Blockbuster Inc - Netflix

Strategy

Netflix

Blockbuster Inc, became the leader in the movie rentals industry. Per the article, “Netflix in 2011,” “statistics showed that the new release represented over 70% of total rentals. It’s growth strategy revolved around opening new locations, both to expand geographic coverage and to increase penetration and share in existing markets. By 2006, Blockbuster had 5,194 US locations of which 4,255 were company owned the balance franchised.” Blockbuster locations were picked on customer concentration and closeness to competition, paying close attention to high-visibility stores in impacted trafficked retail areas. Another competitive advantage is it would hire mostly part-time employees, with minimal staffing. Blockbuster used the “purchase model,” to acquire half of their revenue, where it would pay the studios a fee, rent it 9-10 times for a lesser amount, then resell the DVD for an average amount per unit. The other half of revenue used the “revenue share model,” where Blockbuster would pay the studio a certain amount for it copy, rented it 9 times, and resold for an average amount, sharing 30% of the revenue with the studios. But, in 2002 Blockbuster had record high profits and sales, riding a wave of consumer DVD-player adoption.

Per the article, “Netflix targeted early technology adopters who had recently purchased DVD players, offering cross-promotional programs with the manufacturers and sellers of DVD players, thus providing a source of content for customers. At the time our goals were just to get our coupon in the box. We didn’t have too much competition. The market was underserved, and stores didn’t carry a wide selection of DVD’s at the time.” Initially, Netflix’s website used a search engine that allowed customers to view different movies by various methods, then they created a list, based on the list a movie was delivered as a previous one was returned. It had a strategy, it targets even nonsubscribers, creating a Web portal rather than simply a subscription service.