Block Buster Case Study

Essay by danster13A+, October 2006

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Blockbuster has 2800 video stores in 28 countries around the world, many of which are franchises. Its membership is thought to number 40,000,000+ people. Blockbuster manages $5 billion in annual sales, and is the top retailer for movie rentals in the US. Recently, however, it has been facing tough competition, in view of the fact that the five major Hollywood movie studios are planning to rent movies to college students directly, and in view of the fact that new web-based movie-rental companies are starting up, for example, Netflix, which offer more flexible, movie-on-demand services. We will be discussing more about this competition that Blockbuster faces later.

In view of this, Blockbuster has therefore had to radically rethink its marketing strategies, and its pricing policies, in order to try and keep its existing customers, and to attract new customers to use its services. The first way it did this was to change the way it bought movies from suppliers: traditionally, Blockbuster purchased movies outright from the suppliers, for between $60-85 per piece, but recently, Blockbuster has taken to buying movies from their suppliers for a much cheaper price ($5-8 per piece) and then paying royalties to the supplier on each rental of the movie (this is known as revenue-sharing).

Another of the ways Blockbuster chose to dilute the effects of competition was to introduce different pricing strategies, for instance, they introduced an 'Entertainment Pass', which is basically a pass that costs $30 per month, and which allows customers to take one movie or one game from their host store every consecutive day, for the thirty day period of the pass's validity. This would allow more flexibility on the part of the borrower, as late fees were crippling, and were extremely off-putting for a high percentage of Blockbuster customers, which is...