Blockbuster Entertainment Corporation: Growth Strategies for 1995

Despite its clear leadership position, Blockbuster was running out of areas of high population density where new stores could be opened. As the growth and profitability of its traditional video rental business slowed, James Hilmer, chief marketing officer evaluated two growth opportunities: set up virtual reality parlors within existing video stores, the test marketing of which had shown positive results; or leverage its retailing skills by diversifying into specialty retailing of merchandise from entertainment properties of its partners Viacom and Paramount. In this case of growing a company by brand extension, Hilmer analyzes which option would let Blockbuster leverage its existing brand the most. How do the two market segments compare in terms of size, existing and future competition, investment requirements and returns and Blockbuster's ability to grow and defend itself in the segment?