Profiting from Late Fees
With more than 8,000 VHS tapes in more than 6,500 titles, Blockbuster was three times larger than its nearest competitor. With this huge investment in inventory, the company simply didn’t make any money if the videos sat on the shelves. Their goal was to get customers to rent movies and return them as quickly as possible. The faster the turnover the higher the earnings. The problem was that people didn’t like to return movies quickly so the company did what seemed to be a perfectly smart move: they increased the late fees. Analysts estimated that 70 percent of Blockbuster’s profits were from these late fees.