Now Playing: Late Fees at Blockbuster
By George Anderson
The experiment with no late fees is over for some Blockbuster franchisees. Stores in Arkansas, Alabama, Mississippi and Tennessee have reinstated late fees on movie rentals when the stores found out they were running higher rates of out-of-stocks on popular titles.
Tom Barzizza, vice president of Flicks Management Inc., which owns 30 Blockbuster franchises, told The Associated Press, “Our business is all about availability. If somebody keeps a new release that’s in high demand out for two weeks, that means it’s not there for someone else to rent.
“With the lack of any kind of late-fee structure, the movies weren’t coming back. Customers would come in and there wouldn’t be any movies for them to rent,” he said.
Some customers at Flicks Management stores contend they were not notified about the policy change.
Randy Hargrove, a spokesperson for Blockbuster Inc., said many other franchised stores and all the corporately owned locations will continue to keep the no late fees policy in place.
“What we have said is that the ‘no late fees’ program requires an initial loss of revenue because people are keeping the product out longer,” he said. “Some of our franchisees can’t afford this investment. It’s an expensive program.”
Flicks Management’s Barzizza said the stores run by his company are being flexible with customers when it comes to imposing late fees.
Moderator’s Comment: What impact, if any, does the decision by some franchisees to not participate in the ‘no late fee’ program have on Blockbuster as
a whole? Are late fees a competitive disadvantage in the current movie/game rental marketplace? –
George Anderson – Moderator
In the UK there is a great deal of competition amongst postal DVD rental companies. Apart from towns, frequently obtaining a DVD through a shop is not so easy because they are not very conveniently located. The postal company I use provides an excellent service and doesn’t charge late fees. With so much choice and competition, I would drop anyone who tried to charge late fees and take my business somewhere else.
I’ve been a Netflix member for a few years, and at first was pleasantly stunned by their responsiveness and speed. New movies often arrived just two days after I mailed the used ones back, and customer service emails were easy to send and were responded to in a day or so. Lately, however, new movies often take a week to arrive, some movies never arrive and are somehow returned without my ever seeing them, they hide their customer service email address, and I’ve now been waiting for responses to four customer service emails dating back over a month.
This is an opportunity for Blockbuster, whose franchisee rebellion leaves it with several business models. I say go with it, and allow customers a choice of business models. Some will prefer the Netflix model. Others will prefer automatic credit card billing with the flexibility to pick up and drop off movies in a store location. Still others will prefer paying a store directly for a monthly subscription (with cash), and some will prefer the old, standard model with late fees. These last two models are for those without credit cards, debit cards, bank accounts, or constant local addresses, which comprise a growing percentage of Blockbuster’s current customer base.
Plus, Blockbuster has a huge opportunity to grab some Netflix business by simply providing good customer service.
I agree with those who argue for brand consistency. Having grown up in a McDonald’s franchise as a business person, I experienced first hand the valule and efficiency of a well crafted and controlled franchisee program. Of course, the world has changed in the past 25 years, and I no longer see such consistency and executional excellence in my alma mater.
Blockbuster is indeed faced with a transition of the fundamental issues of it’s business model. The store is and always will be simply a delivery mechanism for pre-packaged entertainment. Intelligently stocking games for popular platforms was one form of acknowledging this. However, the digital age is changing the landscape even further. Here’s the rub: not charging late fees is an unsustainable business model over the long run, unless the cost per title is reduced below it’s existing level. The exec’s at Blockbuster know this. They can do the math. The move was marketing based, and supported by wish fulfillment with regard to the average length of check out. They made some assumptions. The actions of the franchisee group is indicative of the errors in those assumptions.
OK, having said all that, it is also true that the check-out-with-punitive-fees business model is also not sustainable. Too much economic room is generated, creating too much incentive for alternative distribution methods to gain widespread acceptance. I kept a book out of the library for two weeks late…it cost me $1.40. Not sufficient to motivate me to buy the book instead. Two DAYS late on a Blockbuster title with late fees is way more than that. Quite sufficient for me to explore alternatives in renting entertainment.
Blockbuster needs to BE their own successor. Neither approach in use now is sustainable. Invent your own demise. Before someone does it for you. And variations on the Netflix theme is probably not going to get the job done.
This is going to be a problem in neighborhoods where residents have personal responsibility issues, so franchisees need flexibility. Just like when some grocery stores put up large concrete posts to keep shopping carts from leaving the store – they usually only do that in difficult areas. One size does not fit all, even in video rentals.
If people want to keep movies for a week, go to the local library. The libraries in our county-wide system get several copies of all the new movies, let you keep them a week, and it’s all free.
Except for inconsistencies in their advertising, having some stores charge late fees, and others not charge them, is indicative of the managers at the store level knowing their customers better than the corporate owners. Blockbuster is trying to position their model like a Netflix model which charges a monthly fee and limits the number of rentals (but you can keep them out as long as you want). However, this clearly doesn’t work when you are dealing with the tendency for people to forget to return a borrowed item, regardless of the reason. This is why libraries have charged late fees and limited the time you can check out a book. Trying to change this human tendency does not make sense. Trying to override the dynamics of your franchisees, who know their customers better than anyone, is a poor business decision. Blockbuster needs to listen to their franchisees, and change their corporate policy.
I believe that Blockbuster initiated the “no late charge” fees without getting adequate input for their franchise community. This was a marketing tactic that was in response to the black eye that Blockbuster received when the courts found their late fees were excessive and that Blockbuster’s punitive fees were often in excess of the value of the rental material.
Blockbuster would seem to run their organization like the town bully. Push their customers around, push their franchise community around. Now, competition is pushing Blockbuster around and the operators of retail locations are facing increased operating expense from having to maintain excessive inventory due to the No Late Fee policy.
The revolution began in my area days after this policy was initiated as our franchise posted signs on his front doors indicating that his store charged late fees and would continue to charge late fees.
Blockbuster is suffering from management that jumps from one silver bullet to another. They don’t seem to be interested in working to build relations with their franchise operators or customers – just implementing quick solutions.
I am a blockbuster member and use their on line delivery service. Imagine my reaction when I got an email from Blockbuster asking me to load thirty movies in my queue! This is indicative of their problem. They want me to load up my queue so they don’t have to “work too hard” providing service for their customer. It would seem that if I only pick movies that I am interested in seeing that it strains their system. Instead of solving the problem by keeping adequate inventory they insist that you put movies in your queue so that they will have the ability to ship you something. You do understand that the CUSTOMER IS the problem.
With this attitude Blockbuster is a poor bet for investors and franchised operators.
Surprising, to say the least. Considering all of the news coverage good and bad they received when they put in place their no late-fee plan you’d think they would stick with it a lot longer than just a year. Unfortunately, this move by some franchisees can only serve to hurt the entire business. I’m sure in time the national media will pick up the story and, in the end, Blockbuster will look bad. This move speaks to the need for companies to have very tight controls over what they franchisees can and cannot do.
From a customer’s perspective, this is inconsistent. One store has late fees and the other does not. Shouldn’t the company have addressed the painfully obvious situation of out-of-stock titles before the program was rolled out? Giving people a free pass to keep a movie simply means people will not bring the movies back on time. I don’t think this program was properly developed. If the company anticipated customers keeping the product out longer, wouldn’t you think the company would also have planned on raising inventory levels on newer titles? It’s increasing expenses in that regard but keeping customers satisfied in another. Availability equals revenue. If the functionality of this program is affecting franchisees, it must also be hitting the corporation where it hurts the most. Bottom line.
Blockbuster is struggling with the decline of its industry. Movie rental stores have profit and sales problems due to the growing popularity of cable and satellite TV, video on demand, Netflix and its competitors, and discount prices for title purchases. Late fees help protect margins, but generate customer dissatisfaction. It might be worthwhile for the company to simply phone their late customers, giving them a short grace period, before charging late fees. This could be done by the employees during slack times of the day, or it could be done by automated call systems using readily available software. The big problem is that customers have a right to expect consistent treatment from all locations, without exception. Otherwise, the brand investment is impaired.