According to the Entertainment Merchants Association, each month, approximately 28 million households purchase a DVD, and 27 million rent one to the tune of about $23 billion in sales. That's nearly three times what we spend at traditional movie box offices. (Lewis, 2008) With the introduction of online video delivery, viewers of movie DVD's athome have yet another option to choose from when deciding on a movie rental. Stores that rent DVD's like Blockbuster and Hollywood video are forced to reach new segments of the population by expanding their current business plans. The main advantage of online video delivery, mentioned in the previous blog, is the ease of which the movies arrive and are available; a constant struggle for the minimal inventory that can be accounted for by physical video rental stores. Although sales are dropping for the physical stores, there are several steps that they can and are taking to stay competitive with the online stores toremain in business.
For a video rental store to have maximum profits there must be a trade-off between lost revenue from customers regarding the impact from lack of stock on-hand and the additional cost of having more stock and holding cost increase (Lehmann & Weinberg, 2000). This trade off is likely to result in demand not being constantly met in order to earn profits after demand decreases for the specific movie. Netflix, which has 15,000 titles in its library, has enjoyed stunning success, surpassing 1 million subscribers in 2003. At the same time, offline retailer Blockbuster is struggling to turn around in the face of declining movie rentals. (Aaron, n.d.) Now to combat this reoccurring problem and battle the online rental sites that have emerged, physical video rental stores are creating online stores as well. Blockbuster for one, has created an online rental capability to unite those who desire the experience of picking a movie for a night and those who regularly rent movies. At Blockbuster.com (2008) one can now request a movie to be delivered in 1-2 business days just like other Netflix.com ty
pe sites. (Blockbuster.com, 2008) After viewing the chosen or delivered movie, an advantage to having both physical and online stores is the ability to make movie returns at the store easier than mailing in the video.
There is a portion of movie-viewing population who would rather go to a video store for the experience of an evening in rather than order a movie online. These two main differences target dissimilar segments of those who rent movies. The physical stores are targeting impulse renters more than ever because the lack of immediate delivery with online renting is clear. Physical stores luke Blockbuster are using this to their advantage and dismissing the previous stigma of overdue fees to compete with the online stores like Netflix that allow you to keep the movie for an unlimited amount of time, or until you want to rent a new movie at no extra charge. (Netflix.com, 2997) Blockbuster's online rental site now offers a Total Access Pass, which combines the physical store qualities as well as online selecion for only $19.99 a month. Netflix (1997) also offers 3 DVD rentals at a time per month for &19.99, but the advantage with Blockbuster is that one can exchange in-store or online. (Netflix.com, 1997); (Blockbuster.com, 2008) Physical stores also have the ability to be service experts over online stores. Employees can help customers choose the perfect movie for the night in as well as solving problems face to face rather than in the jumble of online or telephone service confusing. Another variable in rental stores is pricing; a wholesale price of $60 or more to video stores and a sell-through price of $20 of less for sell in the physical store. Originally the movies were targeted for children segments; however, now there are more adult movies for sale in the video rental stores. (Lehmann & Weinberg, 2000) By selling movies in the store itself, the video rental store can be seen as a convenient place to purchase a favorite movie or new release instead of just renting it.
Segmentation in business strategies is creating new markets for the online and physical movie rental stores. One, the physical store has to adapt to the changing determinant of video rental choice which is availability; the other, an online rental site, has to retain and create customer loyalty through other ways than subscription. Online sites like Netflix.com realized that customers had to wait for their DVDs. They preferred the slower pace over the hassle of choosing, renting, and returning videos from conventional retailers. Thus was born Netflix's innovative subscription service, which allowed customers to keep videos for as long as they wished. (Netflix.com, 1997) Blockbuster and other physical stores have expanded their services to reach out to the new digitally competent population. Based on their adaptation and loyal existing customer base, they are succeeding in becoming competition to the rapidly growing online movie and rental sites.
No comments:
Post a Comment