Instructions for Analysis of Case 6
How strong are the competitive forces in the movie rental marketplace? Do a five forces analysis to support your answer. Below is an analysis of five forces model of competition in the movie rental industry:
Rivalry among companies competing in movie rentals
Rivalry is centered on such factors as
Price of movie rentals (rented either individually or via a subscription plan); variety of subscription plans to choose from. •
Convenience in renting movies (including returning rented DVDs). •
Breadth of selection (size and diversity of movie rental library). •
Availability of the DVD
Of course, DVD availability is not a factor when the rented movie is being streamed over the Internet by video-on-demand providers. •
Ease of browsing through all the selections to determine which movies to rent. •
Policies and fees (if any) regarding how long the renter can keep the DVD (or view the movie if it is downloaded or rented online). •
Advertising and promotion—Much of the advertising is being done online in the case of both Blockbuster and Netflix; however, Blockbuster utilizes in-store promotions on a regular basis. But the DVD rental business is not one that is a heavy user of TV, radio, and newspaper advertising on a regular basis. •
Image and reputation.
Most movie rental competitors pursue some version of a differentiation strategy to try to set themselves apart on the basis of one or more competitive factors. Several factors were working to intensify rivalry among movie rental industry participants: •
All rivals are actively and busily launching fresh promotional initiatives (the free trials and unlimited streaming at Netflix, for example) and engaging in new marketing tactics and market maneuvers (Redbox’s rush to deploy more of its distinctive red kiosks and Blockbuster’s initiatives to reinvent itself) to spur their movie rental revenues and build a loyal customer base. The large number of fresh strategic initiatives on the part of various movie rental rivals heightens rivalry. •
Low switching costs on the part of buyers—it is pretty easy for people wanting to rent a DVD to (a) go to one store location or another to rent a DVD or (b) switch their subscription from Netflix to Blockbuster or some other subscription service or (c) order the movie through their cable provider or some other video-on-demand provider. •
Some rivals have utilized rock-bottom subscription rates (and free trials) and low rental fees as a means of attracting new customers— •
Rivalry is likely to increase significantly as “wave of the future” video-on-demand •
Rivalry increases as the product offerings of rivals become more standardized.
Threat of entry—
The costs of developing a Web site.
Developing order fulfillment capability to equal the short delivery times offered by Netflix and Blockbuster. •
The added investment in DVD inventories.
Expenditures for advertising and promotion needed to draw visitors to the web site
Competition from substitutes—
Acceptable substitutes are readily available and competitively priced (in some cases). •
Buyer costs to switch to substitutes are relatively low. •
Many consumers are familiar with and comfortable with using substitutes (buying their own movie DVDs, going to movie theaters, and watching movies on TV). •
There are many, many entertainment substitutes for watching movies altogether.
The bargaining power and leverage of suppliers—a moderately strong competitive force, depending on the type
The bargaining power and leverage of people renting DVDs—a weak competitive force
Conclusions concerning the overall strength of competitive forces: Competitive pressures in the movie rental industry are pretty strong and are likely to grow stronger in upcoming years as video-on-demand and Internet streaming become the dominant means of distributing rented movies. Currently, we see rivalry as far and away the strongest...
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