Few brands dominate their market like Blockbuster does. The company is by far the UK's leader in video (DVD and VHS) rental, with a 42% share of the market, compared with its nearest rival's 8.5%. It is an extensive chain within easy reach of most consumers. However, the rental sector has changed a lot since the days when a VHS recorder took pride of place in the nation's living rooms.
Over the past few years the rental window has diminished significantly, leaving less time in which renting a movie is the only way to see it between its cinema and high-street retail releases. Recent years have also seen the emergence of online rental companies such as ScreenSelect, Lovefilm and Video Island. The last of these three also runs an online movie rental service for Tesco, whose involvement in the sector must be a sign that it is ripe for change.
Blockbuster has not been watching these developments idly. 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.
But online rental retailers are only part of the problem; video rental transactions have been falling. Many consumers now buy films instead of renting them, and this has largely worked in the favour of specialist retailers such as HMV. Although Blockbuster has an extensive store network, it has been unable to make a significant impact on the sales market. According to the British Video Association, in 2004 Blockbuster had only 2.3% of the video sales market, compared with the 18.8% of HMV, even though Blockbuster has 718 stores to HMV's 194.
We asked Tony Lorenz, who has worked on retail brand development projects for companies including Virgin Megastores and Tesco and is now marketing director at design agency CDT, and Ernesto Schmitt, chief executive of specialist DVD retail chain Silverscreen, how Blockbuster can keep up with the times.
DIAGNOSIS 1 - TONY LORENZ, MARKETING DIRECTOR, CDT
Blockbuster launched in the UK with a winning 'bigger is better' formula for which our cottage-industry video rental market was ill-prepared.
Like the multiplexes, Blockbuster brought cleanliness, volume and efficiency, and repositioned the UK market away from small independent stores. It also offered convenience - especially with simple innovations such as its drop-off letterboxes for returns - and an endless supply of the latest releases.
But in the past five years the market has evolved dramatically. The growth in digital TV has brought with it cheap and accessible movies on demand.
The internet has thrown up several rental competitors that can match Blockbuster on price and beat it on convenience.
Blockbuster's stores are deeply unfulfilling places. As with many US retailers, the format is functional and the customer experience is transactional.
There is no passion for the product and little in the way of brand emotion: staff members are there to cross-sell popcorn or Haagen-Dazs, rather than dispense any advice on the films themselves.
REMEDY
- Instil some passion into the heart of the brand - it needs a more intimate relationship with cinema.
- Add value to the customer experience, such as through recommendations.
- Consider brand extensions into areas such as film memorabilia or other areas associated with film.
- Make visiting a pleasure, rather than a functional chore, as bookshops have with cafes and sofas. Blockbuster already owns the 'big blue sofa'.
DIAGNOSIS 2 - ERNESTO SCHMITT CHIEF EXECUTIVE, SILVERSCREEN
On the positive side, Blockbuster is a brand with great recognition.
All other rental brands fade into insignificance in comparison. It evokes powerful emotions about home entertainment, and you never associate it with smelly carpets or rude staff as you might some of its rivals.
The problem is that the business of video rental is in decline and is being eclipsed by DVD retail. The entire UK rental market totalled about 拢460m in 2004, whereas people spent 拢2.5bn buying DVDs. Rental is shrinking at 10%-15% a year, whereas retail grew by 40% last year.
The problem for Blockbuster is that retail and rental require completely different locations for shops. Retail needs high-footfall sites to drive high turnover at low margin. The very opposite is the case for rental, which is about residential locations yielding low turnover at high margin. So the problem for Blockbuster is that its offering cannot be changed to selling DVDs as opposed to renting them.
It is a tough position to be in.
REMEDY
- Stick to what it does best and what it is known for: rental.
- Milk the brand. There is no need to advertise because Blockbuster is already superior to its competitors.
- Consolidate. Buy weaker competitors to grow the top line. There are lots of other, inferior players and there will always be a rental market to trade in.
- Diversify. Buy a retailer that sells DVDs and keep it as an entirely separate brand.