Redbox Business' SWOT Analysis

Executive Summary

Redbox Automated Retail LLC was started in 2002. It started out being an experiment, funded by McDonalds, with grocery style kiosks and DVD rental kiosks. Within the first year Redbox dropped the grocery side and capitalized fully on the automated DVD vending machine rental. In 2009, Redbox became a fully owned subsidiary of Coinstar. A strategic evaluation of Redbox’s internal strengths, weaknesses, opportunities and potential threats are the bases of this marketing plan. While Redbox exhibits non-traditional marketing venues, they have proved to be successful marketing channels.

A strong focus is put upon Redbox in contracting with Verizon for the implementation of streaming movies, maintaining the low price for rentals, and the convenience of the kiosks for the busy consumer.

Environmental Analysis

Since Redbox was originally tried as a grocery and DVD rental kiosk, the transition into only the DVD rental market was relatively easy. Redbox is not only its business name; it is also its aesthetic view. It is a fully automated video and gaming rental venue that is all contained within a 12 foot square red box, hence the name.

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Redbox positions its kiosks in high-traffic areas like gas stations, grocery stores, and pharmacies. These are strategically placed for their intended target markets to have a one-stop shop on their way home from work. The idea behind it was to entice the customer to rent a movie at a store that they are frequently shopping at, without having to make another stop.

The Marketing Environment

1. Competitive forces. Redbox is in a highly competitive market.
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   They face competitors such as Netflix and Blockbuster. Redbox leads in a competitive stand out by offering quick, convenient and affordable movie rentals. A Blu-Ray movie rents for $1.50 per day and a regular DVD movie rental is $1.20 per day. The Redbox network is nationwide and offers more than 30,000 convenient locations. (4) Blockbuster Express recently joined the kiosk movie rental market which led them to be a direct competitor to Redbox. They also have a leg up on Netflix as Redbox doesn’t require monthly contracts, which is highly appealing to the casual movie viewer.

2. Economic forces. With the present state of the economy, Redbox flourished when the demand for cheaper movie rentals increased. When the Blockbuster brick-and-mortar stores were forced to close, Redbox rentals jumped up 28% from 2010 to 2011. (1)
3. Political forces. There are no foreseen political forces that can alter Redbox’s operations.
4. Legal and regulatory forces. There are several laws and regulations that Redbox should abide by. But with Redbox being in a self-serve kiosk, it can make some of these laws and regulations harder to enforce. The Motion Picture Association of America sets the ratings on movies, and no one under the age of 17 can rent a rated R movie. Redbox does require age verification before renting the R-rated movie(s). The Federal Copyright Act “governs how the copyrighted material, such as movies, may be used”. (2) A rented or purchased movie doesn’t issue the right to show the movie outside one’s home unless that site carries a license for public exhibition. The Video Privacy Protection Act “prevents disclosure of personally identifiable rental records” without the written consent of the consumer. (3) The Entertainment Merchants Association regulates the industry for renting DVD’s and/or video games. “They protect the right to sell, rent, and/or promote the sale and rental of entertainment products and content”. (5)
5. Technological forces. With technology always increasing and new products are always being introduced, Redbox will undoubtedly be affected by technological advances. Consumers’ interest in renting physical movies will be on a decline with companies like XFinity offering the ability to stream movies online and watch them on any screen. Hollywood studios are also putting tighter reigns on places like Redbox. They are trying to delay the rental time frame from when DVDs are released to when they are available for rental. By trying to do so, they believe that it allows the consumer a chance to buy the movie before it becomes available for rent. And the studios receive a higher cut off of sales verses rentals.
6. Sociocultural forces. Today’s fast-paced society allows for less leisure time. Consumers are looking for convenience and easy to use products. Redbox offers a convenient service that allows renters to be able to rent-and-return anywhere at any kiosk. Customers can also reserve a movie online or via mobile apps and pick up at the nearest Redbox location (4).

Target Market(s)

Redbox has three main target market segments, the casual viewer, the family viewer, and the non-web savvy person. For first target market segment, Redbox markets towards the casual viewer. They have a policy of no monthly contract fees unlike their competitor, Netflix, who enforces a monthly fee. The casual viewer doesn’t rent enough movies or games to justify the fee. The casual viewer appreciates the ease and convenience of the locations of the Redbox. While Blockbuster also targets the casual viewer, Redbox is more appealing due to the inexpensive cost to rent a movie.

The second target segment is the family viewer. Redbox positions itself in convenient locations for the ease of renting for the busy mom or dad. They can stop off at the grocery store or gas station on the way home from work and also pick up entertainment for the whole family, without having to make another stop.

And the third target segment is the non-web savvy person. Netflix requires the use of the Internet to be able to rent movies. For those who either don’t have the technology available or those who are insecure of using a bank account or credit card number online, Netflix is not appealing. And with the focus Netflix on streaming movies online, they are pushing aside the lower income bracket who can’t afford the technology or those who don’t understand the technological lingo required for the streaming usage. That is where Redbox steps in and will capitalize on such consumers.

Consumers are being forced to move from the brick-and-mortar stores to another venue of renting movies. With Redbox’s kiosks being user friendly and convenient, many of those consumers are trending towards the use of kiosks. Also the opportunity is becoming available for Redbox to take those valued consumers who are technologically savvy and offer them the option to stream videos online.

Current Marketing Objectives and Performance

Redbox’s current marketing objectives are to drive performance. They want to continue to drive customer loyalty, continue to engage their customers and grow profitability. By engaging their customers, Redbox is always looking to make the rental process more efficient and effective. They have installed several technology upgrades into the kiosks that will shorten the rental time frame by 20-30 seconds. They are continuously working on the most convenient locations and placements of the kiosks to drive their performance and grow profitability.

Since 2002, Redbox has at least doubled, if not tripled, their revenue for seven years in a row. They distribute over 37 million disks to their field employees to install in the kiosks per year. Thousands of kiosks are installed every year. They have been able to build the infrastructure of the business to grow with the changing times, to keep up with the customer demands, and to grow their customer base into loyal customers.

SWOT Analysis

Strengths

1. Over 30,000 convenient locations nationwide
2. No monthly membership fees
3. Rent-and-return anywhere policy
4. Offers cheaper rental prices, $1.20/night, than its competitors
5. Largest DVD-rental kiosks operator

Weaknesses

1. Limited access to titles, mostly new releases, and the schedule of release date depends upon the studio, not Redbox
2. Increased costs for DVD acquisitions due to Warner’s discontinued relationship with Redbox (9)
3. Marketing communication channels rarely used
4. Only accepts Debit or Credit Cards for methods of payment
5. Lacking web management in monitoring code sharing websites that allows for free rentals

Opportunities

1. Tap into the market of streaming movies online
2. Now offers video game rentals at a relatively cheap price, $2/night
3. Mobile applications for IPhone and Droid for yet another ease of renting
4. $7 billion industry, in 2011, according to IBIS World

Threats

1. Stiff competition with Netflix, Blockbuster Express, and Amazon
2. Websites like Hulu offering movies free of charge via the internet
3. Strained relationship with Warner Brothers by not accepting their terms of a 56 day waiting period to release new releases, resulting in increased costs for Redbox acquiring Warner Brother films (9)
4. Movie studio lawsuits stating they were only making 60 cents on new release movie rentals from Redbox, whereas they make $17 per sale of DVD at Wal-Mart. (9)

Marketing Objectives

Unlike their major competitor Netflix, Redbox is not a big advertiser. Redbox mainly uses its internet website, in store cross-promotions, and their strategic placement of their red kiosks. On www.redbox.com, they showcase their movie and video game inventory and all their locations of their kiosks. One can also reserve the movies or games on the website and pick it up at the nearest kiosk location. It is a very simple, yet effective website.

Redbox uses the placement of their eye-catching, red colored box as part of their marketing campaigns. They are strategically placed in high traffic areas and four wall stores. CFO Scott Di Valerio states that “Coinstar wants to be the leader of automated retail”. (14)

Redbox also uses in store cross-promotions. Take the Orville Redenbacher’s promo, for example, on special marked popcorn boxes; there is a promo code for two free Redbox rentals, a coupon for a free 2-liter bottle of soda and a coupon for Orville’s poppycock popcorn. (15) Everyone associates movies and popcorn together so by running this cross-promotion, it brings new customers to Redbox and be able to experience the ease and convenience of usage. It has made family movie night just a little better.

Marketing Strategies

Target Market(s)

Redbox uses the strategy “Think big, start small, scale fast.” All of the opportunities that Redbox reviews and pursues are in big spaces. They also look at new ventures who can realistically reach $100million in revenue in an allotted time frame. But before those big opportunities can be obtained, they need to start small. They believe in the right environment, which includes a small team, a few resources and time to hash over the details, so they can get to a point to accurately scale each venture. When that point is reached, Gregg Kaplan, Constar’s COO, says “It’s like unleashing the wonderful benefit that Redbox and Coinstar teams and the full organization can take against these opportunities.” (6)

Redbox are placing more kiosks in more convenient places in hoping to increase more brand awareness, which is especially critical since they don’t spend much on advertising means. Mobile applications for iPhone and Droid are becoming intensely popular. The application will display a map of all the kiosks available in the area and also allows the viewing of what DVDs that kiosk has available. One can also reserve the movie via the mobile application and pick up at the nearest kiosk.

Marketing Mix

1. Product. Redbox is the leader in DVD rentals, renting more than 1.5 billion discs to date, in over 30,000 locations. They boast on the fact that Redbox kiosks are available, within a five minute drive, to more than 68% of Americans. (4) And their rent-and-return anywhere policy makes Redbox an undisputable convenient place to rent moves. It is also possible to purchase the DVD at the kiosks or online at Redbox.com.
2. Price. The price to rent a DVD from a Redbox kiosk is astronomically cheap. It costs $1.20 to rent movies, including new releases, and $2.00 for video games. The rental period lasts until 9pm the night following the rental purchase. For each additional day you keep the movie, you are charged the rental fee plus tax per day. If you happen to hold the DVD for 20 days, you are charged $24 plus tax, $34.50 for Blu-Rays, or $60 for video games and the disc becomes yours. (4) These cheap prices have caused a strained relationship with the movie studios in Hollywood. They only earn $.60 per movie rental, where as they earn $17 per DVD sale, no matter the selling price.
3. Distribution. Redbox installs their kiosks in convenient, easy to access places, such as grocery stores, drug stores, restaurants, convenience stores, and large retailers like Wal-Mart. According to Coinstar’s 2011 10-K report, they have 35,400 kiosks available nationwide, each holding about 630 disks. (11) They are available in every state, including Puerto Rico. The kiosk is like the traditional brick-and-mortar video rental store, but only occupies up 12 square feet. Consumers access the movie database via a touch screen, make their selection(s), swipe their credit/debit card, and receive the DVD or video game(s). It is meant to be a quick, efficient and fully automated rental process. The kiosk scans the bar codes of the movies or games to keep track of its inventory. Bar code scanning allows them to track the rentals and the returns easily, especially when they offer the rent-and-return anywhere policy.
4. Promotion. Redbox sends promo codes to individuals who have signed up to receive emails. They also send promo codes via text messages. Those test messages results in a free rental once per month. Another promo Redbox offers are gift cards via email that gives the recipient a code for a free rental. In 2009, Redbox added a free mobile application for iPhone users and in 2011 they made the application available for Android users. The application allows users to sort through the available titles, find a kiosk location, and reserve a movie all from a smartphone.