Why Red Box Works

Why does RedBox work?  That’s what I asked myself tonight when I rented a RedBox movie for the very first time. I’d just left a Blockbuster where you know you’re going to pay almost $5 for a new movie and $3 for an older movie. Plus tax of course.

RedBox compared to Blockbuster is Aldi’s compared to Kroger. You’re there to look through a limited but generally popular selection of DVD’s and you’re there to pay $1 plus tax. You tell yourself you’re going to get the movie back by 9pm the next night so you only have to pay a dollar plus tax.

There’s no customer service staff, there’s no printing receipts – you get your receipt by email,  there’s no cash changing hands, there’s not much rent involved in a few square feet of space required, there’s no running to the bank, one employee services a whole “route” of locations.

Also, their velocity of transaction is quicker. Blockbuster assumes they won’t see their DVD’s for a few days. RedBox has a completely different assumption, but if they’re wrong you’re paying extra so they don’t care.

So in a sense, their formula is classic:

1. Good location (they started at McDonald’s locations)

2. Limited selection with

3. Constant turnover

4. Expenses cut to the bone

5. Minimal number of employees

6. “Virtual” cash handling

7. Automatic email listbuilding (that’s how they send receipts)

They started out with an investment from McDonald’s… they’ve repaid that venture capital and they’re expanding. Of course, even with a good model, they can make the whole thing implode.  But you can see how their model does equip them to cut expense to the bone while serving a high volume of customers.

It’s vending taken to a whole new level.

I wonder how these lessons could apply to a home based business? Certainly many home based businesses were started from “old style” vending.

I’d like to hear your thoughts…