Supply Chain Management

Assignment No. 1

(MBA 1.5 A)
31st March, 2017

By

Group B

1. Shahzaeb Hayat
2. Mehrow Umer

Submitted To:

Mr. Saqib Mahmood

Quaid I Azam School of Management Sciences

 THE DEMISE OF
BLOCKBUSTER
This case study is revolving around 3 known companies, i.e. Block-busters, Netflix and Red box. Therefore,
we would be analyzing all three companies.

1.0 Introduction:
1.1 Blockbuster:

Blockbuster LLC often known to the market as Blockbuster, was a Home movie & Video game rental service
provider through video rental shops. It had gained fame during the time span of 1980s to mid-2000s; at its
peak in 2004, the company had 60,000 employees hired and over 8,000 stores all across United States of
America. However, as a result of various factors, blockbuster lost momentous revenue in the later 2000s and
early 2010s thus resulting in the consequences of company filing for bankruptcy protection in 2010 and in
2011. Thus the company had to sell its stores where 1,700 stores were bought by satellite television provider
Dish Network. While Blockbuster brand has mostly been retired, Dish still maintains some of its franchise
agreements keeping stores in some of the markets.

1.2 Netflix:

Netflix, Inc. is an American entertainment company specializing in and provides streaming media and VOD
online and in DVD via mail. It initiated in 1997 and soon became a known brand to the market. After gaining
popularity, in 2013, Netflix expanded in to film and television production along with the online distribution.
As of 2017 the company has its HQ in California. Initially Netflix sold and rented DVDs for a fine period of
time by focusing on DVD rental by mail business. In 2007, Netflix stretched its business with the innovation of
online media streaming, while retaining the DVD and Blu-ray rental service. The company expanded on
international basis by making its services available in Canada in 2010 and kept of growing internationally
more and more thus resulting in operating in above 190 countries by January 2016.In 2013, Netflix debuted its
first series, House of Cards, which turned out to be a huge success. This success resulted in initiating its
Netflix Original content through its online library of films and television. They released 126 original series
and films in 2016, more than any other network or cable channel. Currently according to reports 93 million
subscribers are connected to Netflix at the moment which includes approximately 49 million from United
States.
1.3 Red Box:

Redbox is a DVD, Blue-ray and video games rental specializing company which works via automated retail
Kiosks machines. The kiosks feature the companys signature red color and its logo and is distributed all
across US at convenience stores, grocery stores, mass retailers, fast foods and pharmacies. The concept of
Redbox originated in 2002 within McDonalds venture LLC, which was working to identify new ways to drive
added convenience and relevance to customers. The first kiosk was launched in 2004 in Denver. Coinstar inc,
initially purchased 47% of the company in 2005 for $32 million while purchased the remaining company in
2009 from McDonalds and other shareholders for approximately $176 million. As of the end of November
2012, Redbox had kiosks over 42000 in number at more than 34,000 areas. According to reports in 2013,
Redbox had 48% share of the physical rental market

2.0 Time and Context

2.1 Time

This case study is covering such 3 companies which are known to the current market and its customers are still
in the market. The case study is mainly focusing on the time period of early 21st century specifically for the
past 10 years.

2.2 Context

The case study mainly revolves around the problems and drawbacks blockbuster had to face which made it fall
down from being to a top class company to a bankrupted ceased company and the impact of strategies of its
competitors on its situation.

3.0 Causes & Symptoms

Keeping connected to the central problem of the case which is the actual demise of Blockbuster we will look in
to the causes and the symptom of the occurred problem. The difference between a cause and a symptom is that
a cause is usually the result of a decision, whereas a symptom is the director or indirect result of a cause.

3.1 Causes

Ignorance towards the way the world was changing

Failure to bridge the gap between traditional delivery methods and emerging methods of online
streaming
Lack of focus on customer oriented strategies
Underestimating the competitors
Unable to change the companys negative strategy
3.2 Symptoms

The company was unable to change with the development and instead of selling DVDs it kept on
selling the traditional tapes
Where all the new emerging companies started selling through US-mail and online subscription,
Blockbuster didnt leave its selling method and only focused on retail stores.
Blockbuster failed to understand that customers were more interested in getting the DVDs with ease
rather than visiting the store to get them no matter how up class the stores were
In the early 2000s Blockbuster had obtained various chances to acquire Netflix for $50m but kept on
turning it down because they did not want to change their typical style of selling and kept on
increasing the number of physical stores worldwide which wasnt required.
The company was lagging on two factors which were less variety and late fees. These two factors
were taken in to account by the competitors and thus the company lost its customers.

4.0 OBJECTIVES
Since Blockbuster is a ceased company so our basic objective would be launching the company so for that
following points should be observed

a. Must: (Immediate - symptoms)

1. Shift from cassettes to DVDs and Online streaming
2. Introduce an online selling platform
3. Contracts with various vendors for distribution of DVDs
4. End up the late fee strategy

b. Wants: (Long term - Causes)

1. Bringing the company as a launched brand, Blockbuster has to be careful about its actions and
rather than focusing on starting traditionally, they must start selling online.
2. Instead of opening stores in multiple locations, it would be more efficient to start the
companys own web portal or an application.
3. After getting stable in the market, it would be a good step to takeover smaller competitors one
by one to increase the distribution channel and decrease the competition.
4. Keeping the happiness of customer in mind, late fees strategy must be avoided, rather such
a tactic should be implemented that the customers themselves make sure to return on time,
such as efficiency bonus scores
5.0 SWOT Analysis
5.1 BlockBuster

Though blockbuster is no longer operating company thus SWOT is no longer applicable to it, therefore we will
be applying SWOT according to the scenario where the company was functional.

Strengths
Weakness
1. Fix product price
1. "Late fee"
2. Known to produce good quality
products 2. Lack of variety
3. Operating Globally 3. Only available on retail stores

Opportunities Threats
1. Chances to start online 1. Compeitiors
2.Improvement in quality of 2. Employee Retainment
products

5.2 Netflix

Weakness
Strength
1.Cost of content
1. Brand Recognition
2.DVD subscribers
2. Accessibility
3.Raising subscription
3. Original Content charges

Opportunities
Threats
1. International Expansion
1.ISP
2. Word of mouth campaigns
2. Competition
3. Original In House
programming 3. Content Price
5.3 Redbox

experienced business units

existing distribution and sales networks
high growth rate
Strength domestic market

small business units

Weakness

global markets
Opportunity

cash flow
technological problems
government regulations
financial capacity
Threat external business risks
6.0 Alternative Courses of Action for Blockbuster
A company in a position similar to that of Blockbuster must have multiple courses of action to satisfy the need
for strategy change.

6.1 Merger

Blockbuster lacks the forwardness of Netflix and Redbox in terms of adapting to disruptive technologies and
changing its business model accordingly. Since the business lacks information, practices and capabilities of
taking their operations from brick and mortar to online, it would serve them well to merge with a business that
is tech savvy and has the personnel and infrastructure to alleviate Blockbusters lag in the field. Blockbusters
decade's worth of brand equity can prove valuable for a newer company looking to break into the
entertainment distribution business.

6.2 Reinvention

Blockbuster can also relaunch itself under a completely new brand. A local example of such a case was the
famous confectioners and bakers Rahat relaunching themselves as Tehzeeb. If done correctly, this allows a
company to leave behind any associated negative connotations and breathes new life into the business.
Blockbuster can shatter their image of an outdated business that people remember only nostalgically into a
modern, sleek, fast and 'hip' brand that has known for decades how to provide entertainment to its customers,
only now it can do so much more customer facing way.

6.3 Build an effective supply chain

Blockbusters initial demise was primarily due to its stubbornness in moving to a more swift and customer
facing supply process. Both Netflix and Redbox took their products TO the consumer instead of the consumer
coming to THEM. With blockbusters focus on retail stores, compared to Netflix's exclusively mail order
service, it's evident that efficient means of getting the product to the consumer in a timely and seamless
manner is of utmost importance. This means blockbusters needs to develop storage and warehousing, fast and
effective distributors and inventory mechanism like Just In Time and Kanban principles to minimize costs and
maximize speed to consumer end. Amazons supply chain is an excellent example of a business that excels at
virtual order and purchase systems backed by a seamless supply chain that relies on suppliers to minimize
inventory and an efficient distribution network to minimize shipping costs and delivery times.

7.0 Plan of Action for Blockbuster

Referring to section 4, where the objectives for Blockbuster were discussed, the following steps should be
followed by the company to salvage its business:

1. Go organic:

Organic organizations are best classified as flexible, transformative and accepting of change. Working in an
industry that is seeing rapid change (from movies to TV shows, from DVD's to VOD, HBO HULU and Netflix
producing their own shows) it is imperative that Blockbuster understand that this industry demands a company
to become a learning organizations. This can be done by:

Renewing strategy:
Blockbusters strategic focus should change to not only reacting but prospecting changes in its external
environment and adapting to them readily.
Integrating technology into their strategy:
Blockbuster must set up a pay per view or subscription based online viewing system for its content. A
website on the pattern of VOD (video on demand) is essential to stay relevant. They will for this
purpose, need to develop, augment and constantly update an online database. A very important aspect
is also developing a social media presence. Having active twitter handles and facebook pages that
promote, position and expand the business are important if Blockbuster is to become a reinvented
learning organization, Social media outlets also help companies still in real time touch with how
consumers are responding to the services at large and how well new features are doing with
consumers.

2. Partner with production houses or create its own:

In an online webscape where streaming any form of media is a click away, exclusivity of content is key. To
develop a competitive edge, Blockbuster must have on its platform (may it be online or offline) content that is
exclusive to its consumers. Netflix's original series and documentaries, HBO's own TV shows are examples of
content that is exclusive to these competitors of Blockbuster. If the company finds that creating its own content
is unfeasible given it financial state, it can pursue partnerships with old clients like Disney who once stocked
exclusively at Blockbuster. If such a partnership can be managed, it will allow Blockbuster to provide a service
to its consumers not found elsewhere.

3. Shift focus of operations to the consumer end:

The industry that Blockbuster is in has shifted from being product based to service based. Understanding this,
blockbuster needs to focus its capabilities on creating satisfied consumers. This can be done by:

Acknowledging that there is fierce competition now and if dissatisfied, the consumer as many
options to change to. Switching costs being negligible, Blockbuster can no longer afford to
have tactics such as 'late fees'. It should instead offer incentives to consumers such as free
trial periods, free movies each month for viewing a certain number of videos, reward points
per view and so on.
Create an efficient customer services department that tends to and records consumer needs,
data from which can be used to forecast changing needs and adapt accordingly so as to avoid
another demise (since the first on came about mainly because Blockbuster failed to
acknowledge the changing needs of its customer i.e convenience and ease of purchase over
variety.
8.0 Recommendations
It is recommended that Blockbuster re-launch itself, with the same brand name and brand image but take the
entirety of its operations online. Brick and mortar stores are a thing of the past in the entertainment industry, as
is evident by the fall in number of video stores, record stores and the rise of businesses like Spotify, Sound
cloud and VOD. Blockbuster should also shift focus from movies to Television series as that segment is
generating mss viewership. Initially, since high budget productions will be unfeasible, Blockbuster can work
on low cost short web series that are creating cult followings on websites like YouTube.

9. 0 Potential Problems
Blockbuster will have to face a number of problems when it tries to resurface.

I. It could very well get lost in the competition. Although there is never enough content to view online,
Netflix for example has created for itself a global market, an excessively large database of very old
movies and current TV shows and is providing all these services for fiercely competitive prices.
II. It may as well be seen by consumers as still outdated and too late and entrant into the digital
entertainment world. It services may be viewed as tardy and outdated in comparison to its competitors
who have amassed loyal consumers.

10.0 Learning Objectives

The greatest lesson to be learned from Blockbuster is the disruptive innovation can and does change entire
industries and lag in accepting and changing with respect to innovation can bring down entire businesses, may
it be Kodak in the camera market or Nokia in the mobile industry. Technology is changing the way services
and products are provided to customers and has become an integral feature in the external environment of any
business. To flourish, all business must internalize change and innovation.