Research Proposal on "Operational Improvement Plan for Blockbuster"

Research Proposal 8 pages (2054 words) Sources: 4 Style: APA

[EXCERPT] . . . .

Operational Improvement Plan for Blockbuster

Blockbuster has been, ever since the foundation of the company in the mid-1980s, the prototype of video rentals, with a great success through generations. The diversification of its portfolio and offer to include additional services such as game rentals, as well as the consolidation on the market with the acquisition of rival company Ritz Video and the opening of numerous new stores, have assured a privileged position and a profitable business. However, the reality is that during the last couple of years, the company has been losing serious money, as much as $1.2 billion in 2004. The reasons for this can range from competition on the market to bad decisions in terms of future acquisitions and to technical and technological problems. The aim of this paper is to identify the causes of Blockbuster's problems and to provide a reasonable action plan for the future, which can include reasonable solutions for a better operational performance of the company.

The Blockbuster Process

The Blockbuster business process is based on a good business relationship with the producing studio by which Blockbuster keeps 60% of the rental free, with 40% going to the studio. At the same time, Blockbuster offers movies (DVDs) for sale and, through its portfolio of acquisitions, games and other services. At the same time, the company has launched its online service to counter the threat of competitors like Netflix on this segment and has been consolidating its position in this area by adding facilities like the possibility for the client to drop the rented movies either at the nearest Blockbuster store or through the usual postal delivery.

Despite the optimal process, the company has been reported losses throughout most of the 2000s and the online service has not helped much to regain some of the clients that have been lost or retain the existing ones. Some of the reasons are presented below.

Identified problems

On one hand, Blockbuster seems to provide a lot of opportunities for the individual consumer that are aimed at reducing the time he spends picking up or delivering movies and improving his overall experience as a Blockbuster client. In this sense, for example, the company has introduced, in November 2006, the Blockbuster Total Access program which allows the customers who are using the online Blockbuster service to drop the rented DVDs in a Blockbuster store, as well as their usual option of doing so in the mail. This decreases the time between DVD deliveries, because the DVD dropped off in the store will be counted as already delivered, thus saving a day (Netflix, the Blockbuster online competitor, has no such option, which leads to a lag time between deliveries, especially if there is a national holiday during which the postal services are on vacation).

However, one of the main operational problems identified at Blockbuster Inc. is exactly related to the online services the company provides. In this area, we have been able to identify the following segment problems:

Technological. Many of the customers have reported problems with the website. Some of these are either website errors or potential issues reflecting the possible improvements in terms of website design and the capacity of the website to be more user-friendly. Other technological problems/issues include a bad coordination with the actual physical deliveries. According to some testimonies of different clients, the DVDs are not respecting the promised process by which a DVD is released immediately as one is received. The technological problems behind this are to blame: the computers do not record sufficiently fast the fact that the DVD has been returned and these technological glitches delay the entire process.

Customer-service related. Service is sometimes slow in getting the DVDs out and the requests and comments made by the clients are slow in getting a response. In comparison to Netflix, where there is a list of frequently asked questions that obtain an immediate, automatic response and generate the required action. For example, at Netflix, replacing a broken DVD simply means a series of clicks on the website and the way this is done facilitates the interaction (the client can choose among several options in the list of potential problems).

Price. The options at Blockbuster online are simply higher priced, with no additional service or quality. As a simple example, the 3-DVD option is $16.99 at Netflix and $19.99 at Blockbuster. The extra $3 that are paid at Blockbuster are not justified, in the client's perspective, by any additional service or extra quality. It is not too much to pay extra, but why do it if it does not bring anything different. Over price, Blockbuster customers will simply switch to Netflix.

The second operational problem that Netflix encounters is cost-related. The costs of operating all the stores are much too high, because this includes not only rent-related costs, but also other administrative costs of operating a physical location. This will tend to make Blockbuster less competitive: additional costs than its competitors means that it will need to provide services at a higher price, which will turn people towards other offers on the market.

Finally, a third problem at Blockbuster is its capacity to keep up with its competitors and threats coming from the market. Netflix is the obvious example in this sense. To any analyzer, Netflix seems more slender and more capable to adapt its services in order to be able to offer them at the highest quality and lowest price. The costs that Netflix incurs are mostly technological costs, related to things such as the purchase and maintenance of the company servers, the capacity to deliver the DVDs, etc. We have already described some of the costs the Blockbuster incurs. Further more, Netflix seems better adapted at this point to a world where rapid change is probably the essential characteristic. People want to move fast and for them it is very practical to simply drop the DVD off and wait to receive a new one. Blockbuster provides a similar service, but, as previously shown, it is a service that does not run as smoothly, one that creates more problems for the client than it actually is able to solve.

Proposed solutions

The problems that have to do with the operational viability of the company all revolve around the problem with online Blockbuster, but also with competitiveness on the market (in fact, one induces the other). In this sense, the following recommendations are aimed at maximizing the company's capacity to increase its interaction with its clients and perform better.

Integrated online website

The integrated website will allow the Blockbuster client to have access to all the services that Blockbuster offers through the same website. The idea behind such an integrated online website would be that the company will thus be able to maximize the effects of its greatest assets: its portfolio of products and services.

Indeed, as mentioned in the initial introduction, Blockbuster is not simply a DVD/movie rental company. Through its acquisitions and diversification it can now offer services from games to, potentially, music (noting here that diversification is less likely to remain static, but it will continue its dynamism through the next period of time), the company has managed to attract customers from different age categories and less differentiated in terms of educational or social backgrounds. This has to be made accessible as well (before the launch of the online option for Blockbuster, many of the customers' complaints were related to accessibility. Now, it is the same issue, only transposed in an online environment).

The integrated online website will also allow the company to hire a new web design company that can also offer maintenance services for the website, as well as potential promotion of the website in the electronic environment. Making the website available to different services that Blockbuster offers can also mean redesigning it to better fit the needs of the customers.

This is also a reasonable response to the fact that Blockbuster almost always seems to be one step behind Netflix in offering online services. After the Blockbuster Total Access was made available, Netflix came up with the Watch Now option, which allows the subscribed user to access online movies, thus further increasing the level of accessibility. It is true that the database of Watch Now movies at Netflix is not very diversified, but it is still enough for the company to be perceived as an innovator on its segment.

24/7 services for the website

As we have seen, one of the main complaints of the customers was the fact that the site doesn't function too well and that the occasional (often) technological glitches creates disturbances in the delivery of the selected DVD, interrupting the delivery process. In some cases, such as at Netflix, this can often be solved directly online, usually through the availability of a large number of options that the client can pick from in order to report a problem. Nevertheless, at Netflix this seems to have gone beyond that and one of the proposed recommendation would… READ MORE

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