Impact of Economy on Business Organizations: Case Study of Blockbuster LLC

This report evaluates the impact of the economy on business organizations, using Blockbuster LLC as a case study. It discusses the micro and macro economic factors that contributed to the failure of Blockbuster, such as poor leadership and high prices. The report also suggests recommendations for the company to improve its performance.

Economics and
Financial
Management

EXECUTIVE SUMMARY
This report summarised that, Blockbuster LLC is the entertainment sector company
which deals in rental services. This report cover the various aspects such as about the company
and what actually happen with them which reduces their demand in the market. Evaluate the
micro or macro economic factor which affect the economy and contributed in the business
failure. There are two reasons of the failure Blockbuster LLC that is poor leadership and the
another one is high prices of their services which they offer their customers. Company should
focus on their customer's demand and their willingness to pay price for the goods & services
organizations offer. External factors such as growth, unemployment, inflations, etc. all are affect
the business and its operations. Company need to understand human decision making process
with the help of rational choice model or implement the Behavioral Economics for the further
evaluation.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
1. Identify and evaluate the impact the economy has on business organisations........................4
2. Appraise and apply economic theory to a range of contemporary business ...........................6
RECOMMENDATION...................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES ...............................................................................................................................9

INTRODUCTION
Blockbuster Entertainment which is also known as Blockbuster Video that is American
based company which offer the home movie or video games on rental. Basically, this
organization offer rental services and it included DVD by mail, Video on demand, video rental
shop, cinema theatre. In 1990, blockbuster expanded internationally and in 2004 they get the
peak growth. Company has major competitors such as Redbox, Netflix etc. due to poor
leadership of company demise their leading factor. Second reason of failure of this company is
unreasonable high prices of their movies and specially for Redbox, DVD kiosk etc. Blockbuster
employed total 84300 people all over the world and in US it has 58500 and 25800 rest of the
countries. There are total 9094 stores globally and 4500 in the US and the remaining are in the
rest countries.
MAIN BODY
1. Identify and evaluate the impact the economy has on business organisations
The factors of micro environment that includes various components like the suppliers,
customers, employees, shareholders together with planing, internal resources, etc. plays a crucial
role in success or failure of any organisation (Bagh and et. al., 2016). The Blockbuster LLC
which was an American based dealer and provider of home video and movies on a rental basis
through video rental shop, streaming video on demand, DVD by mail, etc. the internal
environment of this organisation includes the various factor like choice of people, prices of
product, supply and demand chain, etc. that had lead to its failure in long term. A description
about all these factors that has contributed in failure of Blockbuster LLC are provide below:
1.1 Supply and demand of Goods:
The law of demand emphasis that quantity of goods supplied rises with the increase in the
market price while falls with reduction in price (Penner, 2016). On contrary, law of demand
suggest that, quantity and level of good demanded falls with the rise in its price and vice versa.
The price elasticity of demand basically reflects the percentage change in quantity demanded of a
good divided by percentage change in price. The elasticity of supply represents the percentage
change in quantity supplied divided by percentage change in price. For Blockbuster LLC a
reduction in demand of its product and services are seen because of it is not lead to maintain a
equilibrium point in its supply and demand curve together with some rational decisions that

contributed in its failure. In 2019, Blockbuster almost retire but Dish maintain small stores
franchise and brand licence agreement.
Illustration 1: Decline of Blockbuster LLC in comparison of Netflix, 2015
(Sources: Decline of Blockbuster LLC in comparison of Netflix, 2015)
The above stated graph is showing the growth of Blockbuster LLC till the year 2006 but
after that due to random change in taste and preference of customers and some rational decisions
of management of Blockbuster this organisation started falling.
1.2 Analysis of micro factors:
The other factor that have lead to failure of Blockbuster LLC includes immigration and
movement of workers in search of high prices job that has lead to high turnover and beside this, a
a pressure is also exerted on Blockbuster LLC to provide minimum wage rate to its worker
which had enhanced its cost of operations thus, immigration lowers wages that has takes jobs is
also a reason of decline for Blockbuster LLC.
1.3 Value of marginal product:
It basically represent the cost of hiring one more unit of factor of production that are
basically dependent on the demand of factor of production which includes, labour, land, capital
and entrepreneurship (Bascom, 2016). With respect to Blockbuster LLC an increase in prices of
factor of production is seen with respect to increase in its demand thus, it become difficult to
maintain the cost efficiency in its production. Thus, the value of marginal product has also

increased which has lead to control and hamper its productivity and reduction in supply thus,
lead to its failure.
1.4 Macro factors that has contributed towards the company failure:
The unemployment rate of UK was around 3.9% that has lead to increase in prices of
labour beside this, higher level of competition from Netflix and other organisation is the main
cause behind the decline of Blockbuster that is shown below with the help of follow:
Illustration 2: The rise of Netflix and fall of Blockbuster, 2015.
(Source: The rise of Netflix and fall of Blockbuster, 2015)
It has been evaluated on the basis of above line graph that Macro environment of
Blockbuster is characterised with cut throat competition that is not handled and conquered by
this organisation together with rise in the price of labour and instability in GDP and inflation rate
in the macro environment of blockbuster are the main cause for its failure.
2. Appraise and apply economic theory to a range of contemporary business
Rational Choice Model: It is the theory which is used by the economist in order to
identify the rational choices of individual. As per this mode, people use logical calculation for
the actual outcomes which straightly linked with the personal objectives of individual. Basically,
this theory define that, individual select that particular option which provide them greater
satisfaction or greater benefits (Gollier, 2018). Rational choice theory based on various concepts
such as invisible hand, rational assumptions and self interest.

Adam smith was the first economists who generate the idea of rational choice and study
about the invisible hand or self interest. Smith discuss the invisible hand theory where they talk
about the “ Nature & cause of wealth of nations”. Initially this theory based on the actions of self
interest and later it developed in the rational choice theory.
Behavioral Economics: It is the study of emotional, cognitive, social, cultural and
psychological factor which impact the economy and the decisions of individual that how it will
silently affect the classical theory. Behavioural economics always challenge the assumption
where agents make rational choices in order to maximise the utility. Basically this theory help
the organization to understand the individual requirement and further helps in achieving business
goals & objectives (Kewo, 2017). This theory adopt by the organizations in order to analyse the
human decision making process regarding any products & services. It analyse that what
individual actually think and feel at the time of making any decision. As per the assumption of
this theory, people easily distracted or build decisions which are not in their self interest.
In context of Blockbuster company, they need to implement this theory and evaluate that
how consumers will make their decisions. There are various micro or macro factors which affect
the demand of individual such as lower wage of employees, inflation, trade deficit,
unemployment etc. These factors affect the company which automatically impact the production
as well as profit margin of the company.
RECOMMENDATION
 Blockbuster LLC should close down their few stores which reduces the cost of the
company (Kumaraswamy, 2016). Further have to focus on limited stores which provide
higher returns.
 It is easy to implement any statistical changes when stores are in limited numbers.
 Company should acquire changes as per the market trends and implement in the
operations through developing effective strategies.
 Another solution is that, company can sell out their shares because they find themselves
totally irrelevant in the entertainment industry.
CONCLUSION
From the above discussion it has been concluded that Blockbuster LLC is such as old
company but in order to survive in the current business environment they need to adopt changes

and perform accordingly. There are various micro or macro factors which affect the
organizations and their production or profitability margin. Company need to evaluate each factor
and build strategies accordingly. They need to minimise their products & services rate, maximise
the labour wage etc. these actions will help the company to generate demand in the market.

REFERENCES
Books & Journals
Bagh, T. and et. al., 2016. The impact of working capital management on firms financial
performance: evidence from Pakistan. International Journal of Economics and
Financial Issues. 6(3). pp.1097-1105.
Bascom, W. O., 2016. The economics of financial reform in developing countries. Springer.
Gollier, C., 2018. The economics of risk and uncertainty. Edward Elgar Publishing Limited.
Kewo, C. L., 2017. The influence of internal control implementation and managerial
performance on financial accountability local government in Indonesia. International
Journal of Economics and Financial Issues. 7(1). pp.293-297.
Kumaraswamy, S., 2016. Impact of working capital on financial performance of gulf cooperation
council firms. International Journal of Economics and Financial Issues. 6(3). pp.1136-
1143.
Penner, S. J., 2016. Economics and financial management for nurses and nurse leaders. Springer
Publishing Company.