Redbox

redbox

MNGT481.01

Business Strategy

Fall 2012

Case Analysis:

Red Box’s Strategy in the Movie Rental Industry

Prepared by:

Identification:

* Redbox’s Strategy

In 2004 Redbox started its business of developing vending machine kiosks containing movie DVDs. Redbox is a wholly owned subsidiary of Coinstar, Inc. Redbox started by placing their kiosks at selected McDonalds fast-food restaurants, supermarkets, and drug stores. With these kiosks customers can rent DVDs for $1 per day and can return their DVDs at any of the Redbox kiosks. Customers will pay a maximum of $25 for a rented DVD (hold the DVD for 25 days) and if the 25th day is reached, the customer is allowed to keep the DVD. No membership is required to rent the DVDs and Redbox offers a special feature that allows for reserving a title of choice online to ensure its availability.

Redbox is fast-growing and as of May 2010 have up to 22,400 locations in the United States, Puerto Rico, and the United Kingdom. Each Redbox holds up to 700 disks with around 200 movie titles. Redbox estimated its market share of the DVD rental market in the United States to be 16.8% at the end of 2009.

The competitive approach that Redbox has taken is the low cost strategy. They have placed their focus on low prices, ease of use, and efficiency. They undercut the prices of their competitors to ensure that sensitive consumers make use of Redbox and have improved their supply chain. Their supply chain has been improved by bypassing value adding activities; this means that they have cut out the costs of paying for a cashier to work in a DVD stores. This also decreases the time that it takes to rent DVDs, because of the elimination of standing in line to pay for your DVD. They have rapidly expanded by increasing the number of locations with a Redbox kiosk.

There are a couple of problems that Redbox face in pursuing their low cost strategy. One of these problems is the struggle to get licences to new releases...