Red Box Is Changing Retail
November 15, 2009
BY MICHAEL KRAUSS
into my grocery store in suburban Chicago, I noticed a new red
kiosk to the left of the front door. The large vending machine
is from Redbox, and each time I go shopping—morning, noon
or night—I see people renting from the kiosk.
If you’re not
familiar with Redbox, here’s how it works. It offers new
movie releases on DVD every Tuesday. You rent DVDs for a $1 per
day with no late fees. It accepts all major credit cards. Each
kiosk is equipped with a cellular, DSL or cable modem connection
to authorize transactions, monitor sales and inventory, and update
graphics on the kiosk display. Customers return the DVDs to any
Redbox kiosk location.
Last year Redbox rented
more than 200 million DVDs to 50 million shoppers through 17,000
kiosks in front of 300 different retail chains from Walgreens
to Walmart to Kroger. That’s 17,000 self-serve kiosks for
Redbox versus approximately 5,000 staffed locations for its nearest
bricks-and-mortar competitor, Blockbuster Inc. Redbox Automated
Retail, which was founded by McDonald’s in 2002 and spun
out to become a wholly owned subsidiary of Bellevue, Wash.-based
Coinstar Inc. in 2009, estimates revenues of $750 to $780 million
this year—earned $1 at a time.
Consumers love Redbox.
They boast one of the highest imaginable Net Promoter Scores at
85%. That means when a cross section of customers were asked,
“On a 10-point scale, where 1 is not at all likely and 10
is extremely likely, how likely is it that you would recommend
Redbox to a friend or colleague?” the percentage of promoters
(rating 9 or 10) less the percentage of detractors (rating 1 to
6) was an amazing 85%.
“Redbox is great
on so many different levels. It's a great value to consumers.
And it's a great value to our retail partners, because we drive
traffic to their stores and we also provide them a revenue share,”
says Gary Cohen, senior vice president of marketing and customer
experience at Redbox.
“There's a lot
of technology behind Redbox,” Cohen adds. “We want
it to be simple for the consumer. Here's the movie you want. Go
ahead and take it home right now.”
Cohen says Redbox outperforms
Blockbuster and doesn’t compete directly with online/snail-mail
DVD provider Netflix.
“We fulfill a
really interesting need. We provide a strong, immediate gratification.
That's hard to beat. We're significantly less costly than Blockbuster.
We provide a lot more immediacy than Netflix,” Cohen adds.
ignoring the Internet. The company has a loyal customer following
of 12 million users who hear from them online each week. And you
can be sure that Cohen, a serial Internet entrepreneur, understands
that digital media can be downloaded on demand over telecommunications,
cable TV and satellite networks. Yet Redbox prospers.
Listening to Cohen
you realize that Redbox may be the answer to businesses threatened
by innovative online competitors. It isn’t necessarily technology
that creates winners. Simple, powerful business models that yield
value to customers will succeed, whether they are online or off.
And Cohen, with his
eclectic, entrepreneurial background may be more the model for
tomorrow’s CMO than the traditional Proctor & Gamble
Cohen received his
bachelor’s degree from Union College in Schenectady, N.Y.,
and earned an M.B.A. from the University of Chicago. After graduation
he worked developing channel strategies at management consultancy
Frank Lynn & Associates. Then he joined Zenith Data Systems
where he helped spin out mobile wireless technology provider Cruise
Technologies, a pioneer developer of hardware for connecting wireless
devices to personal computers.
“After the sale
of Cruise’s assets, my co-founders and I were asking ourselves,
what’s going to be big?” Cohen says. That led to the
creation of MusicNow, a pioneer in the digital music distribution
business long before iTunes. Cohen led the company’s music
partnership and distribution deals and eventually helped sell
MusicNow to Circuit City and then to AOL. At AOL he helped drive
the digital media services organization. Prior to joining Redbox,
Cohen was managing director of Chicago-based Six Degrees Capital
Management, an investment firm that focuses on media, technology
and intellectual property investments.
“Redbox is six
years old. We are an entrepreneurial company, moving quickly,
trying to make the best decisions we can. That's what a good entrepreneur
does,” Cohen adds.
“There are lots
of different ways you can ascend the marketing ladder. I have
always tried to find a product I believe in and understand what
other people think about the product--the good, the bad and the
ugly. Then find the uniqueness and drive that message home,”
That’s just what
he’s doing with Redbox.
Krauss is president of Market Strategy Group, based in Chicago,
and can be reached at Michael.Krauss@Mkt-strat.com