Abstract
The report focuses on the market analysis for Redbox Automated Retail, LLC. The company provides customers with Blu-ray, video game, and DVD rentals through a variety of automated retail kiosks/self-care kiosks located in various convenience, drug, and grocery stores. The main clienteles for the company include the gamers, family oriented renters, and youth renters. The company uses its different automated retail kiosks in meeting the customer demands of speed, cutting-edge technology, reasonable prices, new releases, and convenience. The environmental factors that affect the way Redbox Company conducts its business include the laws and regulations in the DVD, game, and video rental industry, the United States economic growth, an increasing trend in online media consumption among the consumers, the decreasing consumption of movie among the older age customers, the rise in online consumption due to technological developments, and the increasing competition within the industry. The rivalry among the competitors and threat of substitutes in the DVD, game, and video rental industry are very high. Besides, both the buyers’ bargaining power and suppliers’ bargaining power are high, but the threat of new entrants is moderate. Consequently, Redbox Company faces intense competition. The main distribution channels for the company are its automated retail kiosks situated in different drug, grocery, convenience stores as well as gas stations. The company underprices its competitors to attract the price-sensitive consumers. Also, Redbox Company utilizes some approaches in promoting its rentals. These include advertising, public relations, and SMS marketing.
Company Background
Redbox Automated Retail, LLC is among the leading competitors in the DVD, game, and video rental industry. In particular, the company specializes in the video game, Blu-ray, and DVD rentals through the automated retail kiosks. Redbox is a subsidiary of Outerwall, Inc. and was established in the year 2002 by Gregg Kaplan. The McDonald’s Corporation initially funded it. At the time of its establishment, Redbox Company had only two kinds of vending machines at the McDonald’s restaurants. One of these machines vended grocery items such as eggs, shampoo, and milk while the other rented DVDS. The company stopped operating the convenience store kiosks in 2003 and continued operating the DVD kiosks. It has grown to become a dominant player in the DVD, game, and video rental industry.
At present, Redbox maintains as well as stocks a variety of self-service kiosks at the third-party retail locations. In particular, the company operates these kiosks at the convenience, drug, and grocery stores in addition to select McDonald’s, Walmart, and Walgreens locations in the U.S. Redbox Company markets business-to-consumer services. Specifically, the company provides its video game, Blu-ray, and DVD rentals directly to the consumers. Redbox’s business model is essentially based on the lowest likely prices, laying emphasis on the new releases, and not needing a monthly subscription. The company has succeeded in advancing its expertise in network operations as well as in kiosk technology.
The Market
Redbox Company’s major customers include the gamers, family oriented renters, and youth renters. These customers have high bargaining power and demand speed, affordable prices, convenience, and new releases. The company’s high-frequency renters visit its self-service kiosks frequently. These customers usually value Blu-ray discs and new releases. The company also offers its rental services to the home entertainment consumers. It is imperative to note that Redbox tries to meet the customer demands of affordable prices, advanced technology, speed, new releases, and convenience through its self-service kiosks. Lieberman (2009) maintains that the combination of convenience and low price has quickly made Redbox Company a force with the customers and a threat to the competitors such as Netflix and Blockbuster. In essence, the company appeals to a significant number of consumers.
As already mentioned, Redox Company provides its customers with the new-release video game as well as movies’ Blu-ray disks and DVDs rentals through the self-service kiosks located in different convenience, drug, and grocery stores. Notably, the customers can rent the newly released movies from a specific self-service kiosk and return them to a different kiosk. It is imperative to note that the basis of Redbox Company’s business model is the self-service kiosks. The company also provides online rentals. Specifically, the customers reserve the movies online. According to Roettgers (2016), Redbox had jointly launched a streaming service with Verizon in the year 2013 but shut it down some one and a half years later. In March 2016, it was reported that the company was getting ready to launch Redbox Digital, a new video streaming service.
Environmental Factors
Redbox Company does not essentially operate in a vacuum. Ideally, there are some factors beyond the company’s control that affect the way it conducts its business. These factors include the political factors, economic factors, social/cultural factors, technological factors, and competition. It is important to note that the changes to any of these factors can have a considerable impact on the operations of Redbox Company and other players in the DVD, game, and video rental industry. The factors beyond the control of Redbox Company can best be understood by both the PEST analysis and competitive analysis in the DVD, game, and video rental industry.
PEST analysis
Just like the other companies, Redbox Automated Retail, LLC is subject to the political, economic, social, and technological macro-environmental factors as below discussed.
Political factors
The political factors determine the degree to which a government might influence a given industry or an economy (Cadle, Paul, & Turner, 2010). It is crucial to mention that Redbox Company and the other competitors are required to adhere to some specific laws and regulations in the DVD, game, and video rental industry. Among these laws and regulations include the Federal Copyright law, privacy laws, age of renters, antitrust laws, and public exhibition. In particular, the Federal Copyright Law governs the way the copyrighted materials can be distributed and used. Ideally, the changing laws regarding the copyrights of specific kinds of contents, for example, television shows and movies might affect the operations of Redbox Company. Redbox Company relies on the content licenses from different studios to distribute their content. As a result, the change in these licenses might have an adverse impact on Redbox’s business model.
All the players in the DVD, game, and video rental industry including Redbox Company are required to abide by the privacy laws. Consequently, these laws usually affect the way the companies including Redbox conduct their businesses. They are also required to follow the guidelines regarding the age of renters as set by the Motion Picture Association of America. Additionally, the antitrust laws prohibit Redbox Company and other players in the DVD, game, and video rental industry from engaging in the practices, which restrict competition and free trade. The public exhibition regulations prohibit the companies operating in the movie rental industry from exhibiting DVDs and videos publicly outside of an individual’s homes. Redbox Company ought to adhere to the above rules and regulations so as to succeed operating in the game, DVD, and video rental industry.
Economic factors
The economic factors represent the wider economy. They include the factors such as the inflation rates, economic growth rates, exchange rates, employment levels, and cost of raw materials, among others. The present state of the United States economy has a positive impact on Redbox Company’s business. Ideally, the country is experiencing a slight economic growth, and this is expected to have a positive impact on the operations of Redbox and other companies in the DVD, game, and movie rental industry. Notably, the rate of unemployment in the United States does not have an adverse impact on Redbox’s business. In essence, a variety of consumers even those who are currently unemployed can afford Redbox’s rentals since they are reasonably priced. It is worth mentioning that Redbox Company has remained a prosperous business even during the hard economic times.
The DVD, game, and video industry depend primarily on the consumers’ disposable income. Redbox offers a low-cost compared to its business rivals. As a result, this makes it easier for the customers to afford its rentals even during the tough economic times. As a matter of fact, this provides the Redbox with a competitive edge. The disposable income among the consumers does not, thus, have an impact on Redbox’s business. In essence, the consumers seek entertainment services even during the tough economic times. Consequently, the hard economic conditions do not have an adverse impact on the operations of Redbox Company and the other players in the video rental industry. It is imperative to note that the DVD rental market usually has a niche in the economic difficulties as the consumers view it as a more affordable entertainment alternative compared to the other entertainment options. The mentioned economic factors have a substantial impact on the way Redbox Company does business as well as how profitable it is.
Social/cultural factors
The social/cultural factors primarily epitomize the culture of the society in which the company operates. According to Cadle, Paul, & Turner (2010), these factors originate from the customers or the prospective customers. They include the level of education, lifestyle, living conditions, rates of population growth, wealth distribution, age distribution, cultural trends, and demographics. It is worth noting that different socio-cultural factors have a direct impact on how Redbox Company and the other players in the movie rental industry understand their customers as well as what drives them. There has been a rising trend in online media consumption among the consumers in the DVD, game, and video industry. In essence, an increasing number of the youthful customers in this industry are switching to the online streaming technology. In fact, this is affecting the way Redbox Company does business. Specifically, the company is now forced to increase its online rentals to target the youthful consumers. However, the older age groups of consumers are least willing to shift to the online streaming technology. It is essential to note that the company targets these customers through its self-service kiosks.
The consumers in the United States just like in the other technologically advanced countries are demanding instant access to products and information thanks to the constant technological outbursts. The customers of the firms operating in the DVD rental industry including Redbox Company have not been left behind. In point of fact, these customers are looking for fast, streamlined results. It is worth mentioning that Redbox’s self-service kiosks provide the customers with these results. The average age of the population in the United States is continuing to grow older. In essence, this might have an adverse impact on the way Redbox Company does its business as consumption of movie among the older age customers turns out to be less popular. Redbox Company continues to position its self-service kiosks in the routine locations such as McDonalds and Walmart to target the consumers in the high and middle-income social classes. The middle-income customers look for affordable entertainment that Redbox Company provides.
Technological factors
The technological factors originate from the technological developments (Cadle, Paul, & Turner, 2010). They include the technological advances, which might have an impact on the operations of the firms in a specific industry. Specifically, these factors pertain to the changes in the mobile and information technology, the rate of new developments and inventions, and transformations in the e-commerce as well as the internet. It is imperative to mention that technological advancements have played a significant role in the DVD, game, and video industry for a couple of years. The industry continues to move toward the online consumption thanks to these developments. The entry barriers in the DVD, game, and movie industry have reduced significantly due to different technological advancements. As a result, Redbox Company and other players in this industry face challenge to their market shares from the new entrants. In an attempt to maintain its high market share, Redbook Company needs to update its business model continuously.
The DVD, game, and movie industry has experienced technological advancements, for example, on-demand and digital downloading rental services. Redbox Company’s competitors such as Netflix provide their customers with in-home convenience through the use of these advanced rental services. As a matter of fact, this presents challenges to Redbox Company as it depends on its self-service kiosks to a great deal. Consequently, the company needs to update its business model to compete with the leading competitors such as the Netflix. Notably, Redbox is continuing to position itself to exploit the new technologies. It was among the first companies in the DVD, game, and video industry to exploit the Blu-ray movement. The technology advancements within the DVD, game, and video industry creates both opportunities and threats for Redbox Company and the other players. For instance, the firms in the video industry can reach hundreds of millions of consumers thanks to the technological developments such as the internet. Nevertheless, the online streaming technology presents a threat to these firms since the content providers can provide customers with free on-demand streaming.
Competitive analysis
The competition within the DVD, game, and video rental industry also affect the way Redbox Company does business. Notably, the competition in this industry is fierce. Redbox Company faces very stiff competition from a number of leading players as well as small companies such as those entering the industry. The major competitors for Redbox Company include Netflix, Hulu Plus, and Blockbuster, among others. Netflix has a higher market share in the online streaming segment than Redbox Company. Besides, its collection of TV episodes and movies is incomparable. Hulu Plus Company’s business model is more based on TV series unlike that of Redbox Company. As a result, this gives Hulu Plus a competitive edge. Blockbuster has sentimental appeal to the consumers and high brand recognition. It, thus, presents fierce competition to Redbox Company. Below is the analysis of the level of competition in the DVD, game, and video rental industry using the five competitive forces of the porter’s model.
Buyers’ bargaining power
The buyer’s bargaining power is high in the DVD and movie rental industry segment since the customers have a variety of choices. Besides, it is virtually costless for these customers to compare the prices between the content providers. According to Porter (2008), the powerful buyers demand more service as well as force the prices down. The highly price sensitive consumers in this industry possess a great deal of bargaining power. In essence, they have an impact on the services provided and the prices that different firms charge for their rentals. It is imperative to note that Redbox Company’s low pricing gives it a competitive advantage.
Rivalry among the existing competitors
The rivalry among the players in the DVD, game, and video rental industry is intense. In essence, there are a variety of companies operating in this industry. Redbox Company faces fierce competition from the major competitors such as the Blockbusters, Apple iTunes, Hulu Plus, Netflix, Comcast, Amazon.com, and Best-Buy, among others. The majority of these competitors have high market share and, as a consequence, the rivalry among them is very high. According to Porter (2008), the high rivalry among the competitors limits the profitability of a particular industry. Thus, the profitability of the DVD, game, and video rental industry is significantly limited by the intense rivalry among the players. Additionally, the intensity of rivalry among the competing companies is high since the switching costs among the consumers are low.
Threat of new entrants
The entry of the DVD, game, and video rental industry is essentially unregulated. However, this industry is constrained by the costs of obtaining distribution rights from different studios as well as the costs of acquiring the machines for use in self-service kiosks. Consequently, the threat of new entrants in the DVD, game, and video rental industry is moderate. Redbox and the other players in this industry face moderate competition from the new entrants. These entrants are only required to acquire the distribution rights from the studios to start operating in the game, DVD, and video rental industry. Redbox Company only faces high competition in the online streaming segment. It has a competitive advantage in the kiosk rental segment.
Suppliers’ power
The bargaining power of the suppliers in the DVD, game, and video rental industry is also high as the players such as Redbox Company rely completely on the video game publishers, networks, distributors, and movie studios. In other words, Redbox Company does not produce the content it provides to its customers. The powerful suppliers limit services or quality, shifts costs to the players in a given industry, or charge higher prices (Porter, 2008). Consequently, the Redbox’s suppliers, the video game publishers, networks, movie studios, and distributors, can easily impose price increases on their contents or reduce the quality if their contents as they have high bargaining power.
Threat of substitutes
The threat of substitutes in the DVD, game, and video rental industry is very high. There are numerous substitutes that exist in this industry. In particular, the customers can watch television, physically attend a movie, or stream a movie online. Consequently, the customers can easily substitute Redbox Company’s rentals.
Distribution
The physical distribution channels used by Redbox Company include the convenience, drug, and grocery stores. Specifically, the company distributes its video game, Blu-ray, and DVD rentals through the self-service kiosks located in different convenience, drug, and grocery stores. Among these stores include the McDonald’s, Walmart, Kroger, Winn-Dixie, Publix, Harris Teeter, and Walgreens. The company has also placed its self-service kiosks in the gas stations, for instance, Exxon Mobile. It is vital to note that Redbox’s use of different distribution channels gives it a competitive advantage over its rivals. The company provides a wide variety of locations in which the customers can physically find its self-service kiosks.
Pricing
In an attempt to attract the price-sensitive clients and facilitate faster growth rates, Redbox Company underprices its business rivals. In particular, the company charges lower prices for its rentals compared to the rival companies. Ideally, Redbox utilizes the low price strategy or low-cost pricing strategy. As earlier mentioned, the company’s business model is based on the lowest possible prices. In recent years, the company has raised its prices. According to Morgan (2014), Redbox raised its everyday rental for Blu-ray discs from 1.5 US dollars to 2 US dollars, everyday DVD rental prices from 1.2 US dollars to 1.5 US dollars, and video games from 2 US dollars to 3 US dollars.
Promotion
Redbox Company utilizes different approaches in promoting its rentals for Blu-ray disks, video games, and DVD. In essence, the company advertises its rentals through the social media sites such as Twitter, Facebook, and Twitter, among others. Redbox also uses texts and its website to advertise its current deals. The company does not spend much on the advertisement as its self-service kiosks are located in the places where the anticipated clients can see them easily. As earlier mentioned, the company kiosks are located in different convenience, drug, and grocery stores as well as in gas stations. The customers visit these locations frequently. Additionally, the company utilizes public relations to keep its customers informed about the current happenings. Furthermore, Redbox uses blogging to promote its video game, Blu-ray, and DVD rentals.
Redbox Company’s attempt to meet the customer demands of speed, reasonable prices, new releases, cutting-edge technology, and convenience through its self-service kiosks gives it a competitive advantage over its business rivals. The company’s growth can be attributed to its exceptional business model. As earlier mentioned, this model is based on the lowest likely prices and new releases. The company can be described as a better futurist. The factors beyond the company’s control that affect the way it conducts its business include the political factors, technological factors, economic factors, social/cultural factors, and competition. In spite of the high competition in the DVD, game, and video rental industry, Redbox has emerged as one of the leading players. In fact, the company gives the companies such as Netflix, Hulu Plus, and Blockbuster a run for their money.
References
Cadle, J., Paul, D., & Turner, P. (2010). Business analysis techniques: 72 essential tools for success. BCS, The Chartered Institute.
Lieberman, D. (2009, August 13). DVD kiosks like Redbox have rivals seeing red. USA Today. Retrieved from http://usatoday30.usatoday.com/tech/products/2009-08-11-rental-dvd-redbox_N.htm
Morgan, R. (2014, November 25). Redbox jacks up prices by 25 percent. New York Post [New York]. Retrieved from http://nypost.com/2014/11/25/redbox-jacks-up-prices-by-25-percent/
Porter, M. (2008). The five forces that shape industry competition. Harvard Business Review, 86(1), 78-93.
Roettgers, J. (2016, March 24). Redbox Plans to Launch New Streaming Service ‘Redbox Digital’ (Exclusive). Variety. Retrieved from http://variety.com/2016/digital/news/redbox-digital-streaming-service-planned-1201738354/
