Ideas for
PhotoGraphics
Notes: PhotoGraphics, my current employer, is a small chain of
retail stores offering cameras, photographic services, and
movie rentals. Our biggest competitors are Ritz
Camera (camera sales),
CVS (photo finishing) and Blockbuster (movie rentals). Blockbuster eliminated
late fees for most rentals in January 2005. My employer
asked all of us for input as to how best to respond to this
aggressive move. I prepared the following business plan and
submitted it to the company's leadership.
- Why people rent movies.
- Movies used to cost $80, and
back then, it made sense for people to rent
them.
- These days, movies cost $20
or less. It's not a money issue anymore. People rent
them because they don't want a house full of movies
they rarely watch.
- Our competition
- Big retailers selling
movies. People would rather buy their favorite movies
for $20. These are the titles that customers will
return to over and over (Gladiator, Lord of The Rings,
Shrek, etc.) Most movies aren't fantastically good,
and people will still prefer to rent these.
- Blockbuster and other rental
stores. They mostly behave the way we do.
- NetFlix and On-Demand cable
movies.
- NetFlix costs $18 and has
a big selection. Customers do have to know what
they want a few days in advance; there is no
"what-are-we-in-the-mood-for-tonight"
flexibility.
- On-Demand cable costs
$50.00 a month around here. Selection is limited,
but within that limit, customers have immediacy of
choice.
- Blockbuster eliminated late
fees. They are running big ad campaigns on this. It's a
big talking point and it comes up in our video
department.
- Our customers hate "extra
night fees." There's no dressing it up. People think
late fees are a hostile, unfriendly thing we do to
extort money out of them. It doesn't matter that late
fees are mostly the customer's fault. They perceive us
as mean.
- Late fees, or fear of late
fees, is the main reason most customers bring back
their movies in a timely manner. Without late fees,
there are plenty of people who will take their sweet
old time on a movie.
- Some movies are
irreplaceable. Many classic VHS titles are no longer
in stock. If a customer keeps them out forever, that
title will never again generate income for the
store.
- Blockbuster's move will have
two effects on us.
- Short term, we'll lose
customers. People will go to Blockbuster and rent from
them.
- Long term, I think it will
raise the price Alan pays to buy movies.
- Blockbuster is a HUGE
company. They will have millions of customers
keeping their hot movies at home for a week or
more.
- Blockbuster will have to
order large quantities of hot titles to have any of
them in stock.
- When the biggest buyer of
anything doubles its demand, prices for all buyers
increase.
- Dave Walsher points out that
when Blockbuster runs out of stock of a hot movie,
customers will come to us. I say that's terrible. We
don't want to be the video store of last resort; we
want to be our customers' first choice.
- I think Blockbuster's move was
an ill-considered, panicked response to the emergence of
NetFlix and On-Demand movies. It'll hurt them badly in
the coming quarters, and they have shareholders who will
admonish them. Of course, it might take years for
corrective action, and you might not have the money and
patience to wait them out in the meantime.
- We should not drop late
fees. It smacks of "Me, too!" and we'll have to follow
suit with Blockbuster and buy huge quantities of hot
titles.
- Remember, Blockbuster didn't
do this because they wanted to. They didn't do it
because they were worried about us, either. They did
it because they needed to compete with NetFlix and
On-Demand.
- We drop late fees just
because Blockbuster did it, and we're fighting the
wrong fight.
- So what do we do?
- I think we offer a
subscription service to our customers.
- We offer a PhotoGraphics
club. Not a video club, not a photo club. A club
for the whole store. That's key.
- We charge $10 per month,
via credit card. Automatically.
- Club members can take any
two movies they want, and keep them out as long as
they like. They never have to buy the movie, they
never have to pay late fees. They can rent
additional movies ONLY when they return the ones
they have.
- Club members can get all
the free double prints they want.
- Club members pay 29 for
digital prints.
- Club members pay $5.99
for Kodak Picture-Maker enlargements.
- I think you lose money on
this, but you gain stability and reliable, steady
income.
- You also take a big step
towards getting our customers to use both sides of the
store. Movie customers become film customers. Film
customers become video customers.
- Continue to honor existing
club cards and punch cards, but stop selling
them.
$120 is the annual value of this
membership. That buys a customer 3 photo club cards and 2
12-punch video cards. If a customer came in today and bought
all those cards from you, wouldn't you be willing to give
that customer free movies and film discounts all
year?
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