BIS Case Study No. 4 - Ragnarok Video

Case Study No 4

Ragnarok Video

Competition in the home entertainment market is intense and for the main part it is dominated by a few large corporations such as “Blockbuster”. There are exceptions such as Ragnarok.

The business was established in 1987 by Michael and Kevin, two science fiction fans who could not get the videos that they wanted from their local video store. Their thinking was that other people with similar interests would pay to rent movies. Initially they ran the business out of a small shop a few kilometres out of the town centre and soon other science fiction and fantasy fans were driving anything up to 16 kms to hire videos. In the early days customers were given 6 cards which were used to record video hires. Each video had its own envelope and when a video was hired, one of the membership cards was put into the envelope which was then placed in “Hired tray” with the due date for return written on it. Customer tracking was a manual process and reserving videos was an ad hoc procedure at best.

For the first three years business was steady but the early 1990s saw a period of substantial growth. In 1993 Ragnarok Videos moved to its present location on the outskirts of the city’s business district. The new premises had much more space so Michael and Kevin were able to diversify into cult TV, Festival films and foreign language films to serve the diverse local population. Finally in 1995 they moved into mainstream entertainment and began to offer the same range of popular films as might be found in any of the “Blockbuster” movie stores. Such a varied stock and high volumes of business became impossible to handle manually and so an off the shelf, point of sales system was installed. Every item has a barcode and a corresponding entry in the electronic stock catalogue. The system was intended to handle sales rather than hires so reservations, enquiries and product tracking are difficult but it has reduced queueing at the checkout. The system has been in place for 7 years now and while much of the hardware has been replaced, the software has just been ported from one platform to the next, largely unaltered.

Michael and Kevin continued their policy of growth and dreamed of having the largest video collection in Western Australia. In 1997 they took out a lease on the adjoining premises and took on a loan to expand the collection. But profits did not keep pace with growth. In an attempt to generate additional income streams Ragnarok Videos diversified into movie memorabilia, CD and DVD sales and Video game and console hire. These activities have made a difference but their contribution to profit has been marginal at best. The food and drink vending machines which Kevin had installed in 2000 have made a solid contribution. As it now stands the business is just about in the black and its stock is aging. The high profile location is a real advantage to the business but is expensive; rising rents, rates and insurance are ongoing concerns.

A national chain has expressed an interest in acquiring Ragnarok and is offering reasonable terms and continuing employment for Michael and Kevin. However the founders are not keen to surrender their independence and control.

Ragnarok needs to have a reasonable amount of stock on the shelves for customers to browse through, while some customers come in with specific requests, most simply make a selection from what is on the shelves. At any point in time no more than 20% of the stock is out on hire. When customers ask if a particular item is available, a staff member makes a quick shelf check. If the item is not found then he/she consults the electronic catalogue to see when it is due for return and offers to reserve it, however reservations are something of a hit and miss affair if a customer is overdue in returning videos. The business operates 7 days a week from 10 am to 10 pm with 70% of weekly earnings being generated on Friday, Saturday and Sunday. Videos/DVDs are divided into two categories; Weekly and New Release. New release videos are charged out at $6.00 per night and weekly hires are charged out at $3.00. Customer loyalty is good with most customers visiting the premises at least every two weeks.

A lease on one of the buildings opposite will become available in 8 months time. Michael’s informal contacts with the local council have told him that a change of use application has been made. It seems that the fruit and vegetable shop is set to become a rival video store. Michael believes that one of the national chains is targetting their business.

If Michael and Kevin ignore the situation they will end up losing their business, Ragnarok does not have the resources to fight a price war with the new video store which is backed by a national chain. If they accept the offer for their business and sell out then they lose their control and independence. Somehow they need to trim costs, reposition the business and increase income and profit. Kevin’s idea is to try to generate new customers by advertising and try to compete with the new video store when it opens. He argues that they must act now. Michael’s approach is to try to generate more income from the customers that they already have but this would involved replacing the older POS system with a newer version that allows product tracking and customer profiling. If anything this will cost more than Kevin’s advertising campaign. Currently stockouts (all available copies of a video are out on loan) and the lack of a reliable reservation system are causes of customer dissatisfaction. The problem is that the bank is not prepared to loan any more money until they can see a revised business plan. Kevin has suggested putting the business online since most of their customers have Internet access.

Ragnarok has engaged a consultant to advise on how best to turn the business around.

Questions:

1) Consider Kevin’s idea of putting the business online, is it feasible to do so? What factors should be taken into account?

2) What broad strategies would you suggest to ensure the immediate survival of the business? Do you think that the Bank will find these sufficiently good to justify a business loan?

3) Outline the requirements for an information system for Ragnarok. (i.e. what must the IS be able to do? What activities should it support?) – remember to think about integrating business processes and supporting them with the IS.

4) Think about the way that the information system should operate. What sort of queries should it be able to handle? What sort of users will it serve? Any system will require that videos and DVDs are catalogued. How would you catalogue them? (Hint: Think about the sort of things that you might want to search for, categories need not be mutually exclusive.

5) Consider how you would handle marketing. Do you agree with Kevin’s view or Michael’s? Given the cash starved nature of the business currently, any marketing has to be cost effective, what specific things would you suggest?