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Late Fee Customers At Risk

25 May, 2003 By: Kurt Indvik

It's no surprise that what consumers most dislike about renting videos is the return trip to the store and, if they failed to make the return trip on time, the second most disliked aspect of renting videos is paying the late fee. So said a recent intercept poll of video rental consumers Video Store Magazine market research conducted in support of an article in this week's edition looking at Buena Vista Home Entertainment's upcoming test of the Flexplay disposable DVD.

It is these two negatives that have given life to the online rental business, such as that of market leader Netflix, and have also been the impetus for technological strategies to deliver more convenient home entertainment, such as VOD and, of course, the concept of a throw-away DVD.

I looked at the top 10 rentailers in VSM's Top 100 report published in April of this year and calculated that of the seven in that group that imposed late fees, revenues from that much-despised practice averaged 12 percent of total company revenues, according to VSMmarket research. That, my friends, adds up to $694 million in late fees from just these seven chains alone, giving Blockbuster credit for generating about $392 million of that,

The next 40 on the Top 50 generated about $23 million more in late fee revenues. My point here is that a million here and a million there for the other thousands of retailers in this business and we're talking real money.

And it's real money to the minority of video consumers that pay that tab. Let's say that our unscientific poll could be extrapolated. That means that the 24 percent of respondents who picked late fees as the most irritating thing about video rental could represent 24 percent of your customers put “at play” and possibly wooed away by any technology or service that renders late fees a thing of the past.

Certainly, Netflix' million-plus customers may be testament to this dynamic. And there is no doubt that some customers are choosing to spend more of their dollars buying new (and, yes, previously-viewed) discs as another option to avoid the rental hassle in general.

It's understandable that some rentailers may have just become accustomed and attached to that late fee revenue, but it also may be time for these same rentailers to seek out ways to help their customers avoid that late fee, however it may work best in their stores. Subscription programs with unlimited viewing policies are certainly one answer, and Blockbuster, among others is pursuing these.

The pressure is building on this “at risk” portion of your customer base, and those rentailers that blithely continue to whack customers with late fees without seeking some other alternatives, may find themselves losing customers at some point, if they haven't already.

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