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You are an adviser to the Redbox CEO. there is a proposal to raise the price of Redbox videos to $2.00 per video rental. you must advise the CEO as to whether or not this is a good idea. Explain your reasoning and examine how this would impact Redbox competitively.You are an adviser to the Redbox CEO. there is a proposal to raise the price of Redbox videos to $2.00 per video rental. you must advise the CEO as to whether or not this is a good idea. Explain your reasoning and examine how this would impact Redbox competitively.
Expert Answer
The size of the video rental industry is shrinking. There are many competitors in the industry as well as substitute products such as digital video on demand as well as the paid movie channels. It is evident by the fact that Redbox has removed many of the video rental kiosks due to the poor sales. In the light of such market conditions, rising the price of video rentals to $2 will not be a good idea as the demand is elastic and people have alternatives.
Rather increasing the price, Redbox should:
1. Innovate and add new value added features to differentiate themselves in the market
2. Reach out to the new untapped geographical areas and get an early mover advantage
3. Bundling of the DVDs and try to increase sales so that economy of scale is achieved
4. Redefine the family entertainment with complete entertainment package
Redbox should work on above initiatives, and then increase the price for value added services.
Simply increasing the price, may shift the customer base to other competitors such as Netflix. Further, consumers can buy other substitute products such as paid channels or movie on demand or local vendors of DVD rentals.
Reference:
Despite growth of streaming, Redbox CEO sees future in DVD rentals. Retrieved from: http://www.chicagotribune.com
