Blockbuster's Boomerang: Thinking Outside The Clamshell Case

Blockbuster and its franchisees are struggling to overcome the confusion created by the company's recent PR and advertising blitz promising "the end of late fees."

In practice, it seems that customers who keep a movie or game out longer than eight days suddenly own the rental, and Blockbuster bills their credit card for the purchase price. Customers can then reverse this charge by returning the item in person for a refund, minus a restocking charge. Hmmm; is this situation really fee-free?

Blockbuster is working hard to survive the Netflix challenge. With its DVD-only, online ordering, mail-delivery-and-return model, Netflix needs no physical showroom or in-store staff. It's a lean, clean, just-in-time approach. Netflix is effectively leveraging opportunities tied to the Web and digital film storage that weren't around when Blockbuster began. In fact, Blockbuster Online is now matching the Netflix model, positioning itself as "The Movies Store At Your Door."

A Blockbuster store franchisee, by contrast, cannot afford to have his or her entire inventory out indefinitely—a real risk if customers are free to "borrow" an item permanently, with no incentive to return it. To address this concern, Blockbuster stores are now giving customers a "Frequently Asked Questions," brochure which includes the following unusual discussion:

Q. Aren't you worried that you won't have enough movies and games if everyone keeps rentals longer?

A. Yes, we are very worried. We will be carefully monitoring the movie and game selection to make sure we maintain our current levels of product availability for you. However, it's in everyone's best interest to return their rentals by the due date, even with the end of late fees, to ensure that we have the movies and games you want to rent, available when you want them.

The no-late fees gambit makes sense when customers select "inventory" online and the business can control the flow and routing based on availability and user preferences. For a physical storefront, though, customers won't be as understanding if they schlep to the store only to find that all of their desired selections are unavailable.

The issue facing Blockbuster stores is similar to that facing record stores and book stores. When a global online outlet can beat you on availability, price, convenience, and information (reviews, sound or movie clips, recommendations), how do you keep your local storefront business alive? What ground is left for you to stand on and compete? The only answer I know of is to innovate through the in-store customer experience.

Today, many people feel technology-rich and conversation-poor. As phenomena such as Meetups demonstrate, people are delighted with any excuse to come out from behind their computer screens and rub shoulders with other human beings. Bricks and mortar stores can benefit greatly from tapping into this cultural dynamic.

Blockbuster franchisees, for example, would be better served finding ways to import more of the movie-buff culture into their stores. Take a back room and show locally made documentaries there. Provide in-store computer kiosks linking to movie reviews and databases. Host a weekly movie discussion group.

In short, create an atmosphere that's richer, more informed, more interactive, and more social than simply ordering a DVD or video-on-demand from your living room. Instead of the end of late fees, how about the beginning of an exciting new community where movie buffs can browse, shop, share, and explore?