Turning the Supply Chain into a Revenue Chain

Since Blockbuster video stores began sharing rental revenues with its suppliers, both parties have seen increased profits. Even though Blockbuster keeps only half of the rental revenue, it breaks even after each tape has been rented a mere 6 times. It can now justify purchasing many more tapes. Research indicates that revenue sharing will work for many products but only when 2 conditions are met. First, the cost to produce the additional units must be less than the incremental revenue they generate. The 2nd criterion is that the administrative burden associated with revenue sharing must be small enough that the cost of running the program does not eat up all the gains.