Blockbuster had small beginnings. The first Blockbuster store was opened in 1985 by founder Dave Cook. They grew the business by establishing market niches such as large number of copies of a single movie, highly visible stores, and a larger selection of movie titles. This helped them achieve 27% market share in the United States and over 6,500 stores. Being the big guy on the block has recently created some tough competition.
The start up known as Netflix has exploded into the DVD rental scene in the last five years. Its model has been based on purely online DVD rental. You go to their website and select from their thousands of titles and they mail them to you. You then watch your selection and send it back in the prepaid envelope that is provided. They offered no late fees meaning you could keep the movies as long as you would like. This gave them an immediate competitive advantage and had adverse effects for blockbuster. Since revenue was consistently generated by late fees, Blockbuster had a serious issue to contend with.
The reaction of Blockbuster to Netflix was to form their own online DVD rental program called Blockbuster Total access. It is similar to Netflix and prompted the company to sue Blockbuster on patent infringement.
Blockbuster Total Access allows DVD renters to choose from several different plans. They all include DVD sent to you through the mail along with the postage fee envelope to send them back. The different plans allow for you to have a different number of DVD's at any given time and one other option, in-store exchanges.
In-store exchanges could be the competitive advantage Blockbuster DVD rental needs. If you compare to their rival Netflix, they do not have the infrastructure. There are over 6500 Blockbuster store in the US. What in-store exchanges do for the customer is two fold. The first is the fact customer will get movies that they sometimes do not like and with Blockbuster DVD rental they now have the option to quickly exchange the movies at their local store. The second is the fact movies in the mail only come on business days. Come the weekend if you have not received your new titles you might be without a new movie to watch in your free time. In-store exchanges are again the solution.
Blockbuster is still behind the curve in online DVD rental, but with competition of Netflix they have tried to adjust their business model. Only time will tell on who will come out on top.
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