A Major Marketing Failure

Earlier this week Blockbuster video was given its just desserts by Arizona and 46 other states. As the Arizona Daily Star reported, caring and consumer-minded state attorneys general "charged that the nation's largest movie-rental chain deceived the public with advertisements that proclaimed the end of late fees"(emphasis added). Blockbuster continued to charge fees anyway, but under a different name. Quoted in the article was Arizona's own Attorney General, Terry Goddard, who said, "Blockbuster was still charging its customers a late fee. They were just calling it a u2018restocking fee'." Isn't it great that so many states have such defenders of consumer interests? I feel sorry for those four other states. And, I'm especially proud (beaming, actually) that my attorney general was mentioned by name.

Many will be quick to applaud this settlement as a victory for consumers. And, for that large applauding crowd, those who always bend over, put their heads between their legs, and ram away into the nether region whenever thinking is required, especially on economic issues, I guess it is a victory for consumers. The "bread and circus" crowd will just belch, pop the top off another beer, kick up their feet, and get ready to change the channel at the next commercial. But there is a more rational explanation for Blockbuster's behavior; it parallels the unfolding of a recent event in the world of politics.

Blockbuster is the victim of "faulty marketing." Someone, somewhere in the company, or, in some unnamed marketing firm, misinterpreted data from consumer surveys, feedback forms, and interoffice memos that passed through the various levels of the corporate bureaucracy, and concluded that changing "late fees" to "restocking fees" would make consumers less hostile to the selfish practice of trying to get borrowers of property under contract to pay a price for not returning that property by the agreed-upon contracted time. Perhaps it was the work of independent rogue elements in the marketing department, eager to make supervisors look foolish to upper management by bringing scandal upon the reputation of the corporation. Those inter-corporate rivalries can be so competitive. In any event, Blockbuster was simply acting on the marketing it had available at the time, so consumers should just forgive and forget.

Sound familiar? The Commission of the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction, in a 600-page report, announced its foregone conclusion "that the intelligence community was dead wrong in almost all of its prewar judgments" regarding Iraq's WMD capabilities. In the most blunt terms, the report stated: "This was a major intelligence failure." So what's the logical solution to such "failures" in the future? Why, increased centralization and even more power!

The report identified a "stronger and more centralized management of the intelligence community, and, in general, the creation of a genuinely integrated community, instead of a loose confederation of independent agencies" as the most effective means to avert such intelligence disasters in the future. Naturally, none of these findings can be applied to Iranian and North Korean intelligence gathered by the same "fragmented, loosely managed and poorly coordinated" intelligence community because it's "classified" (for our own good, to protect us from evil we cannot see). I guess we can't take any chances with whatever bad-guy stuff has been found about those two bad-guy places.

You see, these commission members are just like all those AsG looking out for us simple folk. But what I don't understand, is if it's okay to recommend centralization in the intelligence community to maximize effectiveness, why isn't it the same in the movie-rental business? If concentration of all intelligence-gathering communities into one centrally-coordinated agency is the cure for future "faulty intelligence," why isn't the market movement toward increased centralization in the movie-rental community the cure for "marketing failures"? Well, it goes back to my earlier point about the economic ignorance/stupidity of many Americans and their predictable reaction to issues requiring intellectual challenge.

There is more to the Blockbuster issue than the assessing of "restocking fees." Blockbuster's recent failed attempt to acquire rival Hollywood Entertainment Corporation has not endeared the movie-rental giant to government regulators or to American consumers. As the Star article reports, "Antitrust regulators had raised objections to the deal, fearing that an even larger Blockbuster would wield too much power over rental prices." For the average infantile-minded consumer, the adage drummed into their heads from way back when they were wee little ones involuntarily flashed on the telescreen of their minds: monopolies bad when market driven but good when regulated by the government.

I am in no way advocating or defending the actions of Blockbuster. To my recollection, I've never even rented a movie from any Blockbuster store. Over the years, I've found that smaller, local, family-owned rental outfits have had a much better selection of titles, from new releases to old favorites. What Blockbuster does to its regular customers to recoup the cost of some people using Blockbuster property beyond what both parties have agreed to beforehand is none of my concern, or, should be to other Blockbuster customers who continue to follow the agreed-upon rules for property exchange entailed in the simple process of renting a movie.

Blockbuster, if it is some kind of monopoly in the crayon and construction paper minds of some consumers, is a market-driven monopoly. I do not have to do business with them like I would have to if Blockbuster was a government monopoly. Unlike a government-driven monopoly, Blockbuster's actions to punish contract violators on a case-by-case basis, albeit under a different name, would not affect those customers who returned the movies they rented when due. Because this is a market-based transaction, those not violating a policy are exempt from costs that might accrue to those who do not follow the policy.

It's not like that in the world of government-driven monopoly transactions. Take the "transactions" of enforcing drug and anti-terror laws. Even if I do not use or sell drugs or commit acts remotely deemed to be acts of "terror," I am still vulnerable to such laws. Since the government has reserved for itself a monopoly on law enforcement and force in general, eventually I will be targeted. One need only look at the history of laws initially implemented for supposedly narrow purposes, only to be broadened with the passage of time. There is no escape. If I am not in violation of the laws now, some energetic lawmaker and/or law enforcement official will see that I am when I become too troublesome. And the charges against me, in the eyes of ignorant observers, will be legitimate.

In the case of Blockbuster, all of its customers become targets of higher fees if Blockbuster is forced to abandon charging fees to those customers who break the contract they signed when membership was initiated. Instead of specific fees for late returns, maybe Blockbuster will raise rates for all movie and game rentals to pre-empt the portion that come back late. Then, the good get nailed with the stupid and inconsiderate. In any event, consumers who think this "deceit" on the part of Blockbuster is unforgivable can rent their movies from another source. How difficult is that? Instead of cheering and encouraging government to, once again, come to the defense of the lazy and inconsiderate, perhaps consumers should just exercise what little market freedom still remains.

Maybe the political class is afraid that too much market concentration under Blockbuster control would mean higher prices. That's always what the economically ignorant think about all monopolies. They're in a state of apoplexy, along with the miscreants in the consumer ranks who want them to act, but for a different reason: they fear that higher prices might force people to stop renting movies and maybe start thinking, reading, and observing more. With the armchair coliseums shut down in greater numbers, perhaps the political class would become more center stage. Nah, too conspiratorial sounding. Bad intelligence from the marketing department pushed Blockbuster to deceive customers. If that's good enough for the government it should be good enough for Blockbuster.

April 2, 2005