STRATEGIC FIT IN A SUPPLY CHAIN 2
Abstract
Most businesses design their competitive strategy, relative to other competitors, through their
products and services by aiming to meet and exceed the needs of their customers. A thorough
analysis of the supply chain strategies of movie rental businesses was conducted to determine
whether the supply chain capabilities of these entities had the ability to satisfy the needs of
targeted customers. To thoroughly understand how vital supply chain is crucial to the survival of
businesses, the case study compared Blockbuster, a movie rental business with a first-mover
advantage to Netflix and Coinstar. Although Blockbuster was extremely successful in the movie
rental industry for more than a decade, the competitive strategy of Netflix and Coinstar plunged
Blockbuster into bankruptcy. This paper aims to discuss the practical implications of the findings
for interpretation of supply chain and the role strategic fit plays in the ultimate goal of every
business- survival.
Keywords: competitive strategy, supply chain, strategic fit
STRATEGIC FIT IN A SUPPLY CHAIN 3
Comparison of Strategic Fit between Blockbuster and Local Stores
Businesses in the manufacturing and service industries in the modern day
business landscape must remain competitive to achieve the ultimate goal of survival.
Competitive strategy is the ability of businesses to satisfy, and in addition exceed the needs of
customers through its products and services (Chopra, 2019). For example, Target positions itself
as a retailer of variety of reasonable quality products for prices lesser than other retailing
competitors. However, bridging the gap between competitive strategy and supply chain by
achieving a strategic fit renders businesses more efficient and competitive. A strategic fit ensures
that the capabilities of a supply chain of a business is supportive of the ability to satisfy the needs
of targeted customer fragmentations (Chopra, 2019). Blockbuster had a strategic fit that was
quite different from local stores.
While local stores typically focused on a smaller selection of movies and relied on
customer loyalty and recommendations, Blockbuster aimed to provide a wide range of movie
options and convenience through its large stores and extensive inventory. Soni and Kodali (2011)
analyzed the interaction effect between competitive strategy and supply chain strategy in the
Indian manufacturing industry and found out that the existence of a strategic fit positioned
businesses properly in understanding customer and supply chain uncertainty, variety of products
and services needed, and service level required. Similarly, Blockbuster’s strategic fit was based
on the concept of offering a one-stop shop for movie rentals. They had a vast selection of
movies, including new releases, classics, and niche genres, which local stores often couldn’t
match. In addition, Blockbuster also invested heavily in technology, such as computerized
inventory systems and membership cards, to enhance the customer experience.
STRATEGIC FIT IN A SUPPLY CHAIN 4
The concept of late fees introduced by Blockbuster was a significant departure from the
practices of local stores. This strategy aimed to encourage customers to return movies promptly
and generate additional income. However, it also became a point of contention for customers and
eventually contributed to a decline in the strategic fit of Blockbuster.
Implied Uncertainty Faced by Netflix and Redbox and levers used to address uncertainty
Chopra (2019) distinguishes between demand uncertainty and implied uncertainty
imposed on the supply chain by the uncertainty for customer demand for a product which
constitute the former, and by the resulting uncertainty for only the portion of the demand that the
supply chain plans to satisfy based on the attributes the customer desires, which embodies the
latter. For example, in an implied demand uncertainty, a sudden surge in popularity of a
particular genre or a new trend can lead to fluctuations in demand. However, demand uncertainty
would include forecasting demand accurately is a challenge for both Netflix and Redbox. The
dynamic nature of the entertainment industry and the constantly changing customer preferences
make it difficult to predict demand accurately. Netflix and Redbox, not having the first-mover
advantage the likes of Blockbuster had, were faced with implied uncertainty in relation to a shift
in consumer behavior and technological advancements. Both companies operate in the digital
streaming and rental market, which has seen significant changes in recent years. One major
uncertainty is the rapid growth of online streaming services and the increasing popularity of
subscription-based models. This shift has led to a decline in physical DVD rentals, which was the
primary business model for both Netflix and Redbox. The uncertainty lies in how quickly and
effectively they can adapt to this changing landscape.
Chopra (2019) mentions levers such as capacity, inventory, time, information, and price
to deal with implied uncertainty in supply chain. Netflix and Redbox have invested in building
STRATEGIC FIT IN A SUPPLY CHAIN 5
and expanding their digital streaming platforms to increase their capacity to deliver content to a
large number of subscribers. This allows them to meet the growing demand for online streaming
services and ensures that they can handle fluctuations in user traffic. In addition, the both entities
manage their inventory of movies and TV shows by securing licensing agreements with content
providers and studios. By having a diverse and extensive inventory, they can offer a wide range
of content to their subscribers, reducing the risk of content shortages and meeting customer
preferences. In the age of technological advancements, the utilization of data analytics to
optimize their supply chain processes and reduce lead times. Algorithms to predict customer
demand and plan their content acquisition and distribution accordingly are advantageous to both
parties. This helps them minimize the time it takes to deliver content to subscribers and ensures a
seamless user experience.
Netflix and Redbox gather and analyze vast amounts of data on customer preferences,
viewing habits, and content performance. This information is used to make informed decisions
about content acquisition, production, and distribution. By leveraging data-driven insights,
businesses can better understand customer needs and preferences, reducing uncertainty in their
supply chains (Carr & Owens, 2012). Both companies use pricing strategies to manage
uncertainty in their supply chains. Netflix offers different subscription plans at different price
points, allowing customers to choose the option that best suits their needs and budget. On the
other hand, Redbox offers rental options at affordable prices, appealing to cost-conscious
customers. By offering flexible pricing options, they can attract and retain customers in a
competitive market.
Strategic Fit Adopted by Netflix and Redbox Compared to That of Blockbuster
STRATEGIC FIT IN A SUPPLY CHAIN 6
Strategic fit in the supply chain enables the manufacturer to have better visibility and
control over its supply chain operations (Soni & Kodali, 2011). This includes having real-time
information on inventory levels, production schedules, and demand forecasts. With this
information, the service provider can make more informed decisions and respond quickly to
changes in customer demand or market conditions. Netflix and Redbox both embraced the digital
revolution and capitalized on the growing trends of online streaming and DVD rental kiosks,
respectively. They focused on providing convenient and accessible rental services through new
technology. In contrast, Blockbuster remained heavily reliant on its traditional brick-and-mortar
stores and late fees, failing to adapt to changing consumer preferences. Netflix's strategic fit
revolved around providing a subscription-based model with no late fees and unlimited rentals
mailed directly to customers' homes. Redbox offered low-cost, self-service rental kiosks placed
in convenient locations like grocery stores, making rentals accessible and hassle-free.
Blockbuster, on the other hand, required customers to visit physical stores and faced criticism for
its excessive late fees.
Conclusion
From a supply chain perspective, the demise of Blockbuster highlights the importance of
adaptability and staying ahead of industry changes. Blockbuster failed to recognize or respond to
the shifting consumer preferences towards online streaming and DVD-by-mail services, leading
to their downfall. The lesson here is that companies need to constantly monitor market trends, be
willing to experiment with new technologies and delivery methods, and adjust their supply chain
strategies accordingly. In terms of strategic fit, Blockbuster's downfall emphasizes the
significance of customer-centricity and understanding the changing needs and expectations of the
target market. Blockbuster focused heavily on their brick-and-mortar stores and late fee policies,
STRATEGIC FIT IN A SUPPLY CHAIN 7
which did not align with the evolving preferences of customers who sought convenience and
flexibility. The lesson learned is that businesses must continuously assess the strategic fit
between their offerings and customer demands, adapting their strategies to ensure they deliver
value in line with market trends. Regarding competitive strategy, the demise of Blockbuster
teaches the importance of differentiation and diversification. Blockbuster faced increasing
competition from Netflix, which offered a convenient DVD-by-mail service, followed by an
innovative streaming platform. Blockbuster failed to differentiate themselves adequately and did
not innovate swiftly enough to stay competitive. The lesson here is that companies need to
constantly evaluate their competitive position and invest in differentiating their offerings to meet
changing customer needs and outpace competitors.
STRATEGIC FIT IN A SUPPLY CHAIN 8
References
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Management, 30(3), 821-844. https://doi.org/10.1108/IJLM-03-2018-0068
Soni, G., & Kodali, R. (2011). The strategic fit between "competitive strategy" and "supply chain
strategy" in indian manufacturing industry: An empirical approach. Measuring Business
Excellence, 15(2), 70-89. https://doi.org/10.1108/13683041111131637
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