And the Blockbuster’s operations were also greatly streamlined by a computerized system for inventory control and checkout.  Besides, Blockbuster stores were a ubiquitous neighborhood feature that stayed open 365 days a year, generally from 10 a.m. to midnight. Several years later, in the year of 1995, DVD was born and became popular in early 2000s. This new technology allowed Netflix and Redbox to provide low cost products with relatively high quality.