Question

Outline the process Blockbuster was using for risk management. How could the process Blockbuster was using have been improved?

Answer 1

Blockbuster was a provider of home movie and video game through video rental shops. It was atop the video retail rental industry in the 90s and early 2000. It dominated the competition with thousands of retail locations, millions of customers, massive marketing budgets and an efficient operational line. As a measure to mitigate any risk in serving more customers or any hit to the revenue numbers due to delays in return of the physical copy of the videos, it had a clear and quite strict customer late fees, that is it charged customers for not returning the copies within the stipulated period of the rent. It was observed that and enormous amount of money was coming in as revenue for Blockbuster due to this late customer fees. However, despite the growth of the technology sector throughout the American landscape, Blockbuster did not incorporate any aspects of technology into their scheme of operations. No efforts were made to recast the existing business model with the changing trends of the market. This is where the greatest risk lay and unfortunately no mitigation activity was taken up in this direction.

The harsh reality was that the high revenues coming in by charging its customers late fees was actually its Achilles heel. The company were highly dependent on penalizing its patrons rather than looking at delivering value to the customers in a better way with the application of a disruptive technology. This is where the process needed and improvement, the focus would have been to improve customer experience but instead Blockbuster looked at the late fees as a risk mitigating factor and became overly dependent on the same. At that instant, Netflix came in as a disruptor as it eschewed retail locations, lowering its cost and offering its customers a greater variety through delivery on a digital platform. It adopted the subscription model, which also avoided customers paying unnecessary late fees. Thus customers could watch videos as long as they wished to, this is what Blockbuster could have focused on instead of enjoying the dividends coming in through the late fees.