Running Head: REDBOX EXPANSION TO THE UK
Redbox Expansion to the UK
MKTG 445.101
5.6.15
Cassy Roderick, Jay Leitzel, Achut Dhimal and Alex Schiponi
1 REDBOX EXPANSION TO THE UK
2 Executive Summary This marketing plan will analyze how Redbox is able to develop its brand and market its product in the UK. Redbox is a DVD rental company, that has a marketing strategy focused on placing its DVD rental kiosks in strategic locations to allow consumers to rent DVDs whenever and wherever they want. In order to enter a new market, Redbox will need to develop a new marketing strategy, determine who the consumers are, and analyze the culture of this market. Redbox would benefit from starting operations in the UK, in order to utilize the open market for home video rentals. A market development strategy would be the most effective direction for entering the market in the UK. Currently, consumers are mostly watching movies through their cable providers, or online streaming sites, such as Netflix and Amazon Prime. Most DVD rental stores are going out of business, while others are struggling to stay afloat in a market where online streaming has become a staple for consumers. Consumers do not want to be inconvenienced when renting a DVD from a store that is not on their daily commute. It is important for a company, such as Redbox, to tailor its strategy to make consumers’ lives easier, since it is not a product that is essential for every consumer, nor is it necessarily an everyday product. Through the market development strategy, Redbox will be able to distinguish itself as the only DVD rental kiosk company in order to establish its brand in the new market. REDBOX EXPANSION TO THE UK
3 Redbox’s Current Marketing Strategies Redox has been rather successful promoting its product, knowing how to strategically place its kiosks, and how to make it as easy as possible for consumers to access its product. Currently in the U.S., Redbox is offering a service for consumers to rent newly released movies and games, with the use of its computer operated kiosks. Consumers are able to go online or on their mobile app to reserve a discs at a specific location, if it’s available. This offers consumers an easy way to find the DVD’s they want, and to know that the disc will be there when they want to pick it up. Redbox has a rent­and­return policy, which allows consumers to pick up the DVD at one location, and then return it to a different location whenever they want to (Redbox, n.d.). Kiosks are located at most grocery stores, gas stations, drug and convenience stores, and a few other select locations. These are all easily accessible locations, with high foot traffic, making it convenient for all consumers to access. The promotional tactics that Redbox uses in the U.S. are word of mouth, a mobile application, email, text alerts and social media posts. Redbox has also recently introduced its “Redbox Play Pass,” which anyone can become a member of, where it offers members a free movie on their birthday, their Play Pass anniversary, and after they have rented ten DVD’s, along with other surprise deals (Redbox, n.d.). The social media posts, emails and text alerts, will inform subscribers to weekly updates, new releases and new promotional deals being offered. Redbox’s mobile application offers consumers easy access to its list of DVD’s available, gives locations of the nearest kiosk and allows them to reserve DVD’s anywhere, anytime (Redbox, n.d.). REDBOX EXPANSION TO THE UK
4 The price of Redbox DVD and video game rentals have steadily increased, but have stayed near its original pricing/promotional strategy of $1.00 a day. Effective as of December 2, 2014, a DVD rental is $1.50 per day, and $2.00 per day for Blu­ray. Also, as of January 6, 2015, video games are now $3.00 per day (Redbox, n.d.). Cultural Analysis of the UK When studying the DVD rental market in the UK, it was concluded that the DVD rental activity is rather high. However, there are currently no convenient sources in which to rent a physical copy of a DVD or Blu­ray disc (Smithers, 2013). In the UK, citizens tend to frequent convenience stores by minimizing the quantity of food items purchased per visit. Many consumers have found it easier to shop for groceries in these stores multiple days a week, rather than in bulk, in an effort to conserve food. This has a huge impact on Redbox’s marketing strategy, because it is clear that consumers will be at these locations frequently. These shopping habits directly support the idea of implementing Redbox kiosks in locations such as Tesco Metro, a popular convenience store in the UK, and an ideal place to rent a DVD quickly, and easily (Ruddick, 2015). Now is the time for Redbox to enter the market in the UK. When Redbox was introduced into the market in the U.S., the DVD rental store were plummeting, exactly what is currently happening in the UK. As illustrated in exhibit one, the DVD rental market has decreased from 97.7 million in 2007, to 38.1 million in 2013. Blockbuster saw success when it moved operations to the UK, but by the end of 2013 they were forced to withdraw from the market due to the increase use of online video streaming. It is clear that Blockbuster had repeated history and was REDBOX EXPANSION TO THE UK
5 unable to keep up with the trends in consumer behavior. This is when Redbox took on the DVD rental market in the US, and put DVD rental stores, including Blockbuster, out of business (BBC News, 2013). Although the DVD rental market has decreased significantly, this gives Redbox the opportunity to market its product. The crucial mistake that Blockbuster committed was by not properly implementing rental kiosks, as Redbox did. The market may be failing, but its the way the market was presented to consumers that made it become obsolete. This is how Redbox has found its success, by offering a modern way for consumers to rent DVDs. Competition in the UK Currently, none of the UK’s DVD rental platforms offer rental kiosks like Redbox. Therefore, there are no direct competitors to Redbox in the UK, however, there are several notable rental alternatives. Netflix, LOVEFiLM by Post, and Blinkbox by Tesco are the three prevalent rental platforms in the UK (Henderson, 2015). Netflix, also a popular platform in the U.S., offers a large amount of movies, television series, and exclusive series all viewable at any time with membership. LOVEFiLM by Post, is partnered with Amazon and is slowly becoming irrelevant. LOVEFiLM’s features include DVD rental via postage or mail. Differing from the other major platforms is Blinkbox by Tesco, which offers a unique media rental experience (Henderson, 2015). When a movie is rented, or bought, it is stored in the users queue where it is available for viewing at any time. Blinkbox does not require any subscription and operates on a pay­as­you­go payment method (Henderson, 2015). Although these rental options are prevalent in the UK, they do not offer the critical kiosk option that sets Redbox apart. SWOT Analysis REDBOX EXPANSION TO THE UK
6 The SWOT analysis is an effective technique when identifying the strengths, weaknesses, opportunities, and threats that a particular business faces. The analysis provides useful insight for businesses, especially those considering entrance into a new market. Below is a SWOT analysis conducted in regards to Redbox entering the UK. Target Market REDBOX EXPANSION TO THE UK
7 It can be difficult to move into a new market. No matter how successful a business may have been in another market, doing business in a new location will likely require a completely new marketing strategy. Investing the appropriate level of resources in market analysis, selection, and entry method can create a foundation of success in Redbox’s UK market. As one of the top competitors to the online streaming companies such as Netflix and Amazon, Redbox will be able to succeed in this market, due to the increasing numbers of DVDs, and their low­priced DVD rental model (Perry, n.d.). According to exhibit two, the number of DVD players in consumers’ homes has increased over the past couple of years in the UK. This means that not all consumers are solely interested in streaming movies online. If consumers are still buying DVD players, then they will most likely be looking to rent more DVDs, allowing Redbox to have a secure target market in the UK. Similar to the market in the US, Redbox will need to target those consumers that want to rent DVDs on a day to day basis, and are not interested in paying for subscription fees. Consumers that are only interested in viewing a few movies a month would benefit more from using the kiosks, due to the price, and ease of access. They also will not be concerned with getting their moneys worth out of their purchase with Redbox. Where as if they were to purchase a monthly subscription to unlimited movie viewings, they may not use it to its full value every month (Perry, n.d.). Consumers in the UK are different from the US, in how they travel, purchase groceries, and shop for goods. Trains are a major form of transportation in the UK, which means that Redbox would be more successful placing kiosks at train stations, instead of gas stations, so they can return movies before or after their daily commute. Placing the kiosks at gas stations may be REDBOX EXPANSION TO THE UK
8 more successful in the rural areas of the UK, where consumers will most likely have a car and need to stop at the gas station more often. Also, as mentioned before, UK citizens purchase their groceries online, but they also have developed the philosophy to purchase perishable items daily, in order to prevent wasting food (Smithers, 2013). They will shop at the convenience store to get smaller sized items, which they can use for their dinner that night. For Redbox, this means that there is even more traffic at convenience stores, as opposed to grocery stores, therefore it should place a majority of kiosks at convenience stores, and train stations. Internationalization Strategy When entering a foreign market, every company needs to consider the possible regulations, and implications that come along with the international differences. When looking at the market entry mode, and barriers to entry, such as the geographic, economic and administrative distance, it is clear that Redbox will be successful when entering the US market. With the UK being a major hub for US based companies, having more than 7,500 U.S. firms, it allows Redbox to have a better understanding of entering the market in the UK (Export.gov, n.d.). Trade is being made easier for US companies to the EU, with the proposal of the ​
U.S.­EU Transatlantic Trade and Investment Partnership. This partnership could allow for tariffs to be cut, and to address market barriers for companies (​
Office of the United States Trade Representative, 2015​
). When selling to a foreign market, Redbox will be directly exporting its product to consumers, as ​
it does in the US. Although Redbox is not the type of company that would need a consultant or distribution firm in the foreign country, it still needs to establish a name in the market, to get companies to want the kiosks at their locations. REDBOX EXPANSION TO THE UK
9 Redbox is considered to be a late entrant into the DVD market in the UK, due to the number of alternatives for consumers to get a movie that is newly released. Although this may appear to be negative for Redbox, it has its advantages. This would allow Redbox to already know what the DVD rental market is like in the UK, because there is a market for it. This would mean less research and development costs for Redbox, and it would also have less marketing costs, because consumers are aware of what a DVD rental is. The geographic distance in the UK works to the advantage of Redbox, since consumers are rather close together; the UK is relative to the size of Oregon, and a population of 63 million people (Export.gov, n.d.). With a small geographic area, and a higher concentration of people, it allows for easy access to Redbox kiosks all around the UK. The transition for Redbox is made easier, because it will not have to travel as far to install its kiosks, and it won’t have to place as many around the UK, as it does in the US. This also makes it easier on consumers, because they won’t have as far to travel, when they return their DVDs. Redbox has already tested out its product internationally, when it went to Canada. This move was to allow it to test out its product internationally, but still stay close to home, to minimize costs. The following barriers to entry illustrate how the transition to the UK will not be as difficult for Redbox. When analyzing the administrative distance for Redbox to enter the UK, there are a couple obstacles that it will face, with the higher regulations on DVDs in the UK. When movies are in theaters in the UK, they are given one rating, and based on the age restrictions, children under those age limits will not be permitted, even with a parent present. Whereas in the US, parents are allowed to bring their children to see any movie, although they will be strongly advised not to. These restrictions could make it a harder for Redbox to distribute movies in the REDBOX EXPANSION TO THE UK
10 UK, due to the Video Recordings Act of 1984 (British Board of Film Classification, 2011). This act is placed on all video recordings being released to the public, in order for them to analyze the movies even after the release in theaters. Although it is rare to be reevaluated after being released in theaters, and for the rating to be changed, it still is a possibility (British Board of Film Classification, 2011). Another thing that redbox must consider is that the DVD releases are delayed due to the DVD region codes, which manufacturers put in the DVDs in order to restrict its release in foreign countries (British Board of Film Classification, 2011). Each region is segmented by a code, and in this case, the US is one and the UK is two (Amazon, n.d.). These codes prevent DVDs from being played on DVD players in different regions. Therefore Redbox will have to wait on the release of DVDs in the UK, in order to comply with the regulations. The purpose of these codes are for the movies to be adjusted for the culture, in case there is offensive content in the movie (British Board of Film Classification, 2011). This would also require Redbox to get the rights to the DVD for that region, as it does in the US, and may require more costs. As for the economic condition of the UK, it is rather successful. According to the CIA’s 2013 World Factbook, the UK is “the sixth­largest economy in the world” (Export.gov, n.d.). It is expected that the economy in the UK would be lower than the US, due to the size difference. Although the UK is ranked seventh in GDP, it is still not as far from the US, which is ranked at second (Nation Master, n.d.). As far as pricing the product in the new market, this difference does not illustrate a major issue for Redbox, also considering that the current prices in the UK for DVD rentals is much higher than Redbox. REDBOX EXPANSION TO THE UK
11 Marketing Strategy Some of the marketing objectives that Redbox should plan to achieve include establishing its product in the new market, generating brand awareness, creating a promotional strategy and developing a relationship with consumers. Since Redbox will be entering a new market, it is important for it to establish its brand in the market. In order to develop brand awareness, it needs to start with the more populated areas of its target market, such as London, in order to be more visible to more consumers at first. This will help to generate word of mouth marketing, which is a major contributor to its success in the US. The promotional strategy should focus on increasing word of mouth, by establishing a customer base, and providing consumers with promotional codes. This will generate interest in the product, because consumers will be able to test out the product without spending a lot of money. Since Redbox has secured more than 50% of the market share in the US, it makes it clear that it should be able to successfully compete with the same competitors in the UK (Variety, 2013). In order to get this high market share in the UK, Redbox should focus on keeping its prices similar to what it is in the US with a penetration pricing strategy. “A market penetration pricing strategy calls for setting price levels that are low enough to quickly build market share” (Green & Keegan, 2013, p). ​
This penetration pricing strategy will knock out any competitors that still sell DVDs in a home video rental shop. Competitors at these stores are unable to drop prices that low, because they have more overhead costs, which Redbox is able to avoid, since it has computer operated kiosks. Redbox has the competitive advantage of giving consumers a physical DVD to rent at a kiosk, instead of a store. Having an actual store not only means more costs for the company, but REDBOX EXPANSION TO THE UK
12 is also inconvenient for consumers. These stores do not have access to find out which DVDs are available at the store until they get there. Which means they have now gone out of their way to find a store to rent a DVD and then once they arrive, they cannot find a movie that they want to see. The time it would take consumers to find a DVD in the store will also be inconvenient for them. Whereas with Redbox, they can easily access the different genres or movie titles that they are looking for by touching the computer screen. Redbox is on its own level in the DVD rental market. It doesn’t have a monthly subscription, and its the only one that offers a physical DVD rental option, at a very low price. Redbox is able to distinguish itself from the rest of its competitors because of its unique niche in the market, which essentially positions Redbox in its own market. This market as previously explained, consists of consumers who are only interested in watching a couple of movies a month. They also do not feel inconvenienced to have to pick up a movie or return it, because of how easy Redbox makes it for them. Marketing Mix for the UK In order for Redbox to be successful in the UK, it is important for it to adjust its current marketing strategy to fit the lifestyle of consumers in the UK. The main focus of Redbox’s marketing strategy is what will make it most successful in a new market, with its ease of service and strategic placement. Many of the competitors Redbox has to outperform are online rental services and cable package subscriptions. Consumers do not have to sign up or make any type of commitment other than the flat rate (plus tax) for renting the movie or video game. REDBOX EXPANSION TO THE UK
13 Movies were originally the predominant good that Redbox provided, however it has transitioned into providing video games to consumers as well. By offering video game rentals to consumers, Redbox will be able to draw in more consumers in the UK. According to Statista (n.d.), the UK is Europe's largest video game market. It is also the third largest video game market in the world.​
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By making games available, Redbox will be more attractive to consumers in the UK. The placement of Redbox kiosks will be in high traffic locations, similar to the strategy in the US. As previously mentioned, it is clear that Redbox would be more successful in the UK if it were to place kiosks at convenience stores and train stations. The lifestyle of consumers in the UK is somewhat different than in the US, which makes a new distribution strategy of Redbox kiosks necessary for the company to be successful. Consumers are going away from shopping at a physical grocery store, but instead stopping at local convenience stores in order to purchase perishable items day to day. This makes the product more accessible to consumers, as they will be shopping every couple of days for food, if not daily. They also are doing a large portion of grocery shopping online, which makes renting Redbox movies more appealing to them, because they are progressively using their mobile phones for more things in their everyday lives. Also, UK consumers travel by train more than by car, which will make placing the kiosks at train stations a more strategic strategy than if it were to be placed at gas stations. Promotional activities will include targeting social media to spread the word effectively about Redbox’s product and services. According to Emarketer (2013) over 93% of teens in the UK will use a smartphone. The article also suggested this would likely be at 97% by 2017. With REDBOX EXPANSION TO THE UK
14 the younger generation having such easy access to the internet, we expect a younger crowd of followers responding to the social media marketing efforts. On Facebook alone, there are over 31 million users, and social media marketing will be an effective method. With over Once people learn about the low fee and no commitment policy, we believe word of mouth will help spread the word about the product most efficiently, with little effort on the company’s part. It is also important for Redbox to continue with its current direct and internet marketing strategies, such as emails and text alerts. These strategies have proven to be successful with consumers now that mobile marketing is becoming more prevalent in society. We will also promote Redbox on television advertisements. According to Statista, UK citizens on average watch over 230 minutes of television per day, which is roughly 45% of their free time (​
Statista, 2015​
). We believe targeting the younger generations on social media as well as people of all ages through TV ads will be the most appropriate way to maximize our marketing and promotional efforts.The cost for renting DVDs will adjust to the market in the UK. When evaluating the pricing strategy of Redbox, it has been determined that Redbox will be able to compete with its competitors due to its penetration pricing strategy. As of 2013, the average DVD rental cost in the UK was 2.89 British Pound, which is $4.23 (Statista, n.d.). Redbox could use this to its advantage and price its products higher than it does in the US, but also lower than competitors do in the UK. With its unique pricing strategy, and easy access, it gives Redbox an advantage over its competitors. The price difference Redbox creates makes it a clear choice to cost sensitive consumers. According to The British Film Institute (2014), in 2012, box office receipts totaled over 5 billion dollars, and there was 78 million rentals of feature films REDBOX EXPANSION TO THE UK
15 on disc. The price difference and the already established market will translate into a major success when entering the market in the UK. To conclude the market in the UK is a good direction for Redbox, as there are many similarities to the US market, and the DVD rental market is already highly established. Many of the competitors with stores that allow for a physical disc rental have gone out of business, and consumers are moving towards online streaming, as they do in the US. Although the online streaming market has started to take over, Redbox has successfully been able to compete with them in the US, with almost half of the market share. If Redbox can continue to market its user friendly kiosks, and manage to retain strategic locations to place its kiosks, it should be successful in the UK. REDBOX EXPANSION TO THE UK
16 Appendix Exhibit 1: DVD Rental Transactions in the UK from 2007 to 2013 (in millions) (​
Number of DVD Rentals in the UK 2007­2013, n.d.) Exhibit 2: Percentage of Households in the UK with DVD Players from 2002 to 2012 (Percentage of Households with DVD Players in the UK from 2002­2012, n.d.) REDBOX EXPANSION TO THE UK
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19 Statista. (n.d.) ​
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