Blockbuster v. NetFlix: Innovation and Competition
Subject: Technology, Risk, Change, Adaptation, Competition, Blockbuster, NetFlix, Innovation
As I write this article, the story of David (NetFlix) and Goliath (Blockbuster) has yet to be played out. But, it is clear from the new changes occurring in the market that competition, in the free market, does indeed work.
Let me back up for a second. One of the biggest consternations I've had over the years when renting a movie is those damn late fee. Yes, I do accept the responsibility for not returning the movies on time. But I know it has happened to you at one time or another; you simply forgot to return the movie. Or worse, how about when you returned the movie only an hour or so late and you still get charged. Blockbuster kept the late fee policy in place because they were making millions, YES MILLIONS off of those late fees. It is estimate that in 2004, they would've made somewhere around $200 to $300 MILLION dollars just on late fees!
So now, Blockbuster has decided to WAIVE their late fees. Yes, no more late fees from Blockbuster. This move would've been unimaginable a few years ago. What happened? Competition happened! NetFlix happened!
About a year or so ago, a new video rental model was being put in place. A company called NetFlix decided to rent movies via mail and guess what, NO LATE FEES. You can rent up to three movies and when you return one, they'll send you out another. For less than $20 a month, you can rent as many movies as you want, and return them whenever you want.
In a statement released by Blockbuster, here's how they viewed or "rationalized" this new no late policy:
Let me run this statement through the "No Spin Cycle" for you so you really understand what is being said.
First Statement: "For the past year, the company had been testing a variety of rental options in markets across the U.S..."
Second Statement: "In no-late-fees test markets, the increased rental transactions and retail sales offset the lower level of revenues resulting from eliminating late fees."
When NetFlix CEO Reed Hasting decided to go into the movie business, he didn't do it by going head-to-head with the Goliath Blockbuster. Instead, he decided to sling DVDs through the mailbox and undercut the giants hold on the market.
Lesson 1: Competition in today's market requires a sense of the obvious. What is it that people really want? Netflix is gaining market share because they understood that the bur under the customer's saddle was the late fee. By addressing that specific issue, Hastings is making a killing in the market.
Lesson 2: But here's the amazing thing, he's not using NEW technology or some whiz bang gadget to do win. He's using our old fashion mail service. Which shows that the answer to competition isn't always to throw new technology at the problem.
When I think of NetFlix I also think of a company like FedEx. Both companies set out to deliver a higher level of customer satisfaction. Both companies broke with tradition by thinking outside the box, but ironically enough, by using old traditional methods of delivery. And judging by their revenues and profits, they are indeed delivering.
Eric Hoffer once said, "We are told that talent creates its own opportunities. But it sometimes seems that intense desire creates not only its own opportunities, but its own talents." Dare to be different. Dare to think creatively. Dare to do it your way.
Please feel free to forward this article to a friend or colleague.
Victor Antonio G., one of America's top business motivational speaker and author of “The LOGIC of Success”.
Copyright © 2004 by Victor Antonio G. All rights reserved. This article MAY be reproduced in any form or by any means, electronic or mechanical, including photocopying, as long as the author’s name, website and email address are included as part of the article’s body. All inquiries, including information on electronic licensing, should be directed to Victor Antonio G., www.VictorAntonio.com
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