Licensing

Inside The Red Blue $1 DVD Battle

Harvey Chimoff 2 Comments

There’s a new red versus blue battle in the United States, and it’s not what you think.

In the red corner, we have Coinstar Inc. and its Redbox $1 DVD rental kiosk.  In the blue corner, we have NCR, with licensed brand Blockbluster Express, and its own $1 DVD  kiosk.  And in the courtroom, we have the movie studio lawyers, fighting against the $1 price points.

Blockbuster Express DVD Kiosk

Redbox DVD Kiosk

The DVD rental kiosk history is surprising.  The Redbox concept first began in 2002 with McDonald’s Ventures, LLC, which was exploring “new ways to drive traffic to McDonald’s and provide added convenience and relevance to customers.”  Their first test was 2004 in Denver area McDonald’s restaurants.  Coinstar took a minority investment in late 2005, which made Redbox a separate company from McDonald’s, and then bought the rest of the company in early 2009.  Redbox says it now has more than 17,500 locations with each kiosk holding approximately 500 movies, including up to 200 new releases.  The selection is updated every Tuesday.

Blockbuster and NCR announced a strategic partnership in August 2008 that has resulted in Blockbuster Express kiosks being located in supermarkets and high-traffic retail locations.  The newest placement is 200 Duane Reed stores in New York City.  The NCR kiosk holds more than 900 DVDs, per the company.  NCR, which is playing catch-up to Redbox, will end the year with about 2,500 kiosks, according to The Wall Street Journal.

NCR is playing all the angles in this evolving battle.  In the summer of 2008 NCR became a minority investor in and kiosk supplier to TNR Entertainment Corporation, who was at the time the “second-largest operator of movie rental kiosks in North America, under The New Release and MovieCube brands.”  Then in April 2009, NCR bought the remaining TNR equity as part of its plan to extend the Blockbuster Express brand.

Update December 10, 2009.  NCR is at it again.  The company just acquired DVD kiosk operator DVDPlay Inc. and it’s 1,300 kiosks, which will be converted to the Blockbuster Express brand.  NCR also gains access to the California market, where Redbox is weak.

It’s too soon to know the lessons learned, but there are a number of strategic and tactical aspects to consider:

  • Commodity Product Battle.  Each operator sells the identical product, which comes in two basic versions (standard- definition and high-definition or Blu-Ray DVD), although importantly the $1 kiosk rentals are in standard definition;
  • Multiple Distribution Channels.  The user experience for shopping/viewing differs depending on the channel:  theatre, retail rental store, cable on demand/satellite on demand, stand-alone kiosk, mail, and emerging Internet availability for computers and DVD player downloads;
  • Restricted Product Availability.  The studios and movie distributors control timing and availability, which is a key go-to-market variable;
  • Pricing is a 2-way Differentiator.  First, by quality of the product ($1 standard definition in the kiosk, higher price point in the retail store, $3.99 standard definition/$5.99 high definition on Comcast On-Demand); and second by convenience (ultimate convenience is choosing a movie from your couch, cascading down to multi-tasking convenience – get your movie while doing your grocery shopping, all the way to separate destination shopping at the rental store.

There’s an ongoing battle for content in the entertainment industry.  It’s unclear what the ultimate service model will be to deliver content to users in and away from home.  It may be a combination of models.  The critical importance of content access and content delivery, and their potential linkage, is at the heart of the Comcast decision to buy NBC Universal in a vertical integration move.  The end-game questions are whether the content providers or deliverers will be king, and whether providers and deliverers will work together to create and sustain a profitable business model.  What we do know is that consumers want lots of content, delivered in their preferred form and on their own timetable.  Those who can best figure out this challenging opportunity will be the winners.

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TBD.  This battle hasn’t played out.  But, in the meantime, there are plenty of  marketing and business implications to ponder.  Think, learn and apply to your situation.

Harvey Chimoff is a hands-on marketing leader and business-wide collaborator who builds marketing capabilities in B2B/B2C organizations that drive customer success.

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Burger King Links In-Store with At-Home

Harvey Chimoff 2 Comments

French fries and apples are top of mind at Burger King these days.

Seeking to leverage its brand and generate new revenue streams, Burger King is working with two new licensing partners to bring BK branded french fries and apples to the at-home market.

Under one deal, ConAgra Foods Lamb Weston is launching a line of Burger King branded microwaveable french fries this fall.

Lamb Weston, a business of ConAgra Foods, Inc., describes itself as “North America’s premier supplier of frozen potato, appetizer and vegetable products, serving both the foodservice and retail industries.”  The company is in the midst of a staged, three-item rollout to “select retailers” that was scheduled to begin in September with King Krinkz™, seasoned crinkle-cut fries; followed by King Kolossalz™, extra-large fries; and then finally King Wedgez™, seasoned potato wedges.  The retail price for King Krinkz™ was reported at $1.49 for a 4.5 ounce box.
BK King Krinkz
Interestingly, Lamb Weston thinks some consumers will make the product at home and take it on-the-go because the carton converts into an “easily transportable container” similar to Burger King’s FRYPOD® container.  That seems a stretch and might not make BK franchisees too happy.
Developing and building new brands is an immense challenge so it’s easy to understand why Lamb Weston would want to tap into existing brand awareness and equity.  According to Sharon Miller, vice president of retail sales for ConAgra Foods Lamb Weston, “Burger King’s Corp. tremendous brand strength and reputation for great-tasting french fries give this new line of King retail fries a head start in the marketplace.”As for Burger King, it gets more branding, channel expansion and licensing revenue.  John Schaufelberger, senior vice president, global product marketing and innovation, Burger King Corp. referred to the “ability to take our HAVE IT YOUR WAY® brand promise beyond our restaurants and engage customers in a new way.”

Overall, though, does the concept have enough to fly?  There’s no shortage of frozen potato choices in your local store’s freezer cabinet.  The microwaveable cooking benefit may be the differentiator, especially with today’s “I want it now” consumers.

With the other licensing agreement, Burger King continues to explore how it can maximize the iconic shape of french fries.  The company went national in 2008 with its BK® Kids Meal product, BK® Fresh Apple Fries, which are apple slices in the shape of french fries.  Now, BK wants to extend the reach of this concept to the at-home market.  It has an agreement to market french fry shaped apple slices in food stores via a deal with Crunch Pak LLC, which was started in 2000 by a group of Washington state apple growers.  BK Apple Fries were scheduled for a nationwide launch in 10,000 supermarkets starting this fall.

BK Apple Fries Retail

Pricing for a single serving will be approximately $1; and $4 to $5 for a larger package with multiple servings.  Burger King’s Schaufelberger remarked that “the popularity of this clever product is now opening up new channels for our business and providing our customers with a menu favorite in the places they shop most.”

Burger King and Crunch Pak are promoting the BK Apple Fries to food retailers via trade advertising.  A new print ad states that BK sold more than 29 million servings since its 2008 launch and is “a winner with both parents and kids alike.”  CrunchPak just exhibited this product at Produce Marketing Association’s Fresh Summit trade show in Anaheim, CA.

Crunch Pak is clearly targeting the children’s market.  Along with Burger King branded products, Crunch Pak is also selling retail apple slices with Disney character branding via a business arrangement with Imagination Farms, LLC, who is the marketer of the Disney Garden brand of fresh produce.

There is an overlap between the Burger King and Disney Garden brands with the apple products, but this gives Crunch Pak a unique two-pronged branding play with retailer buyers.  The category management selling materials must be intriguing, especially if Crunch Pak has dual-placement objectives.

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Licensing is a viable option to enter new channels, extend your brand, and create a new revenue source.  However, make sure you have a licensing strategy in place that complements your overall marketing, brand and channel strategy, and be sure you actually use it to properly evaluate each licensing opportunity.  If you want licensing to play a key role in your marketing mix, don’t hesitate to proactively search out the best partner instead of waiting for someone to knock on your door.  Remember to evaluate the product/brand portfolio of each potential partner both as it exists today and how it might expand, and be sure that any critical limitations are clearly reflected in the contract.

Harvey Chimoff is a hands-on marketing leader and business-wide collaborator who builds marketing capabilities in B2B/B2C organizations that drive customer success.

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