Video Concepts Case

1. Video Concepts Case By Rosemary, Megan, Ashley, and Charles

2. Overview of Part 1 • Our assessment of Chad Rowan as a businessperson. • How well has he performed the 5 tasks of strategic management. • The mistakes that he has made. • Our impression with the strategy he crafted for Video Concepts.

3. Our assessment of Chad Rowan as a businessperson. • Chad Rowan has proven himself as a businessperson through the success of his lawn service business. • However, Chad seems to be struggling with reproducing this success in his second business venture, Video Concepts.

4. How well Chad has performed the 5 tasks of strategic management. • We believe this to be his biggest problem. • He did develop a strategic vision of “expanding Video Concepts into several similar-sized towns within a couple of hours of driving distance,” this is where his strategic management process ended.

5. The mistakes Chad has made. • Chad failed to develop any strategic or financial objectives that were quantified, measurable, and had a deadline for achievement. • This results in no way to propel the business in an orderly fashion, or any way to measure success.

6. Our impression of Chad’s strategy • Without having objectives to measure progress against, Chad is unable to assess his continued progression toward his strategic vision. • Which is why overall, Chad’s strategy lacked several key components necessary for sustaining competitive advantage.

7. Part 2 Overview • What the video industry is like. • The forces driving change in the industry • The Key success factors for the video industry.

8. What the Video Industry is like. • Nationwide, the video industry is made up of two primary groups, mainstream consumers and film-enthusiasts. • Mainstream consumers are interested in movies that they missed the chance to see in theaters or those that they enjoy seeing again. • Film-enthusiasts out lesser-known films that can be difficult to find.

9. What the Video Industry is like. • When Chad entered the video industry, it was relatively new. • The largest and only national video rental chain in the US is Blockbuster, with the other chains only operating in their local area or region. • In the Lexington area, there are many small video rental stores

10. Forces driving change. • Blockbuster, Chad’s leading competitor, increased sales with just its presence. • Telecommunications companies represent the main force driving change with their pay-per-view offerings. • The industry is also affected by economies of scale through marketing and inventory purchases.

11. The KSF’s of the Video Industry • Low Cost • Availability • Ease of access (location) • Large breadth of product line • Marketing and promotions

12. Part 3 Overview • Blockbuster’s strengths. • Blockbusters weaknesses. • Video Concept’s strengths. • Video Concept’s weaknesses.

13. Blockbuster’s Strengths • Economies of scale • Advantages for marketing promotion budgets, mass inventory purchases, and the ability to subsidize temporary losses of one store with revenue from others. • Nationwide presence & financial resources • High brand recognition and ability for rapid expansion.

14. Blockbuster’s Weaknesses • High standardization • Difficult to differentiate when needed. • Impersonal “formula” stores • Lacking in the “hometown” feel compared to stores like Video Concepts. • High overhead costs • Specific to the Lexington area.

15. Video Concept’s Strengths • Customer Loyalty • Advanced support systems • Comparable to Blockbuster. • Differentiating Characteristics • Example: customers can reserve movies and have the option of free delivery.

16. Video Concept’s Weaknesses • Minimal excess cash flows available for promotions • Higher unit costs compared to Blockbuster • Lack of a clear strategic direction

17. Part 4: How we characterized Video Concept’s strategy. • Underlying theme is low cost • All three stores located in major shopping centers in Lexington • Rentals are more affordable than at Blockbuster • Has a Free delivery program • Is able to provide services that match Blockbuster’s

18. Part 5: Video Concept’s Financial Position • Liquidity analysis • Current ratio is 1.0. This means that Video Concepts has more liabilities than assets. The company is not very liquid. • Quick ratio is .8. This could be an ideal position for the company, but there would have to be more investigation into the industry. • Cash ratio is .7234. This ratio is very high which is good because it means that he is able to pay off all his current liabilities if need be. • Gross profit margin of .588.

19. Part 5: Video Concept’s Financial Position • DuPont Formula • Return on sales is 7.4% which is in the ideal range. • Asset turnover is 1.5 which is in the ideal range. • Return on assets is 11%. This is really good. This means that the assets of the firm are very effective in bringing in profit. • Leverage is 7.0. This identifies the sources of the capital base. This is very high. The companies risk is very high at this point. • Return on Equity is 77.1%. Overall, the company’s Return on equity is outstanding.

20. Part 5: Video Concept’s Financial Position • Compound annual growth rates • Assets: 39.2177%

21. Part 6: Strategic issues Chad needs to address • These are some questions that Chad will need to ask himself before proceeding with his current operations. • Should I continue my business? • What can I do to keep pay-per view from stealing my market? • How will I meet my debt obligations? • Are there any cost or pricing strategies I can use to increase profit? • How should Chad capture the attention of the customers that Blockbuster brought into the market? • Should he invest more into promotional advertising to keep up with Blockbuster?

22. Part 7: What Chad’s business is currently worth. • Currently, if Chad tried to sell his business, the most he could reasonably expect to receive would be $44,953

23. Part 8 Overview • The strategies Chad overlooked in terms of his efforts to compete in the Lexington Market. • The impact these strategies could have on the financial performance and viability of Video Concepts.

24. The Strategies Chad overlooked • There are several alternatives that would cause enough chance for Video Concepts, allowing them to be competitive. • Acquiring rival firms at bargain prices • Blocking avenues open to challengers • Pursuing a focused strategy on the fastest growing market group

25. The Impact those strategies could have • Acquiring rival firms at bargain prices. • Acquiring rival firms would entail Chad seeking out other struggling local competitors and attempting to take them off the owners’ hands. • Blocking avenues open to challengers. • By blocking avenues open to challengers, Chad will be able to hold on to the customers he has already acquired. • Pursuing a focused strategy on the fastest growing market group. • The video game market has been growing at a very rapid rate. Chad, on some level, seems to recognize this, since he is already selling video games. This will make focusing more on this market easier for him in comparison to his competitors.

26. Part 9 Overview • Our recommendations for Chad • How we plan to convince him to adopt our recommendations

27. Our Recommendations for Chad • Chad would be best off if he were to move himself deeper into the video game industry, by buying and selling used games. • Chad offer memberships (a monthly fee to rent videos without late fees) to his video rental stores

28. How we will convince Chad to do adopt our recommendations • Video games prices are essentially fixed by the console makers (Nintendo and Sega), so he will no longer have to compete in terms of price. • Memberships will allow Chad to pre-sell his video rentals, creating a front loaded, steady revenue stream for his business. • Chad will also be able to generate inventory from simply buying video games from customers with his own currency (store credit), which will reduce his costs of buying inventory for the new addition to his business.