1. The pricing objectives established by Blockbuster are intended to maintain its dominant market share.
2. A working definition of price competition is business environment in which competitors attempt to differentiate themselves from each other based on price. Using this definition, Blockbuster is does not rely on price competition. It uses non price competition in the form of longer operating hours and a larger number of units of stock on hand for rental to attempt to maintain a competitive advantage.
3. An essay published online at the Buzzle.com website suggests that the pricing strategy the Blockbuster Entertainment Pass represent could either be classified as a penetration pricing strategy or a destroyer pricing strategy. Penetration pricing is a strategy in which prices are set low in order to attract new customers or to regain the loyalty of existing customers, and then after the market has been secured the company returns to its previous pricing practices. This might also be considered destroyer pricing intended to destroy competitors' sales for a month by reducing the prices on Blockbuster's existing products to an artificially low level. The pricing may actually be below cost.
4. Blockbuster's cost per transaction on DVDs is given at $1.20 and the customer has the potential of renting up to 30 movies a month for $30 per month, Blockbuster risked losing 20 percent or $6 per month per Blockbuster Entertainment Pass sold to customers that rent and return one movie or game each day. In reality, it is unlikely that many of Blockbuster's customers would visit the store each day.
The decision about whether or not to continue with this program will depend on a number of factor including (a) consumer acceptance of this idea, (b) the actual number of movies or games rented by the average person with a monthly pass in a one month period of time, (c) the ratio of games to DVDs to movies rented by the Pass holde...