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Demise of Blockbuster

Blockbuster failed due to its large physical store model as streaming services like Netflix and kiosk rentals from Redbox emerged. Netflix achieved better strategic fit than Blockbuster by using a centralized mailing model to provide more diverse, lower-cost options for older titles. Redbox also had better fit through its decentralized kiosk model focused on new releases availability despite uncertainty in limited local inventory. Both Netflix and Redbox models outperformed Blockbuster's attempt to offer new and old titles through large physical stores.

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0% found this document useful (0 votes)
61 views4 pages

Demise of Blockbuster

Blockbuster failed due to its large physical store model as streaming services like Netflix and kiosk rentals from Redbox emerged. Netflix achieved better strategic fit than Blockbuster by using a centralized mailing model to provide more diverse, lower-cost options for older titles. Redbox also had better fit through its decentralized kiosk model focused on new releases availability despite uncertainty in limited local inventory. Both Netflix and Redbox models outperformed Blockbuster's attempt to offer new and old titles through large physical stores.

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Dev
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THE DEMISE OF

BLOCKBUSTER
QUESTION 1: In what ways did Blockbuster achieve better strategic fit
than local stores?

• Business model was based on having large physical stores in high-traffic


neighbourhood
• Large buildings that offered customers a wider choice of movies and better
product availability
• Movies were typically rented out for about $5 for five nights.
• The mom and pop stores could not afford the high cost of inventory – VHS
tapes required space and were sold at $60-$80 each at that time
• Larger store allowed Blockbuster to provide greater variety and better
availability at lower cost than mom-and-pop stores
• Aggregation of inventory and physical space allowed Blockbuster to fill
demand from its customers better than mom-and-pop stores.
QUESTION 2: How much implied uncertainty do Netflix and Redbox face?
What levers do they use to deal with this uncertainty?

• Netflix faces a low level of implied uncertainty as rentals are mailed


• Netflix uses a centralized model to fulfil customer demands but newer content
is not purchased by Netflix given the higher initial cost
• Netflix uses price, time, information and inventory levers to deal with
uncertainties
• Redbox faces a high level of uncertainty as only limited inventory is present in
the vending machines
• sudden rise in demand cannot be satisfied but by increasing the
concentration of kiosks the uncertainty can be handled
• Redbox uses capacity and price levers to deal with the uncertainty
QUESTION 3: How did Netflix and Redbox achieve better strategic fit
than Blockbuster?
• Blockbuster attempted to provide its customers both new releases as well as
older movies whereas Netflix primarily targeted a wide variety of older
movies and Redbox primarily targeted a much smaller variety of new
releases
• Netflix was able to provide variety to its customers more effectively (100,000
titles rather than 5,000 at Blockbuster) and at lower cost through its
aggregate model of shipping from DCs
• Netflix used a centralized supply chain structure to provide variety in the
form of old movies (high uncertainty) to its customers at low cost
• Redbox primarily targeted a much smaller variety of new releases. Redbox
used a decentralized supply chain structure to provide predictability in the
form of new releases at low cost
• A combination of the two focused supply chains performed
significantly better than the Blockbuster supply chain

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