Sunday, October 30, 2011

Redbox increases prices by 20%

Photo from The Christian Science Monitor

It is interesting times that we live in.  I teach "Introduction to Marketing" for Columbia University's School of Continuing Education.  For the past two semesters, I have included the Netflix case study in the course syllabus.  It was fortuitous for my students that the company made major corporate decisions while we were studying the case.    It is a great learning tool for understanding the importance of keeping a pulse on your customers and understanding the true value you provide them.

Now it's time to pay attention to Redbox' s response to the marketplace.  According the Christian Science Monitor article yesterday, Coinstar (parent company of Redbox), released a report that their quarterly earnings have nearly doubled, primarily due to the revenue increases at the 34,000+ rental kioks.  That's not surprising since consumers are still reeling from the Netflix price increase. Nearly 800,000 Netflix customers have jumped ship.  It appears that Redbox is a viable substitute for many of those consumers.

However, companies can't count on doubling earnings every quarter.  It's no doubt that the number crunchers at Redbox have run financial models that show they can earn even more by increasing their price by 20 percent, despite losing some customers in the process.  All 34,000+ kiosks will now have to change their $1 signage to $1.20 or simply remove pricing signage all together.  Twenty cents may not sound like a big increase to consumers but the leap is significant.  Repeat customers may be disenchanted with this decision and cut back on their rentals.  First time customers may not even notice or care about the price increase.  My hunch is that there will be some backlash but it may only slightly impact the growth rate of Redbox.

According to The Christian Science Monitor, "Coinstar said it ended September with a U.S. market share of nearly 35 percent compared to 33 percent for Netflix and other DVD-by-mail services. A year ago, Coinstar pegged its market share at 24 percent with Netflix and other DVD-by-mail services at nearly 36 percent."

Double digit growth in this economy is impressive.  Redbox can thank Netflix faux pas' for their increase.  I think Redbox should be more mindful to their loyal customers moving forward.  Let's hope they have a sound marketing strategy in place to develop long-term profitable relationships with those customers, and turn them into influencers to continue their double digit growth.  If I were the CMO of Redbox, I'd make sure I had an excellent referral program in place to keep Redbox fans in it for the long haul.   I would also make sure I anticipate my competitor's moves so I'm not sitting with egg on my face like many of the folks at Netflix right now.

1 comment:

Damon said...

I was fine with the price that I had before, but the content was starting to seem a bit stale, but with the increase came the news that Netflix was going to lose Starz programming in February of 2012, and that was when I cut the service off. I wasn’t going to pay extra for the same amount of programming, especially when I knew it was getting worse later on. I always used to go to Blockbuster before Netflix came along, so I thought I’d go back to them, and I am really glad I did. Recently, Blockbuster was acquired by my employer DISH Network, and they have worked to create the Blockbuster Movie Pass. It is an awesome offer for $10 a month, and its all on one bill. I get unlimited streaming to my PC or TV, as many rentals as I’d like through mail and in store, plus, since it is available to DISH Network customers I get more than 20 channels added to my lineup. I know that many had Netflix because they chose not to subscribe to TV, and both DISH and Blockbuster are working to make the Pass available for those who don’t have a TV service.

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