Problem 5 (20 points): Consider the retailer Redbox: Redbox Automated Retail LLC specializes in the rental of DVDs, Blu-ray Discs, and video games via automated retail kiosks. As of the end of November 2012, Redbox had over 42,000 kiosks at more than 34,000 locations. The Redbox Kiosks feature the company's signature red color and are located at grocery stores, pharmacies, mass retailers, convenience stores, and fast food restaurants. The kiosks which are located outdoors are up and running 24 hours a day, 7 days a week. The ones which are inside a store are subject to the store's opening hours. As of Q2 2011, 68 percent of the U.S. population lives within a five-minute drive of a Redbox kiosk. In July 2013, Redbox announced its 3 billionth rental of a disc, including both movies and games. Redbox had 47.8% market share of the physical rental market as of Q1 2013. History Redbox Automated Retail LLC was initially founded by McDonald's Corporation. In February 2009, Coinstar bought the company from McDonald's. Mitch Lowe joined Redbox in 2003 after spending five years as a cofounder of Netflix. At Redbox, he started first as a consultant and then as VP of Purchasing & Operations. In 2005, he became the Chief Operating Officer of Redbox. Mitch Lowe was named President of Redbox in 2009. How it works Renting The Redbox kiosks are just like vending machines for DVD/Blu-Ray/video game rental. They look like big red boxes (see picture A) next to a large advertising panel displaying some movie posters (note that the movies shown on the panel are not necessarily always available at every kiosk). After clicking on the touch screen, a menu opens with the following options: 'Rent a DVD, "Return a DVD, or Online Rental Pick up' (see picture B). If you choose 'Rent a DVD', the next screen shows a list of movies (see picture C). Some are marked with a banner saying coming soon; these are not presently available for rent at any of the Redbox locations but should be in the coming weeks. All the others movies which appear on the screen are currently available in the kiosk you are standing in front of (either in DVD or Blu-ray format or both). Clicking on one of them gives you more information on the movie (such as the genre, synopsis, length, etc.) and you can decide to add to cart if you wish to rent it. Once you have added all the DVDs you wish to rent to your cart, you can pay by sliding a credit or debit card. The discs then slide out of a slot in a plastic case (see pictures D and E). A bar code on the plastic case identifies the movie. It is also possible to sort the movies available by genre, alphabetically (A to Z) or focus on popular items ('hit movies'). The default list includes all available movies sorted by order of popularity. 15 movies appear at once on the screen (see picture C) and clicking on 'more titles' shows you the next 15 movies. apavercany TATU ZITULUS on popular en Ovies 7. me detail S COVES an available Movies Sorted by order or popularity. movies appear at once on the screen (see picture C) and clicking on more titles' shows you the next 15 movies. Each rental currently costs $1.20 per day in most markets. Each item you rent from Redbox has a minimum rental period of one day. That one- day minimum rental period is measured from the time you first receive your rental through 9:00 p.m. the next day. To incur a single daily rental charge, you must return your rental by 9:00 p.m. the next day in the time zone where you return your rental. For example, you will be charged only $1.20, plus tax, if you rent a DVD at any time on Tuesday before midnight and return it the next day (Wednesday) by 9:00 p.m. local time at the kiosk where you return your item. Then, for each additional day you do not return an item by 9:00 p.m. local time, your rental continues and you will be charged an additional daily rental charge, plus tax, for each item. So, if you rent a DVD at any time on Tuesday before midnight and return it on Friday before 9:00 p.m. local time, you will be charged $3.60 plus applicable taxes. If you keep an item through the maximum rental period, that item is yours to keep and Redbox will charge you the maximum charge for that item. The maximum charge varies depending on the type of item you are renting and the daily rental charge(s) for the item. For example, if a DVD's daily rental charge is $1.20 and its maximum charge is $25.20, then the maximum rental period for that DVD (before you own it and owe $25.20 plus tax) is 21 days. Returning Returning a movie can be done easily at any Redbox location in the US by sliding the title into the slot after clicking on 'returning a DVD' (see picture B); so you do not have to return the movie in the same kiosk you rented it from. Reserving It is also possible to reserve DVDs online or via an app on your mobile device. For example, if you go on the website, you can search for a movie, then click on the option 'hold for pickup' (then select either DVD or Blu-ray). After entering your zip code, the website gives you a list of nearby kiosks, sorted by distance, which have the particular movie in stock. After entering your payment information, the movie is reserved for you; that is, it is guaranteed to be available at the selected kiosk until 9:00 p.m. local time the day after you place your reservation. So, for example, if you reserve an item online on Tuesday before midnight and return it before 9:00p.m. local time (at the kiosk) on Wednesday, you will be charged the daily rental charge, plus applicable tax. If you pick up your reserved item on the next day (Wednesday) and return it on Thursday by 9:00 p.m., you would incur two daily rental charges, plus tax. If you never pick up your reserved item, you will be charged for one daily rental charge, plus tax. This charge is in consideration of Redbox holding the item for you and not releasing it for rental to another customer. Unfortunately, there is no way to cancel an online reservation once it has been made. Note that placing an item in your cart" does not mean it is reserved - it is possible that someone else can complete a reservation transaction for the same item at the same kiosk before you complete your reservation. You must complete the reservation transaction (including payment card authorization) before your reservation is secured. If you do not reserve an item, then it may or may not be available for rental at a kiosk at any given time. Redbox makes no guarantee than an item will be available for You must complete the reservation transaction (including payment card authorization) before your reservation is secured. If you do not reserve an item, then it may or may not be available for rental at a kiosk at any given time. Redbox makes no guarantee than an item will be available for rental at any kiosk at any given time. Your rental reservation is only valid at the kiosk for which you made the reservation and is non- transferable. The process of renting, reserving and returning usually goes very smoothly but there are occasionally some minor flaws in the system. For example, it is possible that the DVD you rent does not play because it has been scratched or damaged. It is also possible to receive the wrong movie, probably because a previous customer has returned the wrong disc in the plastic case. The Redbox website provides guidelines on how to deal with these rare issues. Operations Each Redbox kiosk has slots for 600 discs, but the average number of titles is just 200, accommodating multiple copies of the most popular items. Mr. Lowe, of Redbox, says his company aims to keep the kiosk inventory fresh; 40 percent of rentals are supposed to come from titles released within the previous two weeks. Given the limited storage space, inventory management is a delicate balancing act for Redbox. For this reason, correctly choosing the titles and quantities that will generate business at any particular location is critical as Redbox strives to meet optimal availability levels for its customers. As an example of when this did not work, in the fourth quarter of 2010, Redbox purchased too many copies of certain new releases DVD titles, forcing the premature removal of older titles from its kiosks. Consequently, there was a negative impact on revenues and gross margins due to removing these older titles too early. Regional supervisors are mainly responsible for stocking each kiosk in their geographic region. New movies are added to each kiosk every week on Tuesday Each kiosk is powered by a proprietary software solution running on an Intel-based PC. Through this software, Redbox receives real-time transaction information from any of its kiosks. Redbox also receives information about reservations made on the website or via the mobile apps in real time. All kiosks are managed from a central location near Chicago. From there, the Redbox administrators are able to monitor system health and make sure the hardware is operating properly. Competition With Blockbuster now out of business, Redbox's main competitor is Netflix, which offers on-demand internet streaming media as well as DVD-by mail rentals. Netflix offers a choice from more than 100,000 movie titles. Subscribers can either stream movies or receive (and return) DVD s and Blu-rays in the mail, i.e., delivered to their mailbox for a fixed monthly fee. Note that Redbox now also offers a video streaming service in partnership with Verizon. Remarks Remarks Some aspects of the business have been simplified in the above description. If you are very familiar with the company, you can base your answers on your own experience but make sure you clearly state the additional information you are basing your answers on. redbox persigt DVD RENTALS Picture A: Redbox kiosk and panel RENT RETURN A DVD ONLINE RENTAL PICKUP Love Picture B: Initial screen Picture C: List of movies har RENT RETURN A DVD ONLINE RENTAL PICKUP Love Picture B: Initial screen Picture C: List of movies redbox redbox. DVD pick up and return Picture D: DVD pick up and return Picture E: Movie in plastic case Focusing on the movie rental activities through the Redbox kiosks, answer the following questions about this retailer: (a) (7 points) Do you think the retailer observes true customer demand (defined as the movie the customers would select from the complete list of movies available at all Redbox locations as shown on their website)? (b) (7 points) What are most likely customer reactions to a product stock-out (.e., a customer wishes to rent a particular movie but it is not available at the kiosk they are at)? What is the impact of a stock-out on the retailer's profitability? (c) (6 points) How much would you say the retailer suffers from the following problems: inventory record inaccuracy, inventory shrinkage and misplaced SKUS? Also explain what these terms mean in the context of this retailer