The model I will be using to evaluate the relative attractiveness of entering the movie rental business is Redbox that have become a leader in kiosk DVD rentals with low prices and ease of renting movies.
Buying power is low in this market because there is only a few distributors and the each are selling the same movies so the price they pay is relativity the same for each customer with very little price difference. The price of movies has gone up on the newer types of DVD’s ( blu-ray) but it has gone up for everyone, but the volume of movies sold by Redbox offsets that increase.
The bargaining power of the customers determines the pressure customers put on a particular market. Redbox’s business model considers this in the following ways: Customers generally do not buy large volumes of the product. There are only a few operators in the industry. The fixed cost by suppliers is high, but this applies to competitors as well. There is really no legal substitute for the product. Customers are price-sensitive, but Redbox provides the product cheaper then all of its competitors. Customers can not produce the product. The product is of strategically importance – entertainment.
The threat of alternative products does not...