Red-box strategy in the movie rental industry

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MGT 602

Strategic Business Management

Case Study
Red-Box Strategy in the Movie Rental Industry

Written by
Ahmad Alkharoubi
Ali Alzghoul
Elmer Serrao

November 28th, 2011

Company’s Overview

The focus of the case is on Redbox’s strategy and operations in the U.S. movie rental Industry. Redbox Automated Retail, LLC, it’s a wholly owned and operated subsidiary of Coinstar, Inc,which in addition to Redbox Movie Rental business, was also a leading provider of money transfer services and, most important, self-service coin-counting kiosks where people could convert coins to cash, a gift card, or e-certificates among other options, factor that turned out to be decisive for the success the company has been experimenting.
It started operations in 2004 with funding provided byMcDonald’s Ventures, a subsidiary of McDonalds Corp. The great advantage McDonalds took from this equity joint venture was that, in addition to the opportunity of profitable business, this alliance represented a brilliant way to bring customers back to its restaurants more often, and thus expand its customer base and strengthen the loyalty of them to McDonald’s restaurants.
Nevertheless, endinga process of (partial) acquisition started in 2005, Coinstar, exercising its right of option, acquires the total (100%) ownership of Redbox Automated Retail from McDonalds for an amount of approximately 162.4 million, February 2009.
Redbox strategy
The structural idea that underlies the company's vision was that people could be easily enticed to rent movies at a place where theyshopped regularly rather than making a special trip to a local movie rental store, especially if the rental fee was dirt cheap. In planning and implementing its strategy, Redbox designed a rental process fast, efficient and totally automated rental process, with no membership fee. Customers can rent or buy these DVDs at the kiosks in a matter of few
minutes. In addition, DVDs are also for salethrough Redbox’s website
Therefore, Redbox’s Strategy can be summarized in two vectors:
1. Attracting customers with a combination of low price and convenience;
2. Rapidly and aggressively expanding the number of shopping locations to maximize sales and achieve the balance between “economies of scale” and low prices.
On one hand, itsvending machines supplied the same functionality as a local video rental store, and on the other hand $1 per day rental price was considerably cheaper than $4.50 rental fee charged by many of its competitors.
Indeed, from the above three more notes are pressing to be added to this reading of Red box's strategy:
First, the Company realizes that a wide variety of movies with strong titlesis pivotal for revenue growth. That's the main reason of the struggle waged against the big movie studios in order to acquire new releases within a space of time that would not remove competitiveness, comparing with retailers.
Second, company continue to increase (strategically) kiosk locations based on data showing consumer need and increased sales and Use innovative in storemonitor display advertisement where applicable to highlight its new DVD releases with strong titles for rent.
Third, they are trying to Expansion into additional foreign country markets more than the three countries (United States, Puerto Rico and United Kingdom).

Competitive Environment Analysis
Redbox competes in a quickly evolving and highly competitive industry. Redbox‟scompetitive differentiation is that it offers consumers convenient, quick and hassle free access to affordable movies. When compared to Redbox‟s nearest competitors, Blockbuster and Netflix, Redbox offers greater access with more physical locations combined with the lowest entry price available to rent a DVD or Blu-Ray in the marketplace. It is important to note that while Blockbuster, Netflix, and...