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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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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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