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Using Porter's Five Forces Model, evaluate the relative attractiveness of entering the movie rental business.

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  • April 17, 2010
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One hotly contested and highly competitive industry is the movie rental business. You can rent videos from local video rental stores, you can order pay-per-view from the comfort of your own home, and you can rent videos from the Web at such sites as NetFlix. Using Porter's Five Forces Model, evaluate the relative attractiveness of entering the movie rental business. Is buyer power low or high? Is supplier power low or high? Which substitute products and services are perceived as threats? Can new entrants easily enter the market? What are the barriers to entry? What is the level of rivalry among existing competitors? What is your overall view of the movie rental business? Is it a good or bad industry to enter? Why?

The model I will be using to evaluate the relative attractiveness of entering the movie rental business is the Redbox model. Redbox has become a leader in kiosk DVD rentals with low prices and ease of renting movies.

Buying power is high in the general video market because there are many choices for consumers. However Redbox because of their low overhead costs, machines versus people, they can offer their product at a lower price giving them a competitive advantage. Even though prices for newer types of DVD's (Blu-ray) have gone up, consumers are still only willing to pay a set price for that product, so companies make less of a profit on each sale,

Supplier power is low because there are only a few distributors and they all sell their products at similar price levels. The bargaining power of the customer 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...