With the growing usage and purchase of videos and VCRs, David Cook started Blockbuster. The industry at the time had many individual video rental stores, and the stores that existed were not very customer responsive. This fragmented market, had low entry barriers for starting a video store. Blockbuster realized the growing demand in videos, and as a result Cook started a video superstore based on: giving a unique identity to customers, a wide variety of tapes, a longer rental time, targeting the largest market segments, and longer more convenient hours. These concepts promoted Blockbusters differentiation in the industry, offering a better valued service to the customers.
Soon Blockbuster franchised, opening stores in the most populated areas to ensure a higher return on investment. In addition, Blockbuster uses horizontal mergers to consolidate their respective industries. As a result, Blockbuster creates an overall economy of scale. In addition, Blockbuster used a chaining strategy to obtain cost leadership. This is because through being interconnected they can function as one business entity offering lower prices and wider selections to customers. To make sure their growth would be sustainable, Blockbuster hired top managers with skills to grow retail chains. Blockbuster marketed their services on numerous television markets reaching 75 percent of the U.S population. As a result, Blockbuster was able to build brand recognition through convenience and family oriented video image.
Blockbuster started to diversify realizing that the entertainment industry was changing. Blockbuster started to sell complimentary goods such as food products in addition to movies to increase sales. In addition, they started to rent video games to increase sales and appeal to the younger consumers. Also, buying Spelling Entertainment and creating horizontal mergers with Sound Warehouse and Music Plus in the entertainment industry, Blockbuster felt comfortable in creating branching out. Later, Viacom bought out Blockbuster. The increase in competitor’s franchise video rental superstores and cable television began to cause problems for Blockbuster. Blockbuster sought to lower costs and abandon efforts to make Blockbuster stores general entertainment outlets. These changes hurt Blockbuster, but the revenue sharing agreement allowed Blockbuster to retain revenues and increase strategies for better customer responsiveness. Blockbuster started to increase out into international markets. Opening stores in various countries, this enabled Blockbuster to constantly distribute copies of tapes that are in less demand domestically to other countries and still receive profits that may not have been there before. Later, Blockbuster formed an alliance with DirectTV. It sold dishes in the stores and as a result, receives a fee for each one it sells.