Carla McDonald, Jennifer Smith,
Peter Swain and Mark Swift were marketing students at a university
in Halifax, Nova Scotia. As part of a marketing course, they were
asked to conduct a research study for Video Delight, a Halifax video
rental store. They were to examine consumer attitudes towards the
store and its pricing policy. They were reviewing the details of the
research study and other relevant information that they had
collected and were to make recommendations on pricing and overall
marketing strategy to the owner, Peter Thompson by December 5th,
1988 - in three weeks.
Mr. Thompson was concerned
about the downturn in video rentals in his Halifax store. He
attributed this primarily to the recent opening of Jumbo Video, a
large chain, near his store. He was also interested in customer
reaction to the new pricing policy that he had introduced in July,
Peter Thompson, a commerce
graduate of Dalhousie University, had begun his video rental
business with one small store located in a busy area of Halifax.
Soon his store had expanded, and he now offered over 10,000 titles.
According to Thompson, he had enough titles to compete with anyone.
After five years in the business, Thompson had opened another branch
in Bedford, 15 kin from his Halifax outlet. Financially, the two
outlets performed well. In fact, business had been so good that
Thompson enlarged his Halifax outlet in early 1988. It was at this
time that a new video outlet opened in the area. Mr. Thompson
thought that the new competition was beginning to affect his volume
During the early to mid
eighties, when VCRs became very popular, many video outlets had
sprung up in Halifax. In addition to the video rental outlets,
This case was
prepared by Dr Mallika Das of Mount Saint Vincent University for the
Atlantic Entrepreneurial Institute as a basis for classroom
discussion, and is not meant to illustrate either effective or
ineffective management. Some elements of this case have been
Copyright © 1991,
the Atlantic Entrepreneurial Institute, an Atlantic Canada
Opportunities Agency funded organization. Reproduction of this case
is allowed without permission for educational purposes, but all such
reproduction must acknowledge the copyright. This permission does
not include publication.
corner grocery stores and even
some supermarkets had entered the field. Although these stores did
not offer the same variety as video rental outlets, they offered
consumers greater convenience.
By the latter part of the 1980s
the proliferation of video rental outlets led to severe competition
in the industry. Consumers had a lot of outlets from which to
choose; consequently, attracting their attention was becoming more
and more difficult. Many small operators had closed, and several
comer grocery stores had gone out of the video rental business. For
example, the number of video outlets on Video Delight's street had
decreased from ten to five - one was the same size as Video Delight
and the other three were smaller. Competition was still fierce, but
as the industry matured fewer competitors were entering the market
and the market stabilized.
At the same time another trend
developed in the industry. National chain stores were formed.
Several of them, like Jumbo and SuperVideo, were late entrants into
the Atlantic region. However, by 1988 these stores had opened
outlets in the Halifax-Dartmouth area, and they were beginning to
expand. It was as part of this expansion that Jumbo had opened a
store less than one block from Video Delight.
The larger chain stores had
several advantages over smaller stores like Video Delight. They had
more capital to work with, more buying power and usually could
withstand intense competition for longer periods of time. With their
modem, well-designed storefronts and interiors, large showrooms and
greater advertising budgets, these stores posed a major problem to
smaller video outlets such as Video Delight.
In Mr. Thompson's opinion, the
smaller stores had some advantages too - their cost of operation was
usually lower and many specialized in certain types of movies. For
example, one of the stores near Video Delight specialized in art
films and foreign language films. Video Delight carried a good
selection of children's movies and Hollywood movie classics. The
other two video outlets in the area were smaller and had no special
"themes." Mr. Thompson thought that stores such as Video Delight had
friendlier staff and offered more personalized service to their
According to Thompson, video
rental customers could be classified into three groups. The first
group consisted of ardent movie fans or those who rented at least
one video a week. Some of these customers rented as many as 15
videos a month. The next group -the average viewers - rented
anywhere from one to three movies a month. Those who rented less
than one movie a month formed the last group. Mr. Thompson had a
list of all his customers with details of their viewing patterns.
For example, he could pick out the top 500 customers (in terms of
the number of the videos rented).
Industry reports indicated that
customers tended to rent videos from stores that were located in
their neighbourhood or were, in some other way, conveniently
located. For example, some chose stores that were on their way to
work while others chose stores located next to a supermarket where
they did their weekly grocery shopping. In the case of Video
Delight, Thompson knew that nearly 80% of Video Delight's Halifax
clients lived within three kilometres of his store. The Bedford
store which was located in the suburbs, drew customers from up to 12
kin from the store.
Parking was another factor that
affected business. However, Thompson thought that in the case of his
Halifax outlet, closeness to downtown and busy retail centres made
his customers less sensitive to parking problems. They recognized
that if they wanted to shop at any of the stores in the
neighbourhood, parking would be an issue and they might have to walk
Many of Thompson's customers
were young adults and families with young children. Quite often,
parents and children came together and chose videos at the same
time. The importance of children to the industry was reflected in
the recent marketing strategies of some of the chain stores. Some of
these stores offered free popcorn to children and showed in-store
children's movies so that their parents could browse in
In the past, Video
Delight had relied upon its extensive selection, a layout that made
it easier for customers to find videos, a comfortable and homey
setting, and good customer service to bring repeat clients. The
store was located in an old building and had several small rooms.
Each room contained a specific category of video movies and thus
offered a more "private" setting to customers. While it did not
carry as many multiple copies as the larger stores, it had a good
variety of movies including a better selection of old Hollywood
classics than most other stores.
In July 1988, as part of his
strategy to meet the new competition, Thompson changed his pricing
policy. Previously he had been charging $1.99 per movie per day-the
same as most of the stores in the neighbourhood. In July, Video
Delight began charging $3.49 per movie for two days. Thompson
thought that many customers found the single day rental
inconvenient, and his method would give them the option of keeping
the video for an extra day. If, however, the video was returned
within 24 hours, the customer got a credit of $1 which could be
applied against future rentals. The computerized system that
Thompson had in place made it easy for him to keep track of the
credits earned, and saved the customer the trouble of collecting
coupons or making note of his/her return
The store's promotion strategy
consisted mainly of pamphlets mailed to neighbouring households, a
few ads in the Mayflower (the weekly TV guide distributed
with the Halifax Herald, a local newspaper) and an occasional
ad in the newspaper. As the store had been in the neighbourhood for
a long time, Thompson thought that he need not advertise heavily
While he had some important
information about his customers' needs, Thompson thought that he had
to find out more about his customers, especially with the increased
competition. Consequently, he contacted a local university to see if
students in a marketing course would conduct a study for him. In
particular, he was interested in learning about customer reactions
to his main video outlet as well as their reactions to his new
The research study was
conducted by the students as part of their course requirement. The
students were asked to develop a questionnaire, collect and analyze
data, and submit a report to Mr. Thompson. Carla, Jennifer, Peter
and Mark developed a four page questionnaire and interviewed 200
people living near the Halifax Video Delight store. One hundred and
forty of these people were drawn randomly from the telephone
directory using a systematic sampling method. (The first three
digits of the phone numbers were used to identify the area of
interest.) These were primarily non-customers of Video Delight
although some (21) had rented videos from the store. The other 60
respondents were drawn, again using a systematic sampling approach,
from the alphabetical list of the top 500 customers of Video Delight
that Thompson had provided. The results of the study are found in
Tables I to 6 and the questionnaire itself in Appendix A. The
interviews were conducted over the telephone during a two week
period in October, 1988.
Carla, Jennifer, Peter and Mark
were aware that they had to start writing their report for Mr.
Thompson. Although they would have liked to have certain key
financial and industry information before they made their
recommendations, they knew that they had to manage with the
information they had. They now also realized that there were
weaknesses in their questionnaire; however, due to time constraints,
they had no choice but to rely on the information they had already
- How would you rate the
research study? Did it achieve the objectives set forth by Mr.
- Evaluate the questionnaire
and the research design.
- Based on the data collected
by this group, should Thompson reevaluate his pricing
- What recommendations
(regarding other aspects of his marketing strategy) would you make
to Thompson given the results of the study?
- What other types of analyses
would you like to perform using the data?
Awareness of Video
Totals add up to more than 119 (140 less 21 Video Delight
customers found in the general sample) and 81 (60 drawn from the
customer list provided by Thompson plus 21 found in the general
population) respectively as respondents mentioned more than one
Source: Responses from
Question 5 of survey (Appendix A).
Source: Responses from
Question 9 of survey (Appendix A).
for in a Video Rental Outlet
Results of Question #6, over all 200 respondents.
Results of Question #13 for customers of Jumbo Video
3 Results of Question #13 for customers of
Video Delight alone.
Source: Responses from
Questions 6 and 13 of survey (Appendix A).
Main Reason for
Choosing Video Outlet1
1 Respondents sometimes
mentioned more than one reason.
Source: Responses from
Question 10 of survey (Appendix A).
1 Includes only non-Video
Delight customers (n = 119).
2 Video Delight sample includes
respondents drawn from the general population who were customers of
Video Delight (n = 81).
Source: Responses from
Question 7 of survey (Appendix A).
Source: Responses from
Question 15 of survey (Appendix A).
Hello, my name is
.......................... and I am conducting a survey for a
university marketing research course. I would like to ask you a few
questions about video rental outlets or video stores. These
questions will only take a few minutes.