The problems associated with the Blockbuster company - Essay Example

? Blockbuster: Case Study (Add (Add (Add Introduction Blockbuster was started in the year 1985 in Dallas as a single movie-renting store. With its aggressive growth strategy, the company managed to grow to nearly 7,265 stores in 24 nations around the world. Though the company remained as the world leader in movie rental during 1990s, problems emerged as new technologies developed in the area of entertainment distribution. New technologies that allowed online booking and online delivery of content developed as time passed, but the company management was adamant to give up its basic brick and mortar movie renting stores. As a result, while its competitors like Netflix effectively shifted to, and excelled in, methods like online booking, mail delivery and VOD, Blockbuster went on struggling with the already declining in-store movie renting systems and fell into debts. This resulted in a lot of issues in customer service that again made many existing customers leave the company. Firstly, the number of titles on offer declined dramatically, and secondly, popular items often went out-of-stock. Also, the delivery system was too slow as compared to that of its rivals. Thus, the company closed its year 2007 with a net loss of $ 85.1 million. This work looks into the various reasons behind the existing issues and tries to suggest ways for improvement in the future. Diagnosing Blockbuster’s Present Situation A look into the performance of Blockbuster proves that once glamorous Blockbuster where everyone stopped to pick up a few movies has become a shadow of its past. There are a number of issues ranging from stiff competition, indifferent and doubtful management, lack of clear objectives, and finally, the continuously changing industry dynamics. Until the end of 1990s, Blockbuster was at the top of the rental business, and it never considered Netflix or any such other companies as consequential competitors. So the company paid little attention towards the emerging technologies and the changing customer preferences. Soon, the company found that its profits were going dramatically down. Thus, the stock price of the company fell from $29 to $2 per share. This was mainly the result of the emergence of other forms of entertainment delivery like rental by mail and video on demand. As these technologies emerged, a significant proportion of customers found them more convenient than in-store renting. It was at that juncture that the company made the most terrible mistake in its history. Instead of adapting itself to the emerging trend, the company decided to strengthen its in-store business. However, as the in-store business was destined to fail as technology allowed more convenient renting options, the effort proved futile. On the other hand, its rivals like Netflix who successfully adopted rental by mail and video on demand technologies found significant improvement in business and profit. As the company found itself in trouble, it started new strategies like kiosks, rental by mail and video on demand. However, each of the new strategies had its own defect too. For example, the rental by mail offered by Blockbuster was not as effective as that of Netflix. While Netflix managed to deliver the order in a single day, Blockbuster took one to three days. Also, while Netflix ensured successful delivery in more than 95% of the cases, many of the Blockbuster visitors found their favorite titles out-of-stock. Admittedly, the company has taken beneficial steps that will improve the position of the company in future. First of all, it has widened the product array in its brick and mortar stores by adding electronic appliances and video games. Secondly, it has started VOD though it has not been seriously explored. In fact, most of the problems faced by the company are associated with the lack of a specific objective. The management goes on changing its strategies in very short intervals, and hence, the customers get too puzzled to take a decision. Also, even the company representatives find it difficult to explain the plans to the prospective customers. The issues- a Comparison of Blockbuster and Netflix The first problem identified with Blockbuster is that its management is not able to identify the changing nature of market and customers. This is evident from the fact that as far back as in 2006, there were four different ways of movie-rental. According to the case study, in the movie rental industry, in-store rental offered revenue of $5.7 billion, followed by $2.0 billion from rental via mail, $ 1.3 billion from video on demand, and $ 400 million from vending machines. In addition, there was the clear AMR projection that the online subscription sector would grow by 68% before 2011. That meant online subscription would amount to nearly 37.5% of the total entertainment rental market. In fact, there are various studies that clearly dictate the need to be proactive for businesses. For example, Ward, Long & Boyer (1994) have pointed out through the analysis of various organizations that planned investments in infrastructural programs are positively correlated with higher than average performance. Seeing the changing technology and customer interest, companies like Netflix immediately converted their business into other forms through newer business models. To illustrate, by the year 2008, Netflix became the largest online entertainment subscription service in the world. By taking advantage of the predicted growth in online subscription, the company attracted nearly 8.4 million subscribers. First of all, it managed to have a huge library with sufficient numbers of titles. Also, it ensured next day delivery to its most customers, and in order to return the same, a prepaid return envelop was provided. Also, the customers were given unlimited time period to return a rental. Admittedly, a look into the performance of Netflix proves that the company’s success is the result of a number of factors; wide selection of movies, easiness in selection of moves, fast delivery of the selected movies, absence of due dates, and convenient return methods. Also, the company eagerly started to introduce the internet based delivery of content as the segment gradually got developed. However, Blockbuster management severely erred in all these cases. Instead of identifying the need to provide online service, the strategy adopted by Blockbuster was to promote its in-store sale through a variety of campaigns. However, the low cost and free offers from Blockbuster only helped a further decline in income. However, the company managed to take some useful steps; though lately. First of all, it decided to close a number of its stores which were running in loss. Also, it increased the product line in its stores by adding the sales of many electronic appliances. Also, there was the introduction of video games. Evaluating and Managing the Risk Factors- the Risk Analysis It is natural for businesses to face risks of various kinds. However, risk analysis and risk management will help assess the risks and take appropriate actions. Thus, the first step involves identifying the threats. Admittedly, the first threat for the company lies in the way its management operates. It is too slow to identify the changes in the nature of the market. So, the first threat is the poor management style of the company. The second threat is the declining reputation and customer satisfaction enjoyed by the company because of various reasons. The third risk faced by the company at present is its slow incorporation of technology, that makes the company lag behind its competitors. The next important risk factor is the poor management of inventory and poor customer experience. The last risk factor is the deteriorating financial condition. Now, the second stage is the management of the risk factors. The first issue to be handled is the poor management. It is seen from the case study that the management is too orthodox to accept radical changes. For example, even against the prediction that the there would be considerable rise in online-rentals and downloadable content usage, the company was adamant to reduce its reliance on the declining in-store rentals. It wasted considerable amount of time and money improving and widening its chain of stores. So, the first strategy for the company will be to have a management team that is sensitive to market variations and open to changes. The second issue at hand is the declining customer satisfaction. As already noted, there are a number of factors that seriously affect the customer satisfaction. First of all, the rental options available at the company are far too inferior to the ones offered by its competitors like Netflix. Secondly, the company takes more time to ensure mail delivery as compared to its competitors. Thirdly, the company was too late to offer online booking, and when online booking was introduced, it was found that most of the popular titles often went out of stock. Thus, improving the levels of customer satisfaction involves improving all these things. Factors that are Important for Success – SWOT Analysis In the opinion of Bohm (2009), SWOT analysis helps in identifying the strengths, weaknesses, opportunities, and threats for organizations; and a proper analysis of all these things gives a clear insight into the best ways for the organization to surge ahead (p. 35). Strengths Strong neighborhood brand recognition as the company has a large number of brick and mortar stores. Rents out both movies and video games Has global presence Ability to sell more products through the stores The company has different forms of delivery channels including stores, vending machines, high-speed downloading kiosks and internet. Weaknesses Damaged brand reputation Always lagging behind in technology High operating expenses Orthodox management that is opposed to radical changes and innovation Always changing policies that confuse customers Poor distribution system Limited number of films Opportunities Total access plans Alliances to install DVD vending kiosks for movies and video games Internet-based in-home delivery facility Growth in the video game market Chances of selling other electronic items through the stores Increasing consumer awareness about video streaming technology Threats Increasing competition Falling DVD rentals Video streaming facility replacing DVD Identifying the Factors Relevant for Success- the Critical Success Factors (CSF) In the book Wikinomics, Tapscott and Williams (2008) point out through the inspection of a number of organizations that there are a number of success factors in business. They are leadership, vision and purpose, competitive velocity, and policies and rules (p. 152). In the case of Blockbuster, all these elements were seriously deficient. For example, the term ‘competitive velocity’ indicates a company’s ability to outcompete its rivals. Thus, it becomes evident that Blockbuster does not have the competitive velocity to survive in the market. For example, even when there was clear prediction that mail delivery and VOD systems would grow and the in-store system would go down, the company could not take necessary steps to introduce changes to retain its superiority. Instead, it allowed its all rivals to overtake in all areas. Secondly, the company lacks leadership, vision and purpose, and this is evident from the fact that instead of bringing the company back to profit, the management wastes its time and resources in beating its rival Netflix. In addition, the various strategies adopted by the company are facing disputes from within the management. That means, the company evidently lacks in leadership, vision and purpose. Critical success Factors (CSF) are the factors that need to be done well in order to achieve the mission, objectives or goals for a business project. So, properly identifying the Critical Success Factors can help a company create a common point of reference that will help the company in directing and measuring the success of the business. According to experts (as cited in ‘Critical success factors’), CSFs are the factors the successful performance of which will ensure success of the organization. Admittedly, CSFs are usually very few in number but they require very constant and careful attention. Thus, if the company sets the mission to become number one in the entertainment rental business, the next step for the company will be to set the required goals. From the above discussion, it becomes evident that the important objectives for the company will be to increase online and internet-based entertainment rental reduce the reliance on the traditional in-store rental expand product range and stock size to meet customer demands and increase customer satisfaction at least to 98% Now, it is possible to identify the Critical Success Factors that will enable the company to achieve the goals; they are a) Increase the number of available movies and games b) Ensure adequate stock of popular titles c) Diversify in-store sales c) Increase delivery efficiency by adopting better technology d) Avoid changing plans continuously to keep customers oriented e) Increase awareness about online video streaming among customers and capitalize more on it f) Reduce the number of brick and mortar stores which are costly to run and improve store visiting experience g) Adopt such plans that are economically viable instead of beating Netflix, and h) Publicize more about the ‘anywhere, any time, any way’ rental and return facility that only Blockbuster can offer. Recommendations Downsize In fact, the brick and mortar movie rental is causing significant loss to the company. As already seen, the company lost $ 1.2 billion in the year 2004 and as nearly 500 stores were closed, the loss came down to just $ 85.1million by the year 2007. Even now, the company has about 4,000 stores in the US alone. So, it is necessary for the company to prompt its existing store visiting customers to shift to online-booking, VOD facility or DVD vending machines. Admittedly, the brick and mortar stores are the only way for the company if it wants to make an immediate change in the situation but the problem is that the results will not last long as the in-store sale is on a continuous fall as technology develops. As Mishra, Mishra and Spreitzer (2009) point out, in such a situation, it is beneficial to downsize by closing down the stores which are not in profit. Admittedly, there are issues associated with downsizing. Some examples are; destroyed company image and trust in management. Improve the store visiting experience Admittedly, there are a number of reasons behind the lost image of the brick and mortar stores of Blockbuster. The first reason is the limited number of titles it offered, and the second reason is the issue of popular titles going out-of-stock. If the company takes utmost care to improve in these two areas, the segment of customers who are less price-sensitive will happily visit the stores, and once satisfied, they are likely to become brand ambassadors for the improved company. Increase product diversity and geographic diversity It is wise for the company to introduce more useful electronic products in its existing stores so that the electronic sales can supplement the fall in movie rentals. To support this idea, Taliman & Li (1996) point out that product diversity has direct positive impact on a firm’s performance. Similarly, the study also identifies a positive correlation between geographic diversity and performance. Give more importance to video games It is possible for the company to give more importance to video games rental where competition is relatively less. As it develops its own movie downloading facility through Movielink, it will be possible to allow access to video games as well. The relatively less competition in this area will be an added advantage for the company. In addition, by increasing the video game availability at stores, there will be more traffic to the stores, and hence, increased possibility of movie rental too. According to Muller-Veerse, Vocke & Malatinska (2011), this is really important because video games industry is one of the hottest segments in the entertainment sector at present. Conclusion In total, it becomes evident that the problems associated with the company are the result of poor vision and poor competitive velocity. In such a business field where significant changes take place every now and then, a company should not cringe while adopting radical changes. In addition, the more proactive the company is, the better the future prospects will be. References Bohm, A. (2009). The SWOT Analysis. Germany: GRIN Verlag. Critical success factors: Identifying the things that really matter for success. Mind Tools. Retrieved from http://www.mindtools.com/pages/article/newLDR_80.htm Mishra, A. K., Mishra, K. E && Spreitzer, G. M. (2009). Downsizing the company without downsizing the morale. MIT Sloan: Management Review, 50(3), 39-44. Muller-Veerse, F., Vocke, J., Rohini, D. V & Malatinska, I. (2011). Online, social and mobile: The future of the video games industry. Cartagena Capital. Retrieved from http://www.cartagena-capital.com/news-and-events/news/256-online-social-and-mobile-the-future-of-the-video-games-industry Tapscott, D & Williams, A. D. (2008). Wikinomics: How Mass Collaboration Changes Everything. Portfolio Hardcover. Tallman, S & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1), 179-196. Ward, P. T., Long, K & Boyer, K. K. (2007). Manufacturing proactiveness and performance. Decision Sciences, 25(3), 337-358. Read More