THE DEMISE OF BLOCKBUSTER
1
Case Study: The Demise of Blockbuster
Kelli Ware
School of Business, Liberty University
Introduction
Supply chain management success is achieved when customer value perception is
exceeded and there is a surplus within every aspect of the supply chain (Chopra, 2018). Pivotal
to achieving this success are the decisions made throughout the supply chain and the concept
of strategic fit which entails complete comprehension of consumer needs and supply chain
capabilities along with balancing uncertainty (Chopra, 2018). Supply chain operations face
uncertainty from a myriad of sources stemming from socio-political disruptions such as
THE DEMISE OF BLOCKBUSTER
2
increased tariffs which ultimately increases prices to something as seemingly minor as a
breakdown in communication. Strategic alignment is imperative to build resilience within the
supply network to ensure uncertainty and disruptions do not compromise operations. As
outlined by Chopra (2018), achieving strategic fit necessitates the alignment of an intentionally
integrated supply chain design, advanced inventory management, and standard procedures that
allow for swift responsiveness and promotes operational efficiency. A recent study performed by
Kumar et al. (2022) highlights the criticality of this alignment, disclosing that companies with
wellorchestrated supply chain operations are better able to navigate disturbances and continue
deliver superior customer value. This case study analyzes through the lens of strategic fit how
Blockbuster Video rose to invincibility in the early 1990s and fell to its ultimate demise in the
early 2000s by succumbing to companies such as Netflix and Redbox.
Ways in Which Blockbuster Achieve Better Strategic Fit Than Local Stores
Strategic fit is an ever-shifting process that requires perpetual realignment to meet
market dynamics and respond to uncertainty (Kumar et al., 2022) According to Chopra (2018),
distinct from local video retailers, Blockbuster was able to achieve a more superior strategic fit
because of its brand recognition, brand loyalty, massive inventory of available titles, and each
location’s ability to customize its inventory to meet the demands of local consumers. By
leveraging economies of scale, Blockbuster was able to increase its global operations to more
than thirtyfour hundred retail locations that stayed open year-round, offered a wide variety of
video formats such as VHS, DVD, and stayed up to date on newly released films (Chopra, 2018).
Blockbuster was able leverage its size to manage various quantities without needing longer lead
times and expand its operation capabilities to ensure the needs of their consumers were met
(Kumar et al., 2022). While enhanced responsiveness can have negative implications on supply
chain costs, (Kumar et al., 2022), Blockbuster was able to balance the tradeoff between fiscal
efficiency and responsiveness.
THE DEMISE OF BLOCKBUSTER
3
Implied Uncertainty Netflix and Redbox Faced and How they Overcame It
Supply chain uncertainty can be tied to the actual supply, the performance of members
of the supply chain, consumer demand, and natural disasters; all of which have the potential to
disrupt supply chain efficiency (Bendoly et al., 2022). Tied to the rapid expansion of both Netflix
and Redbox even with the success of their operations, both video retailers faced implied
uncertainties due to their heavy reliance on external entities as part of their supply chain
operations. Netflix’s implied uncertainty flowed from its mail-order model that required them to
heavily rely on the United States Postal Service to deliver rental merchandise to its customer,
shipping out millions of DVDs daily (Chopra, 2018). Any disruption in the Postal Service’s ability
to deliver DVDs would most certainly cause uncertainty. Additionally, demand uncertainty posed
negative implications in forecasting movie recommendations (Chopra, 2018). Redbox’s implied
uncertainty centered on location specific demand variation which had the potential to impact
inventory decisions which could result in financial uncertainty in addition to inventory
limitations imposed by its kiosk-based model limiting how many DVDs could be rented (Chopra,
2018).
Netflix overcame its supply chain uncertainties by using their sixty centrally located
distribution centers to ensure that customer orders were fulfilled by a distribution center closest
to their location (Chopra, 2018). Moreover, the streaming company developed and deployed an
algorithm called CineMatch in 2000 that analyzed consumer rental patterns which provided
realtime data that improved movie recommendations and increased rental rates (De Zilwa,
2023). Redbox was able to overcome demand uncertainty by leveraging its popularity to create
partnerships with local high-traffic retailers such as 7-Eleven, Walgreens, and McDonalds to
increase kiosk installations and the company increased financial certainty by offering the
purchase previously viewed DVDs at a low price (Chopra, 2018).
THE DEMISE OF BLOCKBUSTER
4
How Netflix and Redbox Achieved a Better Strategic Fit Than Blockbuster
A major factor in Netflix and Redbox’s ability to achieve a better strategic fit than
Blockbuster was their ability to manage the bargaining power of consumer demand which
increases as supplier performance decreases (Chang et al., 2021). While Blockbuster’s elevated
level of responsiveness during its prime was favored by its consumers, the increase in
responsiveness also increased operational requirements and costs (Kumar et al., 2022). In a
study performed by Chang et al. (2021), the researchers found that companies who align their
strategies to meet consumer value demands promotes partnerships between the supplier and
the consumer which results in a strategic. Both Redbox and Netflix implemented operational
agility that allowed them to shift their objectives to align with consumer demand for more
digital content allowing them to achieve a better strategic fit while Blockbuster stuck to its
original operating model which led to their decline and ultimate demise (Chopra, 2018). Netflix’s
subscription-based service model along with their patented recommendation algorithm secured
their strategic fit and positioned them to pivot to content streaming in 2007 creating avenues
for on-demand content consumption (Chopra, 2018 & De Zilwa, 2023). Redbox’s low-cost kiosks
created minimal overhead costs compared to Blockbuster along with their low-cost rental
without late fees allowed Redbox to secure a competitive edge over Blockbuster (Chopra, 2018).
The company was also able to balance responsiveness and cost efficiencies by leveraging
Blockbuster’s localized inventory model while eliminating the need for staff and stores (Kumar
et al., 2022).
Conclusion
In conclusion, this case study emphasizes the cruciality of the role strategic fit plays in
supply chain management. Aligning supply chain operations with ever-changing consumer
desires and socio-political dynamics is paramount for the sustainable success of any company
and was evident in the analysis of Blockbuster, Netflix, and Redbox. Blockbuster’s initial market
THE DEMISE OF BLOCKBUSTER
5
domination resulted from its leveraging economies of scale, robust and locally customized
inventory allowing it to surpass local video retailers. However, its rigid loyalty to its original
operating model caused the video giant to fail in adapting to progressing consumer content
consumption preferences causing them to lag behind its main competitors Redbox and Netflix.
Kancs (2023) argues that uncertainty caused by emerging technologies weakens resilience and
increases vulnerability in the supply chain and diminishes strategic fit if a company does not
adjust to the changes technology presents. This is evident by the contrasting fates of
Blockbuster’s global operation and the continued success of Netflix and Redbox.
References
Bendoly, E., Boyer, K., Craig, N., & Paul, S. (2022). Pulled in opposite directions: A joint
consideration of supply and demand uncertainty in supply chain decision making. ‐
Journal of Business Logistics, 43(4), 448–471. https://doi.org/10.1111/jbl.12315
Chang, H., Liu, S., & Mashruwala, R. (2021). Customer bargaining power, strategic fit, and
supplier performance. Production and Operations Management, 31(4), 1492–1509.
https://doi.org/10.1111/poms.13627
Chopra, S. (2018). Supply Chain Management (7th ed.). Pearson Education.
https://libertyonline.vitalsource.com/books/9780134732459
De Zilwa, D. K. (2023). Netflix: rise, fall and recovery. Journal of Business Strategy, 45(6),
405–413. https://doi.org/10.1108/jbs-08-2023-0177
Kancs, D. (2023). Uncertainty of supply chains: Risk and ambiguity. World Economy, 47(5),
2009–2033. https://doi.org/10.1111/twec.13534
Kumar, A., Shrivastav, S. K., & Bhattacharyya, S. (2022). Measuring strategic fit using big data
analytics in the automotive supply chain: a data source triangulation-based research.
International Journal of Productivity and Performance Management, 72(10), 2977–2999.
https://doi.org/10.1108/ijppm-11-2021-0672
Powered by TCPDF (www.tcpdf.org)
