Blockbuster's Online Strategy May Be Better for Consumers

Addicted to Netflix? You're not alone -- and Blockbuster knows it. As the online rental services continue their battle, the casualties mount: In the second quarter of this year, Netflix, although still profitable, reported its first-ever loss of subscribers. Blockbuster's aggressive price strategy has killed its profits and its stock price has plummeted from a 52-week high of $7.30 in mid-March to yesterday's low of $4.25.

As more and more companies seek higher profits online, executives are left to answer the question: to what degree do consumers want to make purchases on the Internet? A recent Accenture survey found that two-thirds of American consumers prefer to buy products in a store, but most use the Internet in the purchasing process, at the very least to research a product before leaving home to buy it

Jeff Smith, Global Managing Director of Accenture's Retail practice says: Instead of replacing brick-and-mortar stores, the Internet is an extension of consumers' in-store shopping experience, providing a resource to research product and price. Retailers and manufacturers must understand this consumer behavior trend in order to reach shoppers, educate them, serve them and earn their loyalty.So why isn't Blockbuster's Total Access a bigger success? Blockbuster may have struck a winning combination of brick-and-mortar and online, but it's realizing that its one-size-fits-all format, with 6,000-square-foot stores, may not be the best way to serve customers in the current climate.

In response to a string of store closures, (519 in the first half of this year, compared to 427 during the same timeframe last year), the multi-billion dollar corporation will be shifting more of their business operations to the web and testing smaller-scale retail stores, stocked with new and popular titles, in certain urban markets. Don't worry; you'll still be able to rent Heathers or Old Yeller, but you may have to do it online.How far should businesses go in moving their operations online? Perhaps Blockbuster's new strategy, combining smaller retail locations with online sales, will set the bar for other retailers searching for the right store-to-Internet ratio.