Netflix Hbr

INDIVIDUAL ASSIGNMENT

Case 6: Netflix--Competitive Dynamics and Innovation

1. Did Netflix and Blockbuster provide the same service to consumers?

Blockbuster was founded on the principle that movie rentals were largely impulsive decisions. Blockbuster succeeded because they provided the customer with new releases, which accounted for 70% of all rentals. This led Blockbuster’s success to be tied to getting new releases and a lot of them, while under stocking older and independent movies. Blockbuster failed to see the value in offering an online rental business and thus did not see Netflix as a competitor for a couple years. In 2004, Blockbuster launched Blockbuster Online with a “land grab” strategy that intended to undercut Netflix’s prices to recover lost market share. Blockbuster even attempted to implement cross-relations between the online store and actual retail stores, which did not lead to much success for Blockbuster and in 2006 Blockbuster Online continued to suffer from significant operating losses.

Netflix was founded and immediately went after the market of those who had just purchased DVD players, rather than compete in the VHS market. Instead of replicating the model of video rental chains and lease retail locations, Netflix created a new, innovative way for subscribers to search through available titles and get the DVDs sent to them in the mail. Netflix adopted a strategy similar to other Internet retailers of the time with characteristics such as value, convenience, and selection to appeal to customers. Netflix not only appealed to subscribers, movie lovers could get recommendations for free on the website which drew additional web traffic and eventual customers.

Netflix ended up providing the services that Blockbuster provided and more, at a lower cost. Customers also did not have to leave their houses to browse or pick up movies so which made Netflix way more convenient. Netflix also offered a proprietary recommendation system, no late...