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					Blockbusters Strategic Plan

       By: Jessica Spears
        Blockbuster is a leading global provider of in-home rental and retail movie and game

entertainment. The company operates in the US, Europe, Latin America, Australia, Canada,

Mexico and Asia. They have been in the business since 1985 when founder David Cook opened

up his first Blockbuster video rental store in Dallas, Texas. It wasn’t until 1989 that the

company acquired its first store out of country in both Canada and London. David’s Cook’s

previous experience in the software industry really helped as a crutch when creating a new

model for managing a video rental store. In the first couple years of business Blockbuster

acquired Erol’s Video a video retailer and Major Video, a 175 store chain retailer. David’s early

success came from superior inventory management techniques, magnetic data strips on movie

boxes and sensors at the door to discourage theft, membership cards, and a dramatically

increased movie selection. (Koening, pg c-29) Despite the early success of the new model, in

1986 Blockbuster was in financial distress and the company ended its year with a $3.2 million

loss.


        In 1987, Wayne Huizenga bought Blockbuster entertainment and was soon joined by

two investors who purchases stock in the company. Shortly after that Wayne expanded the

company focus from franchise model to store ownership which made a huge difference in the

company’s success. In the late 1993, Blockbuster became an acquisition target for Viacom

media network company. The $4.7 billion deal ran into difficulties when Viacom positioned

itself to purchase Paramount Communications. While the merger eventually took place stocks

for Blockbuster dropped hugely. In 1998 was when Viacom announced its intention to sell its

remaining share in Blockbuster. In 2005 was when Blockbuster decided to eliminate late fees

which resulted in legal fees of $630,000 regarding false advertising. The company also lost
more than $500 million in late fee revenues just in 2005. Blockbusters idea to eliminate late

fees just really hurt them in the end. Blockbuster also ventured into the mail-order video

market to compete against newcomer Netflix, this only caused Blockbuster problems because

Netflix claimed patent infringement on Blockbuster. Finally in 2007, Blockbuster introduced

their major strategic initiatives which included downloadable movie library and continued focus

on improving operational efficiencies.


Mission statement and core values


       Blockbuster’s mission is “To be the global leader in rentable home entertainment by

providing outstanding service, selection, convenience and value.”(blockbuster.com) The core

values of the firm include an increase focus on retail, introducing innovative programs and

expanding the in-store selection of movies and gaming equipment, including hardware,

software, and accessories(Blockbuster Inc).


       Blockbuster implements its strategy through a network of over 8,900 company-

operated and franchised stores throughout the United states, its territories and 25 additional

countries. As, Nick Shepperd, executive said to the Dallas star, “Blockbuster’s goal is to become

the leading one-stop location for gamers who want to buy or rent their games (Blockbuster Inc.,

2003).’’


       Blockbuster’s Vision statement is “At Blockbuster, diversity means valuing differences.

It’s corporate value that must be continually developed, embraced and incorporated into the

way we do business (Wiki Answers, 2010).”
External Environment


       External environment is a set of conditions outside the firm that affect the firm’s

performance(R, Duane, pg 6). The first external environment that Blockbuster faces are their

competitors such Netflix, Red box, and Movie Gallery. These competitors contribute to the

overall industry by their ability to deliver the same goods and services as Blockbuster.

Blockbusters competitors may have better ideas that will attract new consumers, for example

Blockbusters late fees could perhaps influence customers to try out Netflix products over

Blockbuster. With Netflix, there are no late fees, and you can keep a movie for as long as you

like. The prices of Blockbusters movies can also have an effect, they charge over $5 for five day

rental where you can go to a Red box and pay only $1.07 per night.


       The second external issue could be the use of the internet, this could really bring down

sales of Blockbuster, since so many people are doing their shopping from home this lessens the

chance that people will be willing to go to the movie store and rent when they can just order

Netflix right from home. Although Blockbuster does offer online rentals they still are more

expensive than their competitors.


       The third issue that could affect Blockbusters business is consumer spending since more

and more people are out of jobs there are less people out their spending their money on

entertainment. This could really affect the company short term because if there is no one to

rent videos how are they able to afford keeping their business open let alone paying their

employees’ wages.


       SWOT Analysis
               Blockbuster is a provider of rental and retail movie and game entertainment.

The company has a large network of stores spread across the world which significantly

enhances its market. The video-rental market in the US is currently on a downturn and the

most recent shift of demand is to online and by mail.


       Blockbuster strengths include:


              Global network of stores

              Multiple delivery methods

              Enhanced product availability

              Both video/game rentals

              Brand familiarity.


       Their global network of stores reaches more than 7,400 stores worldwide; the company

operates about 1,600 stores through franchisees. By Blockbuster having such a large network

of stores spread across the world it really enhances their market and profit margins.


       The media entertainment industry has witnessed a channel shift of new methods of

distribution. Blockbuster has five channels of distribution: in-store, by mail, through vending

machines and kiosks, online, and at home through direct T.V. The company has various

programs such as their by-mail program which allows subscribers to select a movie catalog

online of the movie they want to watch and Blockbuster will send them in the mail. After the

customer is done with the movie they can either put the movie back in the mail and wait for the

next one or go to the store and trade that movie for a new one. The program is called Total

Access which is a great feature. The company also offers internet-based subscription which
allows subscribers to download movies, television shows, and other videos for rental or

purchase.


       Blockbuster offers movie and games for rent as well for customers to purchase. This

allows customer the option when going to the store. All stores have increased in-stock

availability or new release movies plus the option of blue-ray rentals for HDTV’s They also

offer game systems for rent or purchase along with their huge selection of games.


       Blockbusters weakness includes:


               Downgraded default rating

               Breach of privacy lawsuit

               High operating expenses


            The current market conditions and the general unavailability of capital Blockbuster’s

       debt rating will have a negative impact on their financial position. This could mean that

       more and more Blockbuster stores could close due to not enough financial funds. Any

       downgrade in its credit rating could mean not access to capital upon acceptable terms

       and conditions


                In 2008 Blockbuster class action complaint under the Video Privacy Protection

       Act filed against them claimed the company distributed video tape rentals and sales

       records of members of Facebook without their consent at the time of disclosure.
Blockbuster has high operating expenses because of how many new release movies they

have to order and keep on the shelves for a certain time. They also have a lot more

inventory compared to their competitors


       Blockbusters Opportunities includes:


              Enhanced customer experience

              Launch of Blockbuster OnDemand

              Growth through partnerships

              Lower prices to offer Netflix stiffer competition


       Blockbuster has remained focused on customer’s experiences across all of its

channel deliveries. The company provides personalized recommendations to its users

on whether total access is a good match or downloading online would be better. They

are also testing over 600 stores to get a feel for what customers want ranging from

gaming, beverages/snacks, and video-enabled electronic devices, this will allow them to

improve their store to make a better customer experience.


       Blockbuster is also exploring opportunities to digitally deliver content to its

customers through the development of kiosks in its store. This demand will allow

customers to order movies from the convenience of their home from there T.V’s.


       Blockbuster has entered new alliances with IFC Entertainment. This partnership

gave Blockbuster the exclusive US rental rights for IFC Entertainment titles. They have
       also acquired Movielink which is a provider of movie download services in the US so

       now Blockbuster has more of a variety of movies in their libraries.


               Blockbuster should also offer prices that can compete with their competitors

       such as Netflix; they could lower their prices in their stores which would attract

       customers.


               Blockbusters Threats includes:


                       Slumping movie rental market

                       Competition

                       More location closing

                       Red Box/ Netflix


       Customers are continuing to get their movies via the mail or high speed internet which

is really hurting the movie rental market. Blockbuster struggles to attract customer into its

stores to rent videos. The overall movie market was declining about 12%.


       Competition is continuing to threat Blockbuster because of their new ways of doing

business, for example Netflix has cheaper rates for renting movie then Blockbusters Total

Access. Blockbusters competition continues to bring new and better ideas to the table that

involve the internet or through mail where if you want to rent a movie from Blockbuster you

physically have to go to the store.


       The increase in minimum wages can really impact on Blockbuster because of the

increase labor coast, which affects the company’s operating margins. Since Blockbuster is
continuing to close more location how will they ever have enough money to pay their

employees?


Acquisition


       Blockbuster has acquired many competitors in the market but Viacom’s acquisition of

Blockbuster represents diversification in that Viacom purchased Blockbuster in attempt at

synergy between movie making, video sales and cable television operations. Viacom believed

that Blockbuster could improve its performance by “refocusing on and growing market share in

the video rental category through improved marketing and promotion, better store site

selection, more targeted tape purchases and a renewed emphasis on operational efficiency and

customer service (Viacom Press Release, 1997).”


Multi-Products


       Blockbuster has a couple of multi-products that they offer the first being their large

selection of concession items, popcorn, candy, and soda. This is a great way for Blockbuster to

add a few more dollars to their final sale. They also run package specials on the concessions

like a 2 pops, 2 candies, and popcorn for $5 dollars with a movie purchase. There second

product strategy that they offer is renting video systems like, play stations, x-box, and Wii this is

a great way for people to see if they would be worth purchasing. They also have a large library

of video games to go along with the systems that customers can rent for a week long. The third

strategy is their total access for only $15 a year, for every 5 new release rentals your sixth one is

free and on Monday, Tuesday, Wednesday you can get a free old release movie with a purchase

of a new release.
Strategic Alliances


       In 2008 Blockbuster announced strategic alliances with NCR which is a global leader in

self service and assistance service technology. There agreement was to enter in state of the art

DVD vending kiosks, but eventually wanted the machines to allow digital downloads and other

services such as sales of DVD and video games. This could boost Blockbusters sales by offering

Kiosks were people can rent movies like their Red Box competitor. Blockbuster also enters

strategic alliance with cable operator’s suddenlink communications and Mediacom

communications. This will help both the communication companies with their movies and also

advertise for blockbuster.


Recommendations



       My first recommendation for Blockbuster would be for them to come out with more of

their DVD vending machines. If they were to set these up in popular locations such as gas

stations, grocery stores, and fast food they could really make a killing on their sales. My second

recommendation is for them to lower their costs because with the way the economy is going to

rent a movie over $5 is really a waste of money when customer could go to their competitors

and get movies for a lot cheaper. This brings me to my third recommendation and that is

Blockbusters should flow with their competitors and start focusing more on internet and

convenience. They really should consider shutting down more stores before they get anymore

into debt. My fourth recommendation would be to partner with other retailers such as they

could move their store locations in grocery stores, which would lower their fixed costs. They

would also benefit by gaining access to more customers, and cross promotions.
                                        Work Cited

1. "Viacom Expects Blockbuster Second Quarter Revenue and EBITDA Below Analyst
   Estimates; Company to Take Charges at Blockbuster." Viacom Press Release, 1 July
   1997.
2. Blockbuster Inc; Investor Relations – Various Press Releases; 2003-2004
     http://www.blockbuster.com
3. Hoovers Online; Blockbuster Inc – History; Date Unknown
     http://premium.hoovers.com/subscribe/co/history.xhtml?COID=10218
4.   Datamonitor Company Profiles Authority. (2009) Blockbuster Inc Company Profile. Business

     Source, pg 1-25

5. Ireland, R. D, Hoskisson, R, E. Hitt, M, A. Understanding Business Strategy,

     Blockbuster, Inc.: A Giant at the Crossroads, C-29-C-38.

				
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