In the book The Ultimate Question, Fred Reicheld examined the origins of Netflix and the circumstances surrounding how it came about. He said that if it were not for Blockbuster, there would have been no reason to start a competing brand in the DVD rental space.
Why would Netflix have needed Blockbuster? Blockbuster made three core mistakes with their customers to open up wide gaps in the market.
Mistake 1: Producing Bad Profit
It just so happens that when a company has a large market share, they tend to begin treating their customers as a revenue stream for “bad profit.” Blockbuster found a revenue model in cornering the DVD rental market. They would set up physical locations and outperform the local rental stores, putting them out of business. Once that was done, then they would charge their regular rates and if you were ever late or misplaced your rental they would charge an exorbitant rate for their returns. You would then have to reconcile the tab before renting another DVD, thus causing embarrassing moments for customers and employees.
Mistake 2: Forgetting Who Made You Number One
Blockbuster’s model had the tendency to infuriate the customer, but what could the customers do? Blockbuster was the best game in town. While there wasn’t much the customer could do, unfortunately for Blockbuster there was something the competitive market could do.
Blockbuster’s mistakes allowed for a new market to come about: DVD delivery to your home. Netflix carved out a niche in the market for movie watchers and set up a delivery service with a flat monthly rate. If you ever lost a DVD, no worries; they could chalk it up to misplacement, as long as it doesn’t keep happening. If you ever hold onto a DVD too long, you just don’t get the next one. This service then evolved into streaming of videos and now producing their own shows and series.
Mistake 3: Missing the Pivot Opportunity
Netflix has now become the dominant player in the market. With adequate foresight, Blockbuster could have pivoted and changed course and diversified if they wanted to, but they had a “bad profit” mentality and chose to continue that route until it was too late. As a result, they filed for bankruptcy in 2010, and even my local Blockbuster, which had been a centerpiece in the local shopping district, just this last year closed its doors.
Don’t Be a Blockbuster
“The big picture” question here is: How do I make sure my company is a Netflix and not a Blockbuster?
To answer this question, you will need to answer a number of smaller, but equally important ones:
- How do we know if we are bringing in good profits or bad profits?
- How do we know how loyal our customers really are? Will they leave us when the next best option comes along?
- How can we see the writing on the wall before it happens?
The answers to these questions are best answered by your customers. Communicate with your client base to find out what they think of your product and then make immediate changes before a competitor comes into the market to take advantage of weaknesses you haven’t addressed. A customer experience program is the most effective way to do this. Ask your customers what they think of your product or service and if they would recommend you to others. It’s best to do that through a third party so that the feedback is unfiltered.
You may have “Promoters” within your customer base that will be your brand evangelists. You may have “Passives” who are just sitting on the fence. They are sitting on the fence possibly waiting for something better to come along. And of course you have potential “Detractors” who are telling everyone and their uncle about the horrible experience that they had with your brand. A customer experience program helps to find these detractors and reconcile with them before they take the leap elsewhere. It also pushes those Passive fence sitters into the Promoter pile and gets them to become brand advocates.
A Loyal, Satisfied Customer
Now it’s difficult to imagine not having a charge of $8.99 not hitting my credit card in order to stream movies for my wife and kid. The ability to have a movie arrive in the mail is another moment of anticipation and to stream what is available is a great benefit. But what would have happened if Blockbuster would have assessed their buyers years earlier? I very well could have been paying a monthly rate to them as opposed to Netflix.