[star]The American Mind[star]

December 14, 2004

No More Late Fees

One thing that makes capitalism so interesting is the changes that take place due to competition. Netflix and other (relatively) new DVD rental services have done better at satisfying consumers. Rental behemoth Blockbuster is countering by no longer charging late fees. If a customer doesn't return their movie or game within one week of the return date they'll buy it. If the item is returned after that one-week grace period but within 30 days they'll get a credit on their account. I'm not sure if that's a credit onto their credit card or if it can only be used on future rentals.

One result of this is customers won't consider the due date as the real due date. The average return date will be the last day of the grace period because customers won't have the incentive not to return the movies on the "soft" due date. But since Blockbuster test marketed this before rolling it out nationwide, I'm sure they know this.

Another result is the hit the company will take on the bottom line.

Blockbuster, which has more than 4,500 stores in the United States, says it expects to make up the lost revenue from late fees with increased store traffic, reduced promotional and marketing expenses and more focus on managing its operating expenses.

Late fees would have contributed $250 million to $300 million to 2005 operating income, it said.

I'm glad I don't have any money invested in Blockbuster. Somehow relying on your customers tardiness doesn't seem like the most reliable way to make money.

"Blockbuster Ends Late Fees Starting Jan. 1" [via Catallarchy]

Posted by Sean Hackbarth in Economics at 03:28 PM | Comments (0)