Introduction
A competitiveness approach is a road map for a sector’s long-term sustainability. An industry’s competitiveness can be enhanced through strengthening market segmentation and branding. While firm-level actions may increase specific companies’ performance in the near term, the benefit is probably limited and temporary unless industry-wide obstacles such as a challenging governmental and regulatory climate are remedied (Momaya, 2019).
How a business is structured and utilizes its core competencies to generate distinctive or lower-cost goods or services influences its potential to compete successfully and deliver exceptional value to its consumers while increasing profits (Momaya, 2019). This report aims to analyze some of the factors and issues that might have led to Blockbuster Company losing its competitive edge to other market players like Netflix.
Brief History of Blockbuster LLC
With roughly 8,000 locations, the Blockbuster Company is a market leader in rental movies and video games. The businesses rented movies and video games to consumers for personal use. Blockbuster’s eyesight is to be a one-stop-shop for games and films. Its objective is to continue growing its fundamental rental business while leveraging its company image, massive database, retail locations, and cinema interactions to convey an even wider scope of home entertainment to existing and new viewers.
The corporation has operations in the United States of America, Europe, Latin America, Australia, Canada, Mexico, and Asia. Blockbuster’s headquarters are in Dallas, Texas, and the company employs 58,561 individuals on a full-time, part-time, and occasional basis (Chopra & Veeraiyan, 2017).
The business made $5,287.9 million in income during the fiscal year ending January 2009, down from 4.6% in 2008 (Chopra & Veeraiyan, 2017). Blockbuster blamed the profit reduction mainly on non-cash asset impairments against its goodwill and other long-lived investments. By renting DVDs by mail and downloading, or streamed, purchases.
Initially, Blockbuster generated income by renting movies from stores and charging late fees on leases. Blockbuster started an online movie rental program in August 2004 to offer competition to traditional industry leader Netflix and keep engaged with industry developments (Chopra & Veeraiyan, 2017). The only entity that can genuinely battle with Netflix against other contenders is a sustained strategic advantage in the digital renting marketplace (Tubbs, 2021).
Currently, only Blockbuster and Netflix are fighting for online consumers. The innovation for in-home watching continues to advance, and it has become more affordable to stream videos via the net. Diverse distribution sources provide in-home entertainment.
Situational Analysis
Porter Five Forces Analysis
Industry Competition
The weaker a corporation’s position is, the greater the number of opponents and the more comparable goods and services they provide. Suppliers and customers will seek out a business’s competitors to offer a decent arrangement or reduced rates (Mishra & Tripathi, 2020).
On the other hand, when aggressive competition is minimal, a business can significantly increase prices and negotiate terms of transactions to increase sales and profits (Mishra & Tripathi, 2020). When fierce competition, it becomes exceedingly challenging for established businesses like Blockbuster LLC to produce maximum yield.
Threat of New Entrants
The power of new competitors in a marketplace also affects Blockbuster’s dominance. The less energy and finances a rival must invest to enter and compete effectively in a firm’s market, the more an incumbent business’s foothold may be considerably undermined (Song et al., 2018).
A sector with extreme entry barriers benefits existing businesses by increasing prices and securing better conditions (Song et al., 2018). Due to the more critical financial requirements for entering the film industry, Blockbuster LLC maintains a healthy market share despite severe competition from Netflix.
Bargaining Power of Suppliers
This characteristic describes the ease with which vendors can increase the cost of materials. The lesser distributors the film industry has, the more reliant Blockbuster will be on a single source (Lee & Yan, 2019). Consequently, the supplier gains leverage and can increase prices of raw materials and pursue other trade advantages.
On the other hand, Blockbuster has a network of partners and low switching prices between competitor producers, it can reduce its supply costs and maximize efficiency.
Bargaining Power of Consumers
Consumer potential to manipulate price reductions or their amount of power determines business success. It is influenced by the number of clients or users a business has, the importance of each buyer, and the expense of acquiring new consumers or markets for the business’s output (Zhu et al., 2017). With a fewer and more robust client base, each individual has more bargaining power to negotiate cheaper rates and better packages (Zhu et al., 2017). When purchasers have a considerable bargaining advantage, they frequently force prices down, restricting Blockbuster’s ability to produce high revenues.
Threat of Substitutes
Substitute commodities are a danger since they can be utilized in place of a firm’s products or services. Businesses that manufacture items and services with no near alternatives will have a greater capacity to raise charges and secure advantageous conditions (Mauboussin & Rappaport, 2021). When close substitutes are accessible, Blockbuster’s customers might opt to purchase Netflix’s goods, eroding the corporation’s influence (Mauboussin & Rappaport, 2021). If the threat of substitutes is significant, Blockbuster LLC must invest consistently in research & development activities or risk losing market share to competitors.
PESTEL Analysis
Political Factors
The US administration abides by all World Trade Organization regulations and guidelines. Reliability in policy formulation and execution fosters a positive work environment at Blockbuster LLC (Chen, 2021). The United States appears to have a stable political structure, allowing Blockbuster to develop projections based on a predictable political climate. Furthermore, the United States has a thriving civil society, and Blockbuster should establish relationships with them and seek opportunities for collaboration (Chen, 2021). Civil society organizations exert influence not just on policymaking but also on developing a societal narrative.
Economic Factors
Increased inflation may compel Blockbuster to maintain constant price increases in line with inflation, resulting in decreased brand recognition and continual cost-cutting efforts. Cost-based pricing may be a poor technique in several circumstances (Murmann, 2017). The faster pace of GDP growth indicates that the economy is expanding in demand (Murmann, 2017). Blockbuster may capitalize on this trend by diversifying its product offering and reaching out to new customers.
Social Factors
Blockbuster LLC should analyze the hierarchy in the environment where it works and how it affects economic demand. For example, the state apparatus in the US economy is gradually shifting toward the older population, which has a higher spending power than the younger age. Additionally, population trends are critical in anticipating an economy’s demand. For instance, as the United States population ages, demand for commodities aimed primarily at this demographic will increase. Blockbuster should analyze population changes while developing new products and incorporate elements that appeal to this audience.
Technological Factors
Countries worldwide are attempting to prepare for the deployment of 5G infrastructure. Blockbuster should determine the extent to which the local consumer base prepared to deploy a 5G connection. One area in which the US lags behind China is digital transactions. Blockbuster should determine which mobile wallet methods are favored in the local economy and build its corporate structure. Uber struggled in China because it entered before the mass adoption of smartphones in the country. Blockbuster should develop a plan that considers cultural attitudes, technology, and Blockbuster’s economic model.
Environmental Factors
Environment regulations compliance organizations play a key role in ensuring that standards are adhered to. However, in developing nations, these institutions frequently stall obtaining bribes. Blockbuster LLC should be conscious that such tactics exist in certain jurisdictions. The money spent on sustainable power should enable Blockbuster to justify its effort as part of its promotional strategy. Finally, Blockbuster should analyze the recycling policies applicable to its projected market and develop measures to comply with them.
Legal Factors
Blockbuster must determine a nation’s data protection legislation and the steps made following them. For example, most EU member states require that EU citizen statistics be stored solely in EU member states. Before entering a foreign market, Blockbuster must determine the applicable corporate laws and how they are distinct from those in its native market. Furthermore, if the court procedure is subject to unfairness, Blockbuster cannot be certain of the conclusions.
Assumptions and Missing Information
When Netflix began in 1997, Blockbuster was the sector’s most significant player. Between 1985 and 1992, the brick-and-mortar leasing network expanded from its headquarters in Dallas, Texas, to over 2,800 outlets worldwide (Hiller, 2017). Viacom acquired Blockbuster two years later for $8.4 billion.
In 2000, Netflix understood that perhaps working alongside Blockbuster would be better than fighting against them (Hiller, 2017). Reed Hastings, co-founder, and CEO of Netflix contacted John Antioco, then-CEO of Blockbuster, with a partnership proposition (Hiller, 2017). The Netflix team would manage Blockbuster’s internet trademark as part of the partnership.
Naturally, that arrangement never transpired, in part because Blockbuster mocked Netflix during their meeting to explore the transaction. In 1999, Groupe Arnault backed Netflix with a $30 million funding investment that aided in establishing the subscriber-based business (Cohan, 2020). By 2006, Blockbuster’s internet services had expanded to more than 2 million subscribers.
In 2008, Netflix announced a partnership with Starz to broadcast around 1,000 Hollywood films and television episodes (Cohan, 2020). Blockbuster was dropped from the New York Stock Exchange and declared bankrupt on July 1, 2010, after suffering over $1 billion in losses (Boland-DeVito, 2018). Thus, this was a big blow to the United States’ movie film producer.
Problem Definition and Mitigation Strategies
Gap Analysis and Recommendations
Blockbusters can use exit strategies as they are frequently utilized by entrepreneurs or enterprise investors who wish to exit a failing operation. Exit techniques that Blockbuster could can sought for include being acquired by another business or the company’s initial public offering (Alsafadi et al., 2020). The process of acquisition by another company is usually not long considering that the business is changing management to another firm. After declaring bankruptcy, Dish bought Blockbuster intending to integrate activities by leveraging its architecture and identity.
In the short and medium run, offering Blockbuster’s discounted or free stores, which will increase the value of the firm’s television consumers. The long-run action would be to the corporation in extending its distribution rights. By acquiring Blockbuster, the change in management would affect other parts of the organization such as finance and the overall administration. Because of its reduced market share and bankruptcy, the cost of acquisition of Blockbuster by Dish was $320 million.
However, fierce competition from Netflix and Hulu, both of which have a sizable market share in the business are anticipated. Dish’s Blockbuster Movie Pass will bundle accessibility to films through television, broadcasting, or mail and help in handling the market rivalry with Netflix.
Apart from the takeover, another turnaround plan that Blockbuster could use to avoid bankruptcy is to consolidate its electronic and stored inventory into a central repository. Under the legislation, all retailers will be permitted to function as mini-distribution facilities (Shahri & Sarvestani, 2020). The expertise required for this plan are the firm’s data management system. By having a centralized portal, Blockbuster clients will be able to browse the inventory of their retail stores and select their chosen films online.
The short and medium plan actions for this suggestion include piloting using selected stores to monitor the efficiency of the idea. In the long term, Blockbuster should establish numerous databases to ensure all its information is secure. The cost of implementation is costly to because it requires the creation and maintenance of multiple databases. The estimated cost of setting up various websites is $200 million.
This recommendation will strain the finance department of Blockbuster considering the economic crisis the business is in. The challenges anticipated with this resolution are the acquisition of the costs involved in setting up the plan. Blockbuster can auction some of its assets to raise funds for the implementation of the idea.
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