Firms in Other Industries offering Substitute Products

Case #4 - Redbox

Case Approach: Firms in Other Industries Offering Substitute Products

1) Background: Redbox has established dominance in the home movie rental market by offering a low cost easy and customer friendly product. Redbox continues to grow in an industry with competitive pressure from companies such as Netflix offering substitutes.

2) Problem: The DVD rental industry is rapidly changing due to the continuing advancement in developing video technology. The advancement in technology, such as digital access to movies via the internet, allows customers the convenience to access films directly from their home which weakens the consumer demand for DVD's. Furthermore, content acquisition and licensing arrangements restrict the amount of titles that are available to Redbox resulting in litigation battles with large movie studios.

3) Recommendations:

* Increase the number and distribution of DVD rental kiosks by creating strategic partnerships

* Develop a web-based service to offer customers the ability to watch movies from the internet

* Strengthen partner relationships - gain better terms based on buyer demand - decrease time from release of movie to market

* Expand into foreign markets

4) Analysis:

Redbox continued growth in the movie rental market depends upon a number of factors including: product, price, marketing, and distribution. Redbox provides its customers with over 22,400 automated movie rental kiosks with over 200 different movie titles to choose from. The prices of DVD rentals are lower than its largest industry competitors, Blockbuster and Netflix. Redbox charges a rental fee of $1 per a day and typically sold previously rented DVD's at $7 each. Redbox has demonstrated great success in its marketing communications. Redbox is employing a number of marketing strategies to ensure they become the leader in home movie entertainment. They are growing at an accelerated pace by putting their vending machines in busy areas. They are able to increase customer loyalty by making their services more and more convenient for their customer to find and use their kiosks. There is no doubt that Redbox is employing a low cost strategy. There is not another competitor that is offering movies for the price of a Redbox movie. Redbox is trying the gain a competitive advantage by offering their product at a lower price than their competitors while still making it easier for customers to use their product over their competitors.

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