Video Delight

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, 1988.

The Company

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 of business.

The Industry

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, many


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 disguised.

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 customers.

The Customer

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 a little.

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 peace.

Marketing Strategy

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 patterns.

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 anymore.

The Research Study

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 pricing policy.

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.

Conclusion

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 gathered.

Case Questions

  1. How would you rate the research study? Did it achieve the objectives set forth by Mr. Thompson?
  2. Evaluate the questionnaire and the research design.
  3. Based on the data collected by this group, should Thompson reevaluate his pricing strategy?
  4. What recommendations (regarding other aspects of his marketing strategy) would you make to Thompson given the results of the study?
  5. What other types of analyses would you like to perform using the data?

Table 1

Awareness of Video Outlets1

1 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 store.

Source: Responses from Question 5 of survey (Appendix A).

Table 2

Most Favoured Store

Source: Responses from Question 9 of survey (Appendix A).

Table 3

Attributes Looked for in a Video Rental Outlet

1 Results of Question #6, over all 200 respondents.
2 Results of Question #13 for customers of Jumbo Video alone.
3 Results of Question #13 for customers of Video Delight alone.

Source: Responses from Questions 6 and 13 of survey (Appendix A).

Table 4

Main Reason for Choosing Video Outlet1

1 Respondents sometimes mentioned more than one reason.

Source: Responses from Question 10 of survey (Appendix A).

Table 5

Pricing Preferences

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).

Table 6

Age of Respondents

Source: Responses from Question 15 of survey (Appendix A).

Appendix A

Video Delight Survey

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.

Part I

Qualifiers

Source: Company files.