Product – Price Promotion Fit

I saw a Groupon promotion from BlockBuster Express that gives away $5 worth kiosk movie rentals for $2. The deal, at the last check,  had sold more than 25,000 Groupons. For more than one reason, many of which I explain in my book, this is a very good use of Groupon by BlockBuster and in general a very good use of price promotion for a product.

Product: This is a basic utilitarian product that competes on price. Regular rentals go for $1.   The rental choice is likely limited, only so many DVDs can be stocked in a kiosk. The rental period is also limited – just one night. This is a convenience product, something people hire when they run out of most options. It is by no means a premium product.

Customer: There is no direct contact between the customer and customer service reps. It is a vending machine – as impersonal as it can get. There is no reason whatsoever to worry about customer experience and delighting customers. The customer mix and whether or not the new customers will fit the brand’s target segment is not a concern. Even without the promotion, customers choose this product for price not anything else.

Costs: The costs are all sunk once BlockBuster decides to place one and stock it with DVDs. If there are DVDs sitting in it, they are not making money. The marginal cost is close to $0, (it is the opportunity cost of not serving a full priced customer).  It makes sense to put these idle DVDs to work by encouraging  rentals.

Capacity: BlockBuster has many such kiosks and the offer is valid at any of them. So they are not risking over crowding in any one location. By the general rules of random distribution, we can assume that all kiosks will be utilized uniformly. This is a great improvement of capacity utilization of kiosks – making sure DVDs do not sit idle. Even if a kiosk runs out there are no downside risks – no customer backlash, customers either come back another day or move to next kiosk.

Bring in new customers: BlockBuster is struggling to hold on to its current store customers, as more and more are switching to Netflix. On the low end they are behind Redbox rentals. They are new to the rental kiosk business. Before this Groupon promotion, many customers did not even know about BlockBuster Express and even if they did they may not stop to try it.  A $2 for $5 deal is great way to bring them to the kiosk and create awareness.

Repeat Customers: This is a convenience product, not a premium product. There is a specific job this product is hired for. So the logic of people falling in love with service etc do not apply here. Even if only very small percentage of these customers come back, it is a better option than any other available customer acquisition option.

Groupon Fees: A brand like BlockBuster  may have negotiated a better fee for Groupon than the usual 50% small businesses pay. Even if they did not, this is a good application of Groupon as a  Marketing and Sales channel.

Overall the price promotion aligns very well with the product and the target customer segment.

What about your business and your product?