by Kenneth Rudich
With a steady churn of breakthrough innovations constantly affecting product life-cycles, it has made the market opportunity scan as important as ever. Any number of examples could be used to illustrate this point. Few, however, are likely to show it in more vivid detail than the video rental industry over the past 25 years.
You may recall the MOS primarily concentrates on the market analysis and external forces parts of the value chain. The objective is to retrieve relevant information that may affect the outlook of your business, for better or worse. It aims to support the strategic learning cycle, to gain a leg-up for deploying effective strategies and tactics along the value chain – whether as a countermeasure to a threat, or to take advantage of a new opportunity.
The video rental industry has seen its fair share of measures and countermeasures. What follows is an abbreviated version of that story.
the value chain story for video rentals
In 1985, newly launched Blockbuster, Inc. identified a market opportunity for customers wanting to rent their choice of movie titles on videotape. Its value chain included a wide dispersion of company-owned stores as the means for distribution. Customers would come to the physical location, make their selection, take the videos home, watch them, and then return them to the store.
By 2004, it had over 8,900 stores and had grown into a $900 million company. It was regarded as the industry leader for nearly two decades.
But now, in 2010, Blockbuster, Inc. is contemplating Chapter 11 to eliminate debt. Its woes are such that a recent finance article suggested it may become one of ten disappearing brands in 2011. Though others contend that that is unlikely to happen, the article does point out that one of its chief rivals, Movie Gallery, the parent company of Hollywood Video, announced in February 2010 it would be closing its 2415 stores and liquidating all assets. Movie Gallery was using the same kind of value chain model as Blockbuster.
so what happened?
Three key dynamics, all of which were visible within the realm of the market opportunity scan, can be held up as having had a hand in Blockbuster’s reversal of fortune. They insinuated themselves on the marketplace almost simultaneously.
The first notable one of them was the technology factor – namely, the growth of the internet and also video on-demand for satellite and cable.
The second was the foresight of competitors who saw an opportunity to re-design the Blockbuster value chain and create new forms of perceived value, particularly as it pertained to the distribution and transaction channels. Netflix combined the internet with traditional mail for their transaction and distribution channels, and Redbox later came along and put vending kiosks in pharmacies, fast food restaurants, grocery stores and convenience stores. Neither built their own stores. Both also improved upon the transactions component by lowering the rental price.
The third dynamic – and possibly the most painful in retrospect – was Blockbuster’s inability to adequately appreciate the first two. There was an undeniable lapse within the context of its own market opportunity scan.
Blockbuster was a latecomer to the Internet compared to Netflix and Amazon. It also could have employed vending kiosks ahead of Redbox, which passed Blockbuster in 2007 in number of U.S. locations. Unfortunately for Blockbuster, it was so thoroughly entrenched in its bricks-and-mortar model that it forfeited the opportunity to seize whatever first-entry advantage it might have gotten by branching out into new channels sooner. It failed to heed the external forces and the market analysis of the MOS.
The company lost $65 million last quarter. Its revenue continues to rapidly decline with Netflix and Redbox chipping away at it, not to mention the losses also suffered due to cable and satellite video on-demand. Despite that, many industry analysts believe it still has a chance at remaining viable as a company, but only with distribution channels consisting of DVD’s via mail, vending kiosks, and internet delivery. Convenience (consider the social lifestyle factor under external forces) and low price is the new success formula, and that’s not something the bricks-and-mortar model can do nearly as well. Blockbuster is down to about 6000 stores and is continuing to close them.
much of the story still remains to be written
The composition of the value chain for the video rental business has been forever changed from its original formula, and it’s still evolving. Every one of the current players needs to stay atop of what’s going on via the Market Opportunity Scan. And they need to keep an open mind for converting that information into sound strategy and tactics all along their value chains.