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Block Buster Failure to Follow Consumer Trends

By:   •  July 5, 2012  •  Essay  •  1,609 Words (7 Pages)  •  1,878 Views

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Today's rapidly changing world presents many opportunities for companies to be innovative. Constant revolutionized products, modifications in the way people communicate, and diversity among the ways companies operate creates a huge platform for business competition. It is imperative that companies today, are innovative and productive in their strategic models in order to remain successful within today's competitive market. Most of all, following consumer trends is crucial for the long lasting existence and success of a company. This paper focus's on Blockbusters failure to follow consumer behavior, leaving them behind in today's competitive movie rental, and streaming video market.

In 1978 a small video rental club based out of Los Angeles showed successes by running ads in the Los Angeles Times. Quickly, thousands of video stores had been established to serve the many Americans who wanted to watch prerecorded movies, but not spent the exorbitant prices on forming their own library of films Video retail stores were quick to grow from 7,000 outlets in 1983 to around 19,000 by 1986. By 1995, the videocassette recorder was on its way to becoming a standard in most American homes. The price for VCR's significantly dropped making them more appealing to all consumers, not just the wealthy. At this time "28 percent of U.S. "television households" had a VCR and that number was expected to more than double in five years." It was shortly after this that Sandy and David Cook were responsible for the initial creation and ideas behind Blockbuster.

After David Cook's computer software company for the oil industry failed, he partnered with Kenneth W. Anderson who he had previously hired in preparation to go public with the pre-existing computer software for the oil industry. When Cook Data Services failed just shortly after an offering, and a company net income of $8 million, the two men had to come up with another idea to be successful.

Sandy Cook, David Cook's ex-wife suggested opening a video store. With little business background, Sandy suggested that if a small video store could do well like the ones running at the time, a bigger store would do even better because of the additional tapes that could be rented and the customers they would draw. Shortly after, land in Dallas Texas was purchased, a basic inventory of 10,000 tapes was built, the blue and yellow design was established, and the name Blockbuster Entertainment Corp. was put forth. What originally started as a great strategic plan for movie rental would evolve into what American's see now as one of the worst failures of a once prestigious and leading company in the entertainment industry (The Making, 2011).

We can now examine where Blockbuster went wrong. While it is obvious that recent competition with companies like Netflix and Redbox presented immense competition (Cohan), it is important to identify Blockbusters mistakes from even before these competing companies existed. One of Blockbusters biggest mistakes was not clearly identifying their late fee policy to the public. This led this to multiple lawsuits in and around 2005, and put a damper on their reputation. At the time Blockbuster said that it eliminated late fees on games and movies at its 4,600 U.S. stores. However, customers who missed a one-week grace period were billed for buying the item at Blockbuster's full retail price, minus the rental fee. If the customer returned it within 30 days, they received a refund for the purchase but were charged a $1.25 restocking fee (Cosgrove-Mather, 2005). Customers were infuriated. Advertisements all over America promised "no late fee's" but people were still being billed extremely high prices for movies that were returned "late". Customers were not satisfied. The consumer behaviors were not aligned with this policy. American's needed flexibility. Living busy lives meant that they needed to be able to return movies when they had the chance to without being surprised or misled by advertisements with outrageous fees.

Later, in 2010 when Blockbuster was struggling to compete in the market, they reinstituted a late fee policy. The policy was stated to not go beyond $10, but instead of waiting for a 10-day grace period, the new fee was applied per day up to the 10 days, so customers would have to pay from the first day they were late with their rentals. The period that customers were able to rent movies fell from seven days to five days, which meant that after five days the $1-a-day fee began for them. This policy was in regard to new release movie titles rented for $4.99. 2010 was a huge year for competition in the movie entertainment industry (Blockbuster, 2011). Netflix allowed for a monthly subscription of less then $10 dollars a month for streaming video, or mail in, mail out movies. On almost every corner a customer could find a Redbox stand where a movie could be rented for $1.00 and then charged only $1.00 per day they kept the video. This means that Blockbuster's late return policy (for only one day) cost people more money then a one-month subscription to Netflix with unlimited access to thousands of movies. It was no wonder Blockbuster started to fail. Consumer trends and behavior have quickly changed. We prefer to go to drive through restaurants then to sit, eat, and chat for hours. American's prefer to communicate through text messages then to have an hour long conversation on the telephone, and most of all, when we have a desire to purchase something we want it that very instant with only a click of a mouse! Blockbuster failed at meeting any of these needs. For one, Blockbuster stores are not 24 hours, where as access to RedBox or Netflix is. With streaming video at a rise, Blockbuster failed to meet the needs of instant gratification to its consumers. Blockbuster's responses to the initiatives of Amazon's DVD service; Netlfix's mail rental service, and Redbox's kiosk service all came years too late (Cohan). While Blockbuster was once the first mover in the video rental industry, they quickly fell behind in innovation, making them complete failures in strategic planning for the future. In 2010, Blockbuster was still the largest U.S. video rental company with 47 million customers. However, Blockbuster lost market share to Netflix's DVD by-mail business and Redbox's DVD rental kiosks. Netflix had "15 million by-mail customers to Blockbuster's 2.6 million and Redbox had more than 20,000 kiosks to Blockbuster's 7,000" (Cohan).

Blockbusters failures to follow consumer trends


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