Blockbuster and Netflix are two businesses that began operating within the same type of market – the movie rentals. At the same time, the two businesses functioned is completely different niches. Blockbuster worked through an enormous chain of brick-and-mortar stores where the clients could go any minute to choose and rent a film recorded on VHS cassettes. Netflix was founded in 1997 as an online movie rental business. It operated through a website where the viewers could choose the films they wanted in a gallery using a search engine and sorting the films based on their titles, actors, or directors. The movies of DVD carriers were sent to the clients via mail.
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As one may notice, even though both Blockbuster and Netflix earned their income renting films to the population, their businesses were structured very differently and targeted different groups of customers. While Blockbuster worked within the traditional VHS cassette market, Netflix addressed the first adopters of the innovative technologies. That way, Blockbuster expanded their customer base opening more stores and maximising its geographical coverage, whereas Netflix chose to target the underserved portion of movie consumers, those who owned the DVD players and were in need of films in different form. One may say that Netflix created a blue ocean business that functioned in an area without any competitors as at the end of the 1990s most of the movie rental companies were focused on working with VHD carriers and owning brick-and-mortar stores.
Comparing the positioning of the two businesses in relation to each other in 1999, it is important to notice that Netflix was just a beginning company operating for two years only. At the same time, Blockbuster was the leader of its market, a well-known movie-rental giant with multiple stores. Besides, the client bases of the two companies different a lot as well. While Blockbuster successfully conquered the majority (owners of VHS players), Netflix addressed a relatively small number of clients who had DVD players and had access to the internet. That way, when it comes to the state of things in 1999, in terms of revenues, popularity, brand recognition, and client base size, Blockbuster was an obvious leader of the two. The situation started to shift several years later when the global adoption of the new technologies by the masses started to bring more and more clients to online-based businesses. That was the time then Blockbuster’s leaders first admitted that Netflix was a competitor and a threat to their company’s income.
As for the trade-offs of Blockbuster that were further used by Netflix to promote and expand their business, there are several. First of all, Netflix adopted Blockbuster’s tactic of having no obvious customer base and targeting all clients available by means of offering an extremely wide library of films suitable for all age groups and tastes. Secondly, trying to respond to Netflix’s online-based competition Blockbuster arranged a system of discounts to obtain more clients. This idea was also taken by Netflix so that it could develop a flexible set of prices and special offers to enlarge its customer base and a number of rentals. Finally, Netflix’s video on demand (VOD) strategy is a more innovative form of a trade-off that existed in Blockbuster’s business years earlier in a form of extended availability allowing the consumers to find the movies they wanted in the last minute.