Case Study: What To Do When A Large Competitor Shows Up On Your Block

NCR Is Getting Into The DVR Rental Business – Bad News For redbox
NCR Is Getting Into The DVR Rental Business – Bad News For redbox

Who Doesn’t Like A Little Competition?

There’s not a product manager out there who doesn’t dream of the day in which their product is the only show in town. Man – wouldn’t that be great? You wouldn’t have to worry about any real competition, you’d just be spending your time working to grow the market. And then you wake up.

The new-kid-on-the-block firm Redbox who has taken the DVD rental market by storm with their low-price, limited selection kiosks that have been popping up everywhere. For the longest time it looked like it would be a Redbox vs. Netflix battle. However, things have changed.

There’s a new gorilla in town: NCR. Just a little while ago NCR purchased Houston-based TNR Holdings which was a smaller player, but they were in the kiosk DVD rental business also. This wouldn’t be all that remarkable if the product managers at NCR hadn’t done something else interesting: gotten into bed with Blockbuster.

The NCR product managers have somehow talked Blockbuster into licensing its brand to NCR. This allows Blockbuster to take a cut of rental revenue from the kiosks. Hmm, I had sorta thought that Netflix had Blockbuster on the ropes. Is this a way for the Blockbuster product managers to stage a rebound (“don’t call it a comeback”)?

What Does This Mean For Redbox?

As though things weren’t heating up enough for the Redbox product managers, the latest news is that NCR is acquiring DVD Kiosk operator DVDPlay Inc. and plans on converting its 1,300 kiosks to the Blockbuster Express brand name. Now we’re starting to talk about a lot of kiosks.

What makes this latest purchase by NCR even more interesting is that it will give NCR a leg up in one of Redbox’s weakest markets: California. As product managers are all too painfully aware, it’s a lot harder to boost your product’s market share when you have to take market away from your competition!

That deal that the NCR product managers struck with Blockbuster seems to be paying off. NCR is reporting that converting kiosks to the Blockbuster brand appears to boost their traffic significantly. Think about it, would you rent a DVD from NCR? No way; however, when you see the Blockbuster name and the blue and gold colors you start to think about Friday nights and relaxing at home in front of the TV.

Remember, the key to this product’s success is volume. The kiosks rent out movies for as little as $1 per night. In order to boost their volume so that they can compete with Redbox better, as NCR replaces the DVDPlay kiosks with the Blockbuster kiosks, they plan on moving them to better locations. Some of these locations include moving them outside of stores so that people can still access them even when the store is closed.

The 900 lb Gorilla In The Room

Gosh, you’re thinking, it looks like the Redbox product managers now have their hands full. Wait a minute, it gets even more complicated. Redbox’s low-price marketing strategy has been so successful that some studios try to keep their newest releases out of kiosks to avoid devaluing the same products that they are trying to sell in stores for $30.

Kiosks operators like Redbox have been trying to get around this problem by buying DVDs in quantity from either Walmart or Best Buy. The bad new is retailers have caught on to this strategy and are now putting restrictions on how many DVDs kiosk operators can purchase. In some cases they are restricting purchases to just three of any single title.

Redbox has antitrust suits pending against Twentieth-Century Fox, Warner Bros., and Universal Pictures.

New Competition Is Arriving Every Day

As though having competition from a large firm with deep pockets that has gotten into bed with one of your biggest established competitors wasn’t enough, there are the other start up firms that Redbox still has to worry about.

Mosquito Productions has a BigBox DVD kiosk that contains between 2,000 – 3,000 DVDs compared to 500 for Redbox and 950 for Blockbuster Express.

In a business with very low barriers to entry, Redbox needs to anticipate that there will be even more firms like this showing up over time.

What All Of This Means For You

What the Redbox product managers are going through should serve as an example for all of us. It’s great to be one of the first entrants into a new market and to be successful for awhile. However, we all have to remember that success is like blood in the water and it will attract other sharks soon enough.

Once competition heats up product managers need to shift some of their focus from growing their market share to holding on to what they already have. This means that they need to find ways to differentiate their product.

This might be a great time for Redbox to start to develop a “frequent renter” program in order to allow customers to build up “credits”. This could help customers decide to choose a Redbox kiosk over any others when they have a choice.

What do you think Redbox’s next step should be?

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