Case Study Supply Chain Management Topic The Demise Of Blockbuster.pdf

Cook planned to take advantage of a highly fragmented video rental market, in which most of the stores were relatively modest family operations that carried a small selection of former b

HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY SCHOOL OF INDUSTRIAL MANAGEMENT

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CASE STUDY SUPPLY CHAIN MANAGEMENT TOPIC: THE DEMISE OF BLOCKBUSTER

CLASS CCO01 - TEAM 01 - HK 221

DATE: 24/09/2022

Instructor: Dr Nguyen Thi Duc Nguyen

Nguyễn Ngọc Ảnh Hoa

Hồ Thi Nhu Ngọc

Nguyễn Vân Kỷ

Bùi Ngọc Quốc Khánh

Dương Thanh Ngân

Ngô Thanh Trúc

Ho Chi Minh city — 2022

I SUMMARY

1 Blockbuster

Blockbuster, Inc which was founded by David Cook in 1985 with its first rental outlet in Dallas

Despite its best efforts, Blockbuster's brick-and-mortar stores could not match the low-cost operating models of Netflix and Redbox, leading to its bankruptcy in September

2010

Cook planned to take advantage of a highly fragmented video rental market, in which most of the stores were relatively modest family operations that carried a small selection

of former big hit movies, with 8,000 tapes covering 6,500 titles mainly due to the high cost distributors typically charged (about $65 per tape) The store operations were also greatly streamlined by a computerized system for inventory control and checkout

By 1993, Blockbuster was the leading global provider of in-home movie and game entertainment, with more than 3,400 stores throughout the Americas, Europe, Asia, and Australia Blockbuster stores were a ubiquitous neighborhood feature that stayed open

365 days a year, generally from 10 a.m to midnight

In the early 2000s, though, Blockbuster began to see real competition from the burgeoning online rental market as DVDs started to replace tapes Its major competitor was Netflix, launched in 1997 In addition to being cheaper to purchase than tapes, DVDs were well suited for shipping by mail because they were less expensive to ship and less fragile than tapes

Netflix challenged Blockbuster on two key dimensions-variety and late fees Whereas Blockbuster stores generally carried about 3,000 titles, Netflix initially offered more than ten times that amount In addition, Netflix did not charge Blockbuster's greatly disliked

"late fees,” instead allowing customers to keep titles as long as they wanted

Netflix 's monthly subscription plan offered unlimited mail-order rentals for $9, the cost of two rentals at a Blockbuster store

Meanwhile, Redbox, a unit of Coinstar Inc , operated vending machines that rented DVDs for as little as $1 a night

2 Netflix

Netflix, Inc is an American entertainment company specializing in and provides streaming media and VOD online and in DVD via mail Netflix was founded in 1997 by Reed Hastings After experimenting with both pay-per-rental and subscription, the company settled on a subscription-based strategy by the end of 1999 By 2010, Netflix had 13 million members and was the world's largest subscription service, sending DYDs

by mail and streaming movies and television episodes over the Internet For $8.99 a month, Netflix members could have any of more than 100,000 DVD titles delivered to their homes and could instantly watch a smaller set of television episodes and movies streamed to their televisions and computers Netflix had about 60 regional distribution centers across the United States, shipped some 2 million discs daily, with sophisticated systems to track customers’ DVD queues Netflix focused its strategy around offering a large variety of titles, helping customers navigate titles with a sophisticated recommendation engine, and ensuring that titles reached customers quickly Whereas a bricks-and-mortar rental store typically CatTied about 3,000 titles, in 2010 Netflix offered its customers a selection of more than 100,000 DVD titles, most of which were old releases Netflix estimated that it would spend about $600 million in 2010 on shipping expenses By 2013, the streaming service contributed the majority of Netflix's revenue, although most of the profits still came from the DVD mailing business

3 Redbox

The concept of Redbox originated in 2002 within McDonald's Ventures, LLC, which was working to identify new ways to drive traffic to its restaurants and provide added convenience and relevance to customers

Redbox met this need by placing its automated red kiosks at easily accessible locations, where customers could rent movies for $1 per night Movies could be returned

to any Redbox machine and no membership was required by early 2010, Redbox had approximately 23,000 kiosks nationwide, including in select McDonald's restaurants, leading grocery stores, and Walmart, Walgreens, and 7-Eleven stores In some cases, retailers even offered discounts that essentially made it free for Redbox to install a kiosk Each Redbox kiosk carried about 630 discs, comprising 200 of the newest movie titles

An average Redbox kiosk rents a DVD 15 times at a cost of $2 each time Following that, buyers could purchase the used DVDs for $7

IL ANSWER STUDY QUESTION IN CASE STUDY

Question I: In what ways did Blockbuster achieve better strategic fit than local

stores?

1 Having multiple stores

With thousands of retail locations, millions of customers, massive marketing budgets and efficient operations, it dominated the competition specializing in movie and video game rentals through physical stores Blockbuster supplies a broader range and better availability at a cheaper cost than competitors due to offering the bigger shops (the first day of rental will cost $2.99 for new releases and $1.99 for older films or about $5 for five nights)

Blockbuster was the leading global provider of in-home movie and game entertainment, with more than 3,400 stores throughout the Americas, Europe, Asia, and Australia

2 Offering a wider range of available choices

Blockbuster had a significantly larger and deeper collection than its nearest competitor, with 8,000 VHS tapes spanning 6,500 tilles, whereas smaller rental stores could only provide a couple hundred movies A computerized system for inventory

control and checkout also considerably improved retail operations to fill demand from its customers better than mom-and-pop stores

At the time, Blockbuster was the only place where customers could watch movies that had left theaters without purchasing the VHS tapes themselves

3 Maintaining the standard service during the holiday season

Blockbuster gained better strategic fit while compared to other stores majorly because of their uniqueness in services like shops which are located based on the customer centricity, shops are open 365 days and even during midnight which makes sales more viable for all types of customers

Question 2: How much implied uncertainty do Netflix and Redbox face? What levers do they use to deal with this uncertainty?

Through automated red kiosks that direct

customers to movie rentals, Redbox

responds to customer requests Many of

the aforementioned Kiosks, which are

statistically relative average access data,

provide Redbox's DVD players, which

are new movies, to clients in large

quantities

Redbox has a low amount of uncertainty,

making it comfortable for clients to use

by effectively allocating disk space at

More than 100,000 DVD titles of movies are available through Netflix The majority of those that are supplied to clients are old-release games They are also struggling with the issue of excessive client demand However, Netflix makes its users wait a bit before they see a new movie title, which is what the company wants Instead of offering consumers the option to rent DVDs that are sent to them, Netflix wants to provide more digital material

Netflix used a centralized supply chain structure to provide variety in the form of old movies (high uncertainty) to its customers at low cost Redbox used a decentralized supply chain structure to provide predictability in the form of new releases (low uncertainty) close to its customers at low cost

Question 3: How did Netflix and Redbox achieve better strategic fit than

Blockbuster?

Blockbuster was established in 1985 Services were offered primarily at video rental shops, but later alternatives included DVD-by-mail, streaming, video on demand, and cinema theater while Netflix was started in 1997 and Redbox was founded in 2002 Although Netflix and Redbox were born after Blockbuster, both have been more successful in business strategy To know about the reason, we must analysis the strength and weakness of all

Blockbuster

a Strength

¢ Blockbuster provides DVDs and other related stuff by the hour and is readily available in the market for customers so they can manage their customers well

® The company produces quality products and regularly updates its movie and game offermgs Users will receive the complete latest version of the product as soon as it

is released

® We offer our products in a variety of ways to provide our customers with current and updated products The company dominates the global market as it ships its products almost all over the world

® Blockbuster has fixed and low prices for its products

b Weakness

® One of Blockbuster's weaknesses is its inability to control one of the organization's most significant and significant expenses: shipping costs

¢ The organization has a very limited commitment to movie players

¢ Blockbuster lacks planning in some country such as Africa, a huge market that could significantly increase the company's revenue

* Companies face funding and capacity issues

¢ Blockbuster allows only high demands users to access its services

Netflix

a Strength

¢ Netflix has a great brand reputation and has made a name for itself by displacing top-tier TV shows The company has also shown exponential growth in recent years

¢ Netflix has a global presence and is affordable in many Southeast Asian countries

It gave them an edge in an ever-changing market scenario

¢ Netflix Original movies and TV shows offer many opportunities for up-and- coming filmmakers Viewers enjoy the mode of content provided by the platform

as original content

® We are an adaptable company Netflix continually adapts its service to market and audience preferences That's why Netflix is in high demand right now

b Weakness

¢ Netflix's copyright is restricted, which will affect your earnings Corporate debt is also increasing

e Some countries lack original content As such, there is less demand for expensive subscriptions in some countries

® The company relies primarily on its North American customer base Netflix doesn't have a solid account manager, which undermines customer service and lowers customer satisfaction

Redbox

a Strength

® Offering a low-cost compared to competitors

¢ Vast location

e The ability to reserve movie online

¢ User-friendly kiosks

® No membership fees

e = Their affiliation with Coinstar, opened 24/7

e The flexibility in the returm process by returning DVDs to any Redbox location

b Weakness

® Limited selections and machine capabilities

¢ The high cost of partnerships and license agreements with movie studios,

® No online streaming capability, and not being able to obtain or stock an adequate amount of new releases in a timely manner

¢ The payment method of only credit or debit cards

= Looking at each company's business model, weaknesses, and strengths, it's easy to see that Blockbuster can't compete with either company when it comes to customer experience and convenience It was too late to adopt and implement technology to gain a competitive advantage We lost the market because we couldn't keep up with the progress of either company

= Netflix and Redbox won blockbuster bids by getting to know their customers quickly and focusing on reducing operating costs and improving the customer experience

=> Netflix emerged as an early innovator, offering online streaming and subscription services to its customers On the other hand, with newsstands, Redbox offers same-day delivery, delivering new movies much faster than stock blockbusters

=> Later fees formed a huge part of Blockbuster revenue and that is why it took them such a long time to get rid of it Netflix realized it earlier and though it charged a good fee for subscription, the customer experience was delightful Netflix’s

growth was also boosted by its strategic partnerships from time to time such as those with Apple and Warner bros

= Only a single wall at a Blockbuster store was dedicated to new release Given that Blockbuster was paying for the whole store, this increased the facility cost per rental because most of the space was used by other movies that rented at a much lower rate than the new releases Redbox, in contrast, used very low-cost vending machines in high-trafficked locations such as grocery stores, supermarkets, and malls

to rent the same recent releases compared to Blockbuster As a result, the facility cost per rental was much lower at Redbox compared to Blockbuster

=> Netflix primarily targeted a wide variety of older movies while Redbox primarily targeted a much smaller variety of new releases Blockbuster’s attempt to serve both markets increased its cost for both new releases and older movies, however, it was not effective and costed more In contrast, Netflix was able to provide variety to its customers more effectively (100,000 titles rather than 5,000 at Blockbuster) and at lower cost through its aggregate model of shipping from DCs Redbox was able to provide new releases at a lower cost than Blockbuster by using vending machines

I REAL SUPPY CHAIN CASE

1 Similarities of Kodak and Blockbuster

a@/ Born the earliest and achieved success

Similar to Blockbuster, in 1888, Kodak was established In 1896 Kodak ranked first place in the world in supplying film and photographic supplies to the industry Over the next 45 years, Kodak continuously invented:

¢ The legendary film Kodakchrome in 1935;

® The Starmatic camera used film 127 as small as the palm of a hand in 1959;

e Instamatic cameras used film 126 and 110 in 1963, which was a great success

in moving into the low-cost photography market;

¢ Kodak Carousel automatic rotating slide projector in 1965

Revenue

0

Picture 1- Revenue of Kodak

= Similar to Blockbuster, Kodak achieve better strategies in beginning Revenues increased continuously

b/ Both were demised

In 1976 the company did not dare to face the "corporate cannibalism” that is so common with large businesses today This narrow vision of Kodak has been filled by other firms

We can see the decline of revenue of Kodak when other brand was founded such

as S, Fujifilm, Sony