Redbox's key success factors and partnership challenges

Redbox is a company specializing in the rental of DVDs and other entertainment content. The company is a subsidiary of Coinstar, a company that has among its other businesses arcade games, prepaid credit cards and e-payment kiosks. The Redbox business model is focused on kiosks installed in stores that rent DVDs. The company has emerged as a major player in the DVD rental business. Partners are essential to Redbox's business model. The company relies on media partners, and has engaged in high profile disputes with some of those partners. Redbox also relies on retail partners to provide space for its kiosks in the entranceways to their stores, or in other similar locations. These partnerships are among the most important key success factors for Redbox, but there are others as well. The company has a unique business model with its kiosks, and its innovative use of the Internet. This paper will explain some of these key success factors in the context of Redbox's strengths and weaknesses.

Partners

The Successful Partnership Pyramid provides a good framework for analyzing Redbox's partnerships. The partnership pyramid believes that the end goal of customer satisfaction can be reached by entering into partnership agreements to help fulfill a need in the marketplace, building trust with those partners, eventually leading to the formation of strong long-term relationships with the partners. The company believed that it had a business idea that would meet customer needs -- Blockbuster was faltering and while Netflix was popular the videos take days to arrive. In order to execute the kiosk model, Redbox needed to enter into agreements with popular retailers and with media partners. Redbox pays rent to the host store in exchange for real estate space. Redbox must negotiate positioning of the kiosk, as visibility and ease of access are important to the company's business model. The presence of a Redbox kiosk also benefits the host store, because the company prices its rentals at $1 per day, providing the customer with incentive to return the next day, giving the host store an opportunity to capture more sales from the customer (Pepitone, 2010).

Redbox is also partnered with media firms. With this set of partners, however, Redbox has had more difficulty. Because of the limited inventory space in the kiosk, Redbox is focused strictly on new movies for its rentals. The company therefore relies on having access to the new content release. Three major studios acted to block Redbox from purchasing new releases for four weeks after the release date, out of fears that Redbox was cannibalizing more lucrative businesses (Pearson & Milford, 2009). This is an example of the pyramid breaking down. There is a mutual mistrust on the part of the media companies and Redbox. This implies that these partnerships will not be viable in the long-run, unless the relationship between these companies improves significantly. Redbox will be unable to rent all of the hit new releases at its kiosks, and this will reduce customer satisfaction. If customers are not satisfied, then the partner relationships are not contributing to business success.

Other Weaknesses

Redbox has been successful, but since it was sold by McDonald's to Coinstar it lost much of its corporate backing. In the legal battle against the media companies, for example, Coinstar simply cannot outspend the media companies to fight the case. Although Coinstar initiated action, it is not an intimidating opponent in court. That Redbox has been forced to sign deals with the studios not to buy new releases for 28 days illustrates how this weakness has hurt the company (Fritz, 2011).

In addition, high-powered competitors such as Netflix -- or retailers such as Wal-Mart or Target -- have much greater financial resources and could easily replicate the Redbox business model. Thus, while the business model began life as a unique proposition, the fact that it is easily replicated means that the company cannot rely on this uniqueness as a source of sustainable competitive advantage.

The corporate culture at Redbox may also be a weakness. There is speculation in the market that the company's focus on physical DVD rental is at odds with a long-run consumer trend towards acquiring media content in digital form. Redbox is behind Netflix in the adoption of online streaming of movies, for example, and this technological lag stems in part from the parent company's traditional focus on the kiosk business model in general. Coinstar simply has no experience as a media content streamer or even as an online vendor.

The sour relationship with many major media partners highlights the importance of procurement in the video rental business. Ultimately, while the consumer may appreciate the method of delivery that Redbox has to offer, the product the consumer wants is the media content. As such, Redbox needs to ensure that it can procure the content consumers want, when they want it. That this is not the case puts Redbox's business at risk. Redbox does benefit from central procurement, both for the physical kiosks and for the media, but the company still lacks the size to dictate terms to its suppliers. As such, procurement is more a weakness than a strength for Redbox. While the company is attempting to remedy this weakness, as of yet it has not. Redbox remains unable to execute best practices for building partnerships, which relies on complementary strength, common customer base and chemistry ("Building Trust"). With only the common customer base, Redbox needs to build its complementary strength and restore its chemistry in order to fuel long-run success.

Conclusion

Redbox has built its success based on a sound business model, but has jeopardized this success by implementing business practices that upset its suppliers, such as selling new release DVDs for as little as $7 two weeks after release (RedOrbit, 2009). Without the financial strength to battle the upset suppliers, Redbox has been forced to make concessions that remove some of its competitive advantages in the marketplace. This highlights the importance of building good channel relations in an industry where your suppliers provide the product that your customers really want.

The Internet strategy of Redbox is another area where the company is both strong and weak. Its reservation system is a source of strength, providing a service that customers find valuable. However, the fact that Redbox is well behind Netflix in movie streaming does not bode well for the company's future. Redbox, therefore, is a company that has some strengths to build on, but will need to shore up its weaknesses if it is to continue thriving in the future.

Works Cited:

"Building Trust." In possession of the author.

Fritz, B. (2011). Shares of Redbox parent plunge 27% on earnings warning. Los Angeles Times. Retrieved April 10, 2011 from http://articles.latimes.com/2011/jan/15/business/la-fi-ct-redbox-20110115

Newman, J. (2011). Redbox readies streaming Netflix rival, but why? PC World. Retrieved April 10, 2011 from http://www.pcworld.com/article/219983/redbox_readies_streaming_netflix_rival_but_why.html

Pearson, S. & Milford, P. (2009). Coinstar's Redbox sues Warner unit over video terms. Bloomberg. Retrieved April 10, 2011 from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apskdfBT_Zms

Pepitone, J. (2010). Coinstar stock soars 25% on Redbox growth. CNN Money. Retrieved April 10, 2011 from http://money.cnn.com/2010/10/29/technology/coinstar_redbox/index.htm

RedOrbit. (2009). Redbox DVD kiosks give Netflix a run for their money. RedOrbit.com. Retrieved April 10, 2011 from http://www.redorbit.com/news/technology/1708847/redbox_dvdkiosks_give_netflix_a_run_for_their_money/

"The Successful Partnership Pyramid" in possession of the author.