Blockbuster Inc.: Marketing Strategies Analysis

Introduction

Blockbuster Inc. is an American company that is involved in the music, movie, and game rental business. It is one of the leading companies in the world with video and game rental supply chains of DVD stores. The company has its headquarters in Dallas, Texas. Blockbuster Inc. was founded in 1985 by a 29-year man, David Cook who helped it come into the public limelight before its management was taken over by Joe Mitchell who then became the CEO of the company five years later. The company has continued to grow into a multi-billion business and even took part in a joint venture with Viacom cooperation in 1994 worth a price of more than 8.5 billion dollars. With good competitive strategies, the company has been able to maintain its lead in the DVD video rental market and provision of home video games not only in the U.S but also in other parts of the world. Blockbuster has been able to engage in this business and even make diversity, especially on game entertainment markets. It operates primarily in the U.S, U.K, and Canada with a huge number of employees in all the countries it operates. 2007 estimates indicate that Blockbuster has employed approximately 67,500 people in the U.S alone with revenue of more than 5.6 billion dollars as of the end of December 2006. With an operating profit of $80 million, the company can strategically meet the needs of the market.

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This paper will therefore analyze Blockbuster Company about its strengths, weaknesses, opportunities, and threats. It will also analyze its marketing strategies and other market research forces with specific regard to the use of Porter’s five strategies. It will particularly look into the strategic management of the organization in terms of the 3 lenses on organizational analysis and action.

SWOT analysis

To make a good analysis of the company, a SWOT analysis will be utilized in a bid to expound on all factors affecting it. The SWOT analysis will be in a position to help it group the factors into two. First, it specifies the internal factors i.e. strengths and weaknesses of Blockbuster. Secondly, it categorizes the external factors that have been identified to boost or hinder the achievements of the company especially in terms of growth and expansion. These external factors are opportunities and threats.

The figure below shows a SWOT analysis chart for Blockbuster Inc.

Strengths
  • Control of end-user sales through hourly update of the DVDs and other cassettes in the stores
  • High quality products and up to date movies and game cassettes
  • High product life and durability
  • E-commerce and its potentiality in the far east countries
  • Committed management and leadership
Weaknesses
  • Lack of cooperation with the movie players
  • Unsatisfactory pricing
  • Lack of a detailed plan to enter markets such as in Africa where there is a huge market
  • Limitation of funds and expertise
  • Lack of staff retaining
  • Insufficient management cover and

controversies

Opportunities
  • Development of new products and if not, developing of products similar to those of either Netflix or any other competitor
  • Higher profit margins
  • Responding to new ideas i.e. customers appreciating the quality of the online products
  • Seeking services of good suppliers especially in countries such as china where population is high
Threats
  • Impact of legislations such as the Children’s protection Act
  • Retention of the CEO Mr. James is critical to continuation
  • Market demand especially during the summer holidays make sales unpredictable
  • Negative publicity as witnessed in 2004
  • Good employees may resign from the company

A Detailed SWOT Analysis for Blockbuster is as follows; the strengths are that have been visible for the last ten years include brands and expansion. Blockbuster Inc. has a strong brand name which helps the organization to have a competitive advantage over other movie rental companies such as NetFlix which is Blockbuster’s Inc.’s main competitor. According to the latest research, the company has investments nearly all over the world with major subsidiaries in Canada, Australia, Canada, and the UK. The company has experienced global expansion as its ability to adapt to new strategies has been appreciated both domestically and internationally especially when it embraced e-commerce in 2002. Blockbuster has been getting into international markets and acquiring subsidiaries from other companies especially in Europe, Asia, and Africa to build its customer base. Going by the financial status of the company, its sales and profits have also grown tremendously to a value of 5.6 Billion dollars as per 2007 financial statistics. The company also has an excellent reputation for quality products and services which has helped it meet its market target

As an improvement in strategic management from the marketplace setting, Blockbuster has been able to generate a significant number of incremental subscriber growths for the last three years. This has been so because of the favorable economic model utilized by the company. The company believes that its competitor NetFlix, has been able to enjoy a good market share because of its powerful brand and that its success is linked to services like Friends Network and Watch Now- which are both online. The main limitation that has hindered Blockbuster from attaining this level is the failure to mail DVD’s queue orders which results from lack of availability of the products. At the moment, 50% of subscribers of Blockbuster can manipulate their queues for them to obtain their movies that are principal to their contentment.

“Blockbuster Inc. has a core competence involving the use of ‘online stores’ to meet the needs of its customers”. It also developed new technological approaches and strategies to support its international logistic systems i.e. to see how the subsidiaries in other countries are performing in other parts of the world. The company also trains people in its human resource development strategy to meet with the market changes that need people to have hands-on experience on the way services and products are provided to the consumers.

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Blockbuster has also been active in its corporate responsibility especially within the U.S. and other countries where it has opened up subsidiaries. The company has sponsored teams in the past for competitions in the film industry, sponsored awards for the movie industry, and other luncheons related to entertainment.

The company has however experienced some weaknesses in its quest for better financial performance. With fluctuating prices of products and reduced need for past movies, the company has been undergoing turbulent times. The company has been engaging in huge losses since the year 2003 and especially the large statutory losses and this has resulted in cases such the throttling, controversies, and legal cases brought against it. The losses have been attributed to the heavy investments applied to technology in the sector such as the online download business and online marketing. Despite this reality, Blockbuster Inc. is a highly profitable company and it is only having challenges in terms of providing high-quality services and products that go in line with today’s modern society.

Even with its numerous strengths, Blockbuster Inc. could leave it weak in some areas due to huge span control in terms of changes in the way services and products are developed. “Blockbuster fails to meet the international challenge of penetrating new markets apart from what it has acquired so far because of the strict trade tariffs”. Some countries are developing very faster in terms of technology and are now capable of rolling out their own video online operation abilities which will mean that, Blockbuster Inc should improve further internally and prepare its technical team for better technology-related improvements.

Many opportunities exist for Blockbuster Inc. Company in emerging markets all over the world. There are great emerging markets in Africa, Asia, and Australia among other countries. In fact, in 2004, Blockbuster Inc. announced that it was entering the Australian market in full swing having to invest more than 230 million dollars there through the formation of strategic partnerships.

Another opportunity that is obvious for the company is the new innovative approaches in the marketing department. Today, customers would like to have devices and services that match with the technology of the day. The innovative techniques here that are available and can be utilized effectively by blockbuster is the use of web retail marketing that will incorporate both mails, mobile phone approaches, and e-commerce to meet market demands.

The visible threat that is seen in the company is competition. This company is subject to harsh competition as almost all companies will be trying to adopt and outweigh it financially, technology-wise, etc. The major threats are the competitors which include; Hollywood Entertainment Corporation, Hastings Investment Inc., and NetFlix. Being a global leader in the movie rental sector, Blockbuster Inc. is exposed to political problems and other issues such as those policies by GATT. As a matter of fact, “Blockbuster is faced with the challenge of ensuring that only movies that are rated according to the standards are sold to the target populations”. Some of their competitors are intensifying their products to become environmentally friendly, this will mean that price deflation for services will occur leading to price competition for players in this industry as well.

Employees mostly focus on themselves rather than group work because they are not actively involved in the actual planning of the goals and objectives of the company and this has resulted in mistrust for the company. These and other different issues need to be addressed at length before deciding to adopt them as a way of improving productivity. In the long run, it will lead to the breakdown of individual relationships which affect their productivity in general at the company. The leadership of this company should be in opposition to promote employee participation, innovation, and new product development.

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Porter’s five strategies

Blockbuster’s market research has been able to outline the company’s market balance and capabilities in terms of the customer’s opinion on the quality of the DVD rentals and viable competition from other companies. Blockbuster Inc. has effectively utilized this strategy to examine and monitor the company’s performance with specific regard to the customers. Just like most movie rental companies have a marketing strategy that stocks more movies that have been recently introduced compared to the old ones. This is obvious because the company moves on with customer preferences. Typically the company puts more emphasis on market forces and does not brand new releases as favorites for Blockbuster. A statement posted on (myreviews.com) website explains that “The large volume of new release copies is typically sold by this company after the initial renting rush. These copies are usually sold “previously viewed” for around $10-15, sometimes as low as $3.99. Our company also accepts trade-ins of used DVDs, which are sold alongside the existing stock of previously rented movies to create a more robust selection of titles for trade”

The threat of substitute products usually increases among those customers who may fall prey to the black market and pirated products. In this era of online marketing and improved technologies, it is very easy to switch alternatives easily. Due to growth in modern movie production, rivalry and marketing have become fierce as firms attempt to increase their market share. The costs of products have become relatively low, substitutes have become readily available with slight features for segregation.

The intensity of competition and rivalry in the home entertainment sector is ripe just like in other sectors. Blockbuster has been able to contain most of its competitors but the problem lies in the price adjustments. Most of the companies are charging low monthly charges resulting in increased rivalry especially in the U.S where its major rival, NetFlix reduced its monthly charges by almost 5%. Some rivals are also very aggressive and may extend their rivalry to non-price approaches such as marketing and innovations. This company spends a lot of money for marketing and promoting the products by competing firms through various channels in a bid to communicate to the target consumers who channel their money to purchasing the firm’s products. Over the years, there has been a decline in the growth of the industry although new markets are up-and-coming with high growth levels.

The bargaining power of the customers may put the firm under pressure in terms of price changes and buyer volume in terms of switching costs in the rental market. Consumers do have power because of low switching costs. Most buyers however buy as individuals rather than a group. Price negotiations and discounts are as such, not appropriate in this case because of logistical matters in preferences and customer information outreach.

Market inputs such as the efficiency of the supply chain, expertise of the suppliers, and the financial capacity of the firm to convince suppliers to work harder. In some cases, suppliers may refuse to work leading to shortage and customer mistrust. As in the case of prices, some suppliers give charge excessively high prices leading to poor customer and company relationships. “Most suppliers do not have any authority to affect the availability or the price of products”. They are also not faced with a shortage of inputs or logistic capability. The performance and quality provision are usually very important for the suppliers. Some supply chains are also feeble and may not support a huge market base resulting in inefficiency in customer service.

This porter’s force is where profitable markets and companies that have a competitive edge in terms of high revenue will out-compete the ones that are still financially weak. Also with many new entrants into the video rental market, there is a noticeable decrease in profits and it is expected that the profits will continue to reduce as long as marketing strategies and new business models continue to come up. There is a barrier for new entrants in this industry are as a result of the research and development undertaken in the market. However, leisure game products are relatively cheap because it does not require technical expertise which is the norm in athletic wear and quite expensive. Consumers of the movies are attracted by the company’s loyalty and preference hence this requires endorsements, promotions, and well-established varieties which can prove to be expensive for new entrants to implement.

Blockbuster financial performance and trends

An analysis of the financials performance of Blockbuster puts it ahead of its competitors. In the past five years, Blockbuster has experienced turbulent financial times, especially on the losing end. It has been losing huge amounts of money in terms of financial loss especially between 2002 and 2004. In 2002 for example, Blockbuster lost $ 1.6 billion and a further $ 1 billion in 2003. There is a significant reduction but the figure however shot up in 2004 when the company reported a $ 1.2 billion loss. The market value for the company has currently improved and this better sign for the future with the company predicting good returns. Blockbuster has currently more than 1.8 million subscribers based on April 2007 estimates and its management forecasts that the number of subscribers will double in the next five years. Figure 1. Financial performance of the company for a period of ten years

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Financial chart

Competition is ripe in every sector of the economy and for Blockbuster it faces stiff challenge from; Hastings investment, Hollywood entertainment corp. among others.

Figure 2. Competitor comparison

BBI HAST MOVI NFLX Industry
Market Cap: 1.07B 94.26M 8.89M 1.55B 141.11M
Employ­ees: 33,600 2,011 7,900 1,300 4.40K
Qtrly Rev Growth (yoy): -2.80% 2.30% -6.70% 26.90% 18.80%
Revenue (ttm): 5.54B 547.74M 2.46B 1.14B 1.44B
Gross Margin (ttm): 52.42% 35.00% 59.42% 36.98% 36.98%
EBITDA (ttm): 144.00M 46.24M 156.86M 96.50M 96.50M
Oper Margins (ttm): -1.03% 2.50% 2.05% 6.85% -4.60%
Net Income (ttm): -102.20M 7.27M -375.98M 63.08M 7.27M
EPS (ttm): -0.586 0.645 -11.794 0.897 0.23
P/E (ttm): N/A 13.49 N/A 25.64 19.91
PEG (5 yr expected): N/A N/A N/A 2.27 2.27
P/S (ttm): 0.19 0.18 N/A 1.35 0.17
HAST= Hastings Entertainment Inc.
MOVI= Movie Gallery Inc.
NFLX= Netflix, Inc.
Industry= Music & Video Stores

Figure 3. Video Rental companies ranked by sales

Company Symbol Price Change Market Cap.
Blockbuster inc. BBI 5.53 -0.72% 1.07B
Hollywood Ent. Corp Private
Hastings Inve. Inc. HAST 8.70 -1.81% 94.26M
Netflix Inc. NFLX 23.00 0.39% 1.55B

Marketing mix for Blockbuster

Price

Blockbuster Inc. utilizes the following types of pricing strategies to set prices for its products. The pricing strategy varies with the type of product, quality, and market or customer information. Marketers and pricing specialists argue that there is no practical and right way to calculate the pricing for the product or the services the following are pricing strategies employed by Blockbuster Inc. “Blockbuster Inc. begun with the application of the penetration pricing whereby, once the company achieves the market share; it increases the price of its product especially in a market where the competition level is high”.

Promotion

Blockbuster has been able to utilize advertisements and outdoor campaigns for its promotional strategies and more recently the internet. The company has also brought up a promotion where ‘Gold Rewards’ is used for every New Release video or game rental. In this case, the customer is allowed to accumulate points so that it is possible to have more free rewards. When a customer goes beyond 100 new paid releases and a specific volume is maintained, then the company can waive the annual fee for that customer without the need to renew the membership subscription. Blockbuster in 1999 came up with a reward system that is paid through a membership (optional) once per year. The program was designed such that every member would obtain free rentals either via a customer coupon for a non-new release movie or for every five paid rentals the customer gets free access to one new release product.

Distribution

“The distribution channel employed by Blockbuster Inc. is many but depends on the market and location of the customer. Blockbuster Inc has come up with various channels of distribution to enable their products to reach the targeted market”. The company has employed the use of wholesalers and other sales groups to distribute the computer hardware to other areas where it can not economically reach through its sales and marketing team in the place of production. Sometimes it either uses the direct or the indirect channels to supply to the consumers directly or through retailers not far from the production point

Place

The company’s global headquarters are in Dallas, Texas. Blockbuster Inc has since spread from its native origin in America and it is now operating in many more counties in the country.

Due to increased sales and more competition in the U.S, the company has gone across the borders and gets new markets such as Canada, Europe, and Asia (specifically China).

Marketing strategies

Foreign direct investment (FDI)

The most utilized strategy is FDI in which the company joins hands with smaller companies in the same sector. FDI is the direct ownership of processing, manufacturing, or assembling facilities in a target country by a mother company. Blockbuster in this case can transfer resources to a developing country that has a good customer base and then set up branches in any other regions or areas of the country. The resources include; technology, personnel, and capital. The company will be able to utilize the resources in the target country including in the human resources.

Franchising

Blockbuster Inc. has been able to employ this strategy mainly in Australia and the company is now reporting improved sales. The company can be able to subcontract services from one company to be able to ease expenditures and reduce settling costs.

Licensing

Blockbuster uses licensing in circumstances where there is protectionism in the market, especially in France and Belgium. Licensing is not a standard document but depends on the parties involved; it can change in terms of how it is structured. “It is a document to show the commitment of every member of the party”. Both franchise and licenses are legal vehicles that are used to conduct businesses among different parties hence able to protect themselves from any legal suits or disagreements in future

Joint ventures

Blockbuster Inc. can also employ joint Ventures as a marketing strategy in international countries. Joint ventures are forms of market entry that allow for technology sharing and joint product development. “The main advantage of joint ventures is to get proper political connections that will allow for favors to be achieved. It is usually suitable when; the market power, resources and size of the partner is small compared to the industry leader”. Blockbuster Inc. can merge or have a joint venture with any company which is still junior in Africa and then boosts its market power; it will be able to meet the demands in that particular region. The main issues that are usually sorted out during the discussions for joint venture are; agreement periods, pricing methods, ownership and control, local firm capabilities, and technology transfer.

Internet marketing strategy

The old day’s ways of marketing were not only time-consuming but also costly especially to a wide range of clients. The current internet technology is the best as it is currently being employed by many consumers. The internet is a bi-directional communication tool which is ironically the least expensive way of advertising compared to other types of advertising such as radio, television, magazines, and newspapers. Internet marketing offers great benefits for businesses in this century; increased effectiveness, a wide range of audiences, reduced advertising, marketing, and transportation costs, improved exposure, increased popularity, among others. “Internet marketing strategy will help Blockbuster Inc. to not only reach frequent clients but also those who may not be able to understand the company”. Being a computer firm, this is the best strategy to use in this century.

Organizational structure

The organizational structure for this company is such that it is headed by the current CEO and Chairman, James Keyes, who has been instrumental in the organization’s success since he assumed office in 2007. The organization has various other departments including; the sales department, human resource, production, and strategic planning among others.

Organizational lenses

Strategic lens

Blockbuster has been able to utilize the top-down management approach as a strategic design in ensuring that information and policies are passed smoothly. This concept embraces the use of technology and especially innovation. “Innovation, in this case, has come in terms of encouraging and fostering innovative thinking amongst employees as opposed to creating formal strategic designs through top managers”. Blockbuster has also been able to re-evaluate its available resources to immediately strategize on the best business strategy for a company such as the franchises developed in Australia in 2002

Cultural lens

The cultural lens in this organization focuses clearly on the need for better workplace relationships. The company has been able to create a better organizational culture that has aptly put its environment in shape. With increased cases of diversity, the organization has learned to develop a harmonious relationship among its employees despite all the threats that are posed with social, economic, religious, and lifestyle differences among them. However, issues of workplace harassment have also been witnessed in the past resulting in conflicts and even the sacking of the human resource manager, Mr. Brian, 3 years ago.

Nonetheless, the employees have been able to contain each others’ differences hence creating a work environment within blockbuster.

Political lens

After the replacement of Antioco John as the chairman of Blockbuster by James Keyes in 2005, the leadership structure in Blockbuster has completely changed as the new chairman came up with new ideas such as the ban on check cards to secure rentals for movies. This brought in more customers and increased confidence among the suppliers. He also helped the company to re-evaluate the chain of command within the organization whereby the employees could seek clarification from his office whenever there is need. This has improved the leadership/management approaches in the organization for the last few years. However, a growing setback almost crippled the organization in that there was laxity in the supply ad shipment of products mainly due to negligence among the suppliers directly relating to the organizational leadership.

Globalization

Blockbuster has responded to globalization by opening up some branches around the globe especially in Canada, Australia, and later in China and India but this has not been enough as it still faces competition from other movie rental companies. Blockbuster Inc. has also been exploring more new markets especially in Europe where competition is stiff. About globalization, Blockbuster Inc. has tried to be the dominant market leader to cope with change and competition in the industry but it still has huge tasks ahead. This company requires restructuring of the entire company structure such that it can withstand the pace of growth in the industry. The company was boosted when it recently acquired Movielink, LPC in august, 2007 making it currently the largest home entertainment provider and game rentals.

Market factors

Market and customer operations have for a long time supported the various business groups available in the company. The other horizontal entity that has provided enough support for the business groups is the new technology platforms created to allow for the management and driving force for Blockbuster products and services. “These are some of the strategies that the company can implement to meet the technological challenges for the future”. The company has to develop business models, marketing strategies and innovations in the telecommunication and network operation sector to serve its consumers to the fullest and satisfactorily.

Conclusion

Blockbuster Inc. is a world leader in the home entertainment sector and it is embracing the need to go global even further than what it has undergone today. The company has been able to grow into a multinational company within a very short period. One of the strengths of this company is the originality of its products. The weakness therein is existed in the marketing department whereby controversial adverts have resulted in great loss in this Company. Various opportunities are available for this Company which includes the e-commerce business. This includes innovating products that are in conjunction with the changing needs of the consumers. Blockbuster Inc. faces stiff competition from Hastings Inc. and NetFlix as a matter of fact, it has not been able to utilize internet marketing but most of its competitors have capitalized on this to out-compete the company.

Reference

Andrew, A. (2007): Blockbuster Company profile. Web.

Blockbuster Inc. (2007): Business management. Web.

Blockbuster financial; 2007. Web.

Dixit, A. and Nalebuff, B. (1993): Thinking Strategically. Norton.

Hill, C. and Jones, G. (2006): Strategic Management Theory: An integrated Approach; 7th edition, Houghton Mifflin Company.

Kotler, P. (1996): Leading change. 1st edition, Harvard Business School Press; Harvard.

Kotler, P., Armstrong, G.; Saunders, J. & Wong, V. (1999): Principles of Marketing, 2nd Edn: New Jersey, Prentice Hall.

Lee, K and Carter, S., (2005), Global Marketing: Changes, New Challenges and Strategies. 1st Edition, Oxford Press Pg 484-492.

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