Anyone catch the "news" that Blockbuster is eliminating late fees? Great stuff, huh? Absolutely not: these guys just can't get off the jones of the free money this generates. Don't believe me? Read on:
Loose Cannon: Blockbuster Bets: Will Customers Lose?
By Richard H. Levey
Picture the stock market as a giant roulette wheel. (From personal experience, I can say this is not just a fair, but perhaps an overly kind analogy. I see it more as a two-armed bandit.) Before placing a bet on Blockbuster Inc. to win in 2005, consider the following.
On Jan. 1, the movie-rental chain will launch a program that will eliminate late fees. At least, that's what the company is telling customers. But if the plan Blockbuster announced last week is put into action, that's not what customers are going to experience.
In 2005, late fees would have generated between $250 million and $300 million for the company, according to Blockbuster's own press releases. But under the new scheme, customers renting movies will get a one-week additional grace period on films rented, which is tacked on to the two-day rental period for new releases or one-week period for older movies.
Blockbuster's bet is that it will make back in customer goodwill what it loses in revenue, it should probably take a second look at the customer experience under this plan. Because after this new grace period expires, the company will hit customers bringing in movies and games with a "minimal restocking fee." But this is not a late fee! Even though it looks like a late fee, and it quacks like a late fee.
Even worse, assume that, lulled by the "no late fee" promise, a family member borrows a movie which is temporarily lost under the sofa for, oh, a month and a day. At that point, Blockbuster will automatically sell the movie or game to the customer -- and will smack a $30 per movie fee, or $50 per video game fee, onto the customer's credit card.
Customers who suddenly have these charges tacked onto their credit card bills are going to be angry. And they'll take their frustrations out on Blockbuster outlet's frontline employees, who will be required to explain the nuances of the program's fee structure.
Now, it's a funny thing about people earning a few bucks per hour above minimum wage: They don't do nuance well. Look for employee turnover rates to jump.
How's that roulette wager on Blockbuster's 2005 finances looking now?
This is before the reaction of the credit card issuers. If enough customers start calling their credit card companies to bust these charges, the issuers are going to punish Blockbuster, either through additional charges or through denying them services.
Blockbuster was moved to embrace so-called "No Late Fees" by the success of Netflix, a purely online concern that allows consumers to order and keep up to three DVDs for as long as they like with no late fees -- and no hidden charges. What Blockbuster as a brick-and-mortar concern can offer that Netflix can't is convenience. Want to see "The Sting" tonight? If it's in stock, it's yours.
But once Blockbuster has sold a customer a movie without specific consent, said customer's aggravation may well outweigh the desire for convenience. My guess is that a portion of Blockbuster customers are going to be moved to a rival source for movies.
So the company will reap an initial windfall from the promise of the new program. But unless they change parts of the new policy, there's going to be a backlash. Blockbuster is either going to have to put some sort of reminder program in place -- and such programs are not low-cost -- or abandon this new promise to its customers.
Folks, each of you has a sense of customer relationship management's value to a firm. Might I suggest that you place your bets accordingly?
Loose Cannon: Blockbuster Bets: Will Customers Lose?
By Richard H. Levey
Picture the stock market as a giant roulette wheel. (From personal experience, I can say this is not just a fair, but perhaps an overly kind analogy. I see it more as a two-armed bandit.) Before placing a bet on Blockbuster Inc. to win in 2005, consider the following.
On Jan. 1, the movie-rental chain will launch a program that will eliminate late fees. At least, that's what the company is telling customers. But if the plan Blockbuster announced last week is put into action, that's not what customers are going to experience.
In 2005, late fees would have generated between $250 million and $300 million for the company, according to Blockbuster's own press releases. But under the new scheme, customers renting movies will get a one-week additional grace period on films rented, which is tacked on to the two-day rental period for new releases or one-week period for older movies.
Blockbuster's bet is that it will make back in customer goodwill what it loses in revenue, it should probably take a second look at the customer experience under this plan. Because after this new grace period expires, the company will hit customers bringing in movies and games with a "minimal restocking fee." But this is not a late fee! Even though it looks like a late fee, and it quacks like a late fee.
Even worse, assume that, lulled by the "no late fee" promise, a family member borrows a movie which is temporarily lost under the sofa for, oh, a month and a day. At that point, Blockbuster will automatically sell the movie or game to the customer -- and will smack a $30 per movie fee, or $50 per video game fee, onto the customer's credit card.
Customers who suddenly have these charges tacked onto their credit card bills are going to be angry. And they'll take their frustrations out on Blockbuster outlet's frontline employees, who will be required to explain the nuances of the program's fee structure.
Now, it's a funny thing about people earning a few bucks per hour above minimum wage: They don't do nuance well. Look for employee turnover rates to jump.
How's that roulette wager on Blockbuster's 2005 finances looking now?
This is before the reaction of the credit card issuers. If enough customers start calling their credit card companies to bust these charges, the issuers are going to punish Blockbuster, either through additional charges or through denying them services.
Blockbuster was moved to embrace so-called "No Late Fees" by the success of Netflix, a purely online concern that allows consumers to order and keep up to three DVDs for as long as they like with no late fees -- and no hidden charges. What Blockbuster as a brick-and-mortar concern can offer that Netflix can't is convenience. Want to see "The Sting" tonight? If it's in stock, it's yours.
But once Blockbuster has sold a customer a movie without specific consent, said customer's aggravation may well outweigh the desire for convenience. My guess is that a portion of Blockbuster customers are going to be moved to a rival source for movies.
So the company will reap an initial windfall from the promise of the new program. But unless they change parts of the new policy, there's going to be a backlash. Blockbuster is either going to have to put some sort of reminder program in place -- and such programs are not low-cost -- or abandon this new promise to its customers.
Folks, each of you has a sense of customer relationship management's value to a firm. Might I suggest that you place your bets accordingly?
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