Marketing strategy planning and organizational structure

Blockbuster Case Analysis

Summary of Current Marketing Issues and Strategies

Blockbuster has succeeded by being very agile and quick to respond from a marketing and services standpoint to very significant opportunities and threats in their core markets. Having changed their value chain three times in the case study and a myriad of modifications in each cycle of business model re-engineering, Blockbuster emerges as a multi-channel-based entertainment provider. The three strategic cycles of their value chain parallel the industry lifecycles of the video rental marketplace, pay-per-view premium and finally online services comparable to direct delivery programs like Hulu and distribution-centric business models like Netflix. Blockbuster's aggressive retail expansion, retrenchment, introduction of games, online services and direct competition to Netflix all show how quickly the company can re-intent itself. Yet for all of these strengths, Blockbuster is still being disrupted by entertainment, gaming and entertainment services business models instead of being the disruptor. They have yet to break out of being continually in a revision mode related to their retailing operations. Their retail-based business model is slowing dying due to the high costs of operating locations, the rise of Netflix as a viable alternative for watching videos at home, and the disintermediation from Redbox, WalMart and other mass merchandisers offering lower-priced and broader selections of videos to watch. Blockbuster still faces a very serious strategic challenge, and that is overcoming the commoditization of the industry they are in, where price and availability have become the new differentiators.

Blockbuster SWOT Analysis

Blockbuster has been able to successfully change its business model multiple times due to the unique financing options it has on tis retail stores, which otherwise would have been a financial albatross. Their global network of stores is their most significant strength, as is their unique strategy of mitigating real estate risk. The second significant strength is the multiple deliver methods they have today as a result of a continual updating and refining of their business model. Third, their emphasis on product availability across multiple delivery channels has also given them a significant strength. All of these factors have become significant strengths as a result o their continual refining and fine-tuning of their business model.

The weaknesses are the lack of disruptive innovation in an industry that thrives on that aspect of business models, the lack of foresight that they are in specific business cycles when they are (example: the Netflix competition and extreme price and service consolidation that would bring), and the lack of success with dominating their own content strategies with studios (those efforts have failed for the most part).

There are many opportunities for Blockbuster, foremost being the ability to grow their online business and compete on breadth of movies and entertainment content relative to Netflix. The high level of debt capitalization inherent in how they have financed their stores, which is inferred from the case study, also could be applied to a more effective cloud-based delivery architecture. Netflix did this and was very profitable as a result. Third, Blockbuster has far to go in terms of creating a more effective customer experience. There is significant potential for great upsell and cross-sell as a result.

The threats include a highly commoditized and shrinking move rental market in the U.S. And globally, including the rapid commoditization of titles that are easily gained through other channels. In addition, the growing threat and costs of piracy is very significant for Blockbuster and every other retail chain as well. Third, the cost structure of the chain is slanted towards retail and represents a significant financial risk in terms of continually financing the debt.

Problem Statement

Blockbuster is continually on the defensive both from a technological and current competitor standpoint, lacking the disruptive innovation perspective and creativity necessary to re-order the markets they are in.

Three Strategic Alternatives

1. Create a separate division to fast track new, disruptive innovation that will completely re-order the entertainment industry. This would be a "skink works" of innovation and new product development.

2. Choose to buy Netflix as they have cratered given their pricing policies and have a market cap of just $6B -- ideal for a leveraged buyout by Blockbuster.

3. Realize that the days of being all things from an entertainment perspective to all people are over. Trim back to only the most profitable customer bases and align product and service offerings to only this group. Choose to become exceptionally strong to customer analytics and gain greater insights into which segments offer the greatest value.