Blockbuster Has 2800 Video Stores in 28

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 U.S.

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 one reason why Blockbuster's customer base was fading (indeed, Blockbuster was taken to court, and was sued over the issue of late fees, as the court ruled that Blockbuster customers were being made to pay too much in late fees).

But what of the competition faced by Blockbuster? There are many hurdles facing Blockbuster at this moment in time, for example: the five major movie studies are planning to deliver movies straight to college students, which obviously represents a direct battle for customers (and which, for the studios was an attempt to rule out piracy, as colleges are hot-beds of piracy, leading to huge revenue losses for them); other, web-based companies are also springing up all over the place, and are offering movie-on-demand services, with no late fees, and extended rental times.

People are finding this style of renting movies mush more flexible, and are responding to this very positively. One of the main movie-on-demand providers, Netflix, has seen its revenues rise to $75.9 million, up from $35.8 million in the previous year, and $5 million the year before that. It seems, therefore, that Blockbuster needs to do something to keep ahead of its newly arising competitors.

In view of this recent new competition faced by Blockbuster, what are its primary pricing objectives? In response to the studios' ideas to deliver movies direct to college students, it often seems that the primary aims of Blockbuster are to end the company's revenue-sharing agreements with the studios (in which Blockbuster paid a royalty on their sales of the movies to their suppliers, rather than buying the products outright from the suppliers), which in turn has led to studios selling DVDs and videos much cheaper than previously, which has led to Blockbuster losing out, as people have begun to prefer to buy the DVD or video, rather than renting (as renting costs about 40-50% of the price of the DVD/video).

This is where Blockbuster's Entertainment Pass came in, with the aim of undercutting any potential rivals, from wherever, as the pass makes movie (and game) rentals so cheap, and minus the hated late fee, that they hope through this, they will keep their customers, and even attract more new customers.

In view of what we have seen, is Blockbuster relying on price or non-price competition? It seems that Blockbuster is relying entirely on price competition, that it does not seem to have many overall 'grand marketing strategies' for dealing with the future threats posed by the studios or by companies such as Netflix: its aim is simply to out-price them.

This is quite strange, as one of the main complaints about Blockbuster is the terrible customer service, which is probably one of the main reasons why people began to respond so well to internet-based movie rental companies: people know what they want, how long they want it for, and do not want to have to stand in a queue and be served by an idiot to be able to get the product they pay for.

With this in mind, Blockbuster should also be tackling its non-price competition: many people would like to shop in-store, if only it became a more pleasant experience. Overall, what type of pricing structure does the Blockbuster Entertainment Pass represent? This pricing structure is rock-bottom, and represents an all-out attempt to under-cut its rivals. Given Blockbuster's costs pre-transaction, what are the long-term consequences of the company's use of the Entertainment Pass? If a huge number of.