Environmental analysis Essay

Rivalry Competition in the US video rental industry is fierce. There are actually several different segments of players within the industry, like rentals who establish physical store locations and rentals who serve mail-orders, but these different segments are competing to gain the same market share. Blockbuster reveled that the business actually has a small profit margin, due to the high cost of building and equipment maintenance. Furthermore, the movie rental industry has a stagnant market condition, or in simple words, the market does not reveal any meaningful growth within the years. This means the only way to grow is by taking away a piece of competitors’ market share. Thus, competition is s serious issue for Blockbuster because in one hand, the company cannot afford to loose more market share due to its minimum profit margin, and in the other hand, Blockbuster would also need to experience some kind of revenue growth. Ironically, competitors of Blockbuster also possess the same obsession. As a result, price war is the only way to determine which player would lead the market. Unfortunately, most of the players in the industry has already sustain heavy operational and maintenance that they cannot afford to reduce rental prices. In addition, most of these players have also minimum promotion budget because of the small profit margin. Today, competition industry enters a stage where all the players are stagnant in most of its departments (Brem, 2002). Not all movie rental industry can survive in a long term, especially if the industry is online. With the recent tightening in the market, some executive and investor are challenging Blockbuster.com to show some results: higher revenues, more customers, perhaps even a profit. This is should become tough news for Blockbuster. com who have spent most of their money on expensive advertisements, PR campaigns, or websites that look attractive. The full integration of Blockbuster. com online and in-store programs planned for next year will enable them to provide their customers, young and old, with unmatched convenience, service, selection and value. If a customer is in their store and wants to return a movie they rented online, Blockbuster.com will be able to accommodate them. If a member rents primarily in-store, but wants a hard-to-find title Blockbuster. com does not typically carry in store, they will be able to go online and get it. It is a matter of maximizing convenience and choice (â€Å"About Blockbuster. com†, 2006). Blockbuster has not been watching these developments lazily. It has launched its own online rental service in response to the competition, despite the set-up costs and the fact that it could take revenue away from its retail operation. It has also introduced a number of initiatives, such as a part-exchange deal on VHS tapes, and is currently exploring offering an in-store download service. †¢ Buyer Power Due to the stagnant market and the need for huge economies of scale to reach profit, buyers of the video rental industry has quite an influential power. In a nutshell, by choosing to go to which rentals, buyers will determine which one will reach profit within the financial period and which one will fall below targets. The increasing use of Internet becomes the power of buyers that soon force Blockbuster to provide online services. To change itself from a zone of movie rental store into an â€Å"anywhere-anytime† entertainment destination that eventually will enable customers to rent, buy or trade movies and games, new or used, in-store and online, Blockbuster initiatives to continues their accomplishment as the online rental service company (â€Å"Blockbuster goes broadband, streams movies to TV†, 2001). Blockbuster. com becomes the business through information technology (I. T. ) marketing. Because of the online marketing Blockbuster can live and breathe. They can get more competitive, lower their costs, and provide better service through continuous improvement of the I. T. marketing (â€Å"BBI: Profile for BLOCKBUSTER INC. †, 2006). However, as online retail, marketing efforts of Blockbuster. com could be even more effective if they asked the consumer for a dash of personal information. So far, businesses were hoping that personalization technology would serve as the equivalent of a best friend who just happened to have all the same tastes in products and services. More consumers are choosing to rent online, which has no late fees and have the movies mailed to them. It makes Blockbuster. com has increased their membership (â€Å"Blockbuster goes broadband, streams movies to TV†, 2001). The only way for movie-rental stores to continue operations is to rise to the challenge and shift their business model to stay practical. To develop a substantial share of the online rental business by the end of next year, Blockbuster. com is providing rental plan and their practical understanding marketing. It should help Blockbuster. com to be more successful in the next period. Movie distributors and the large chains, such as Blockbuster, Inc.directly negotiate revenue-sharing agreements covering most titles distributed by the upstream (â€Å"BBI: Profile for BLOCKBUSTER INC. †, 2006). Personalization and community features are very important. Blockbuster. com should allow film fans to rate films and write reviews to help inform other users. In addition, Blockbuster. com need to have a management team with bags of expertise, which they believe differentiates us from the competition. †¢ Supplier Power Suppliers of the industry generally have little power over the Blockbuster. The prices of inputs are nearly identical for most suppliers and there is no price discrimination because of the widely available substitutes. †¢ Threats of Substitutes The video rental industry is actually facing quite significant threats from various substitutes. Examples of substitutes are: pay-per-view, video-on-demand, streaming on-line videos, etc. All of these alternatives are delivering the same product in a quite similar quality, which means that they contribute notably to the tension within the video rental industry (‘Videotape Rental’, 2004). Barriers of EntryAnalysis of the industry indicated that Blockbuster is actually enjoying significant level of entry barriers. First, as mentioned earlier, the industry generally has a small profit margin, which means that a huge economic of scale is required to create a profitable business. This is caused by the high operational and maintenance costs, profit sharing agreement with studios, etc. Second, Blockbuster enjoyed a positive image due to its long-time presence and its popularity within the US market. Both of these factors ensured the triumph of Blockbuster against any newcomer. Most of these conditions however, are now becoming obsolete. This is true partly due to the presence of internet. As internet shopping becomes more popular, mail-order rentals like Netflix gain notable attention from the market. In addition, Blockbuster made the mistake of not providing enough copies of popular and recent movies, which ultimately get customers to think of going to alternative rentals. Another factor that reduces the entry barrier is the popularity of DCDs over the old VHS which no longer require negotiating revenue gain agreements with studios (Brem, 2002; Wagner, 2003).