Netflix and Blockbuster are leaders in the entertainment industry offering video streaming services. However, their histories reveal how different business models shaped customer experiences, determining corporate strategies, and paved the way for technological development. Johnson et al. (2008) note that all successful ventures are founded on developing unique solutions to fill market gaps, which shaped Netflix’s business model as it entered the market. Blockbuster and Netflix’s business models differed in three main ways: customer satisfaction, central focus, and alignment with industry trends.
By the time Netflix was penetrating the rental video sector, the industry mainly operated on retail terms allowing customers to rent DVDs from physical retail stores and return them at a set date. Blockbuster’s business model had contributed to customer dissatisfaction due to hefty fines for late payment and travel requirements since only physical retail shops were in operation (Shih et al., 2009). Netflix’s business model differed from the former on the convenience aspect by introducing mail delivery through which customers would order their preferred DVDs and have them delivered to their doorstep. The convenience introduced in the new model significantly shaped customer experiences, increasing Netflix’s market share.
Although Blockbuster offered quality content, its focus was mainly on revenue generation. Its business model differed significantly from that of Netflix since, as the former concentrated on opening new stores, the latter sought to improve customer satisfaction. According to Johnson et al. (2008), an excellent business model seeks to address customers’ pressing needs who deem present solutions too expensive or inconvenient. In this case, Netflix’s model was centered on the customer’s need for easy access to video content and low costs. Therefore, Netflix adjusted its profit formulae and increased customer value by partnering with content producers (Shih et al., 2009). Lowering the late payment fees addressed the cost issue, making Netflix’s model more appealing to DVD users.
Unlike Blockbuster’s expansion strategy, Netflix sought to ensure that its customers could get their DVDs as quickly as possible. Shih et al. (2009) record that Netflix could serve at least 90% of its customers in a single day. This model, therefore, satisfied clients’ prompt delivery needs since some customers made last-minute orders. Therefore, the company increased its market share since its focus was not on company size but on customer needs.
The two business models also differed in their approach to industry dynamics. Netflix entered the market when many people had bought DVD players, implying that they needed a wide variety of content. Taking advantage of this gap, Netflix adjusted its business model to incorporate an online selection tool and a recommendation system (Shih et al., 2009). This way, customers had an option of choosing their preferred content in the comfort of their homes. Capitalizing on the market trends is a vital element of a business model, according to Johnson et al. (2008). Meanwhile, Blockbuster believed that brick-and-mortar business models were sustainable in the market. Opening new stores proved unimportant because users were now getting their choices delivered conveniently and less costly. The recommendation system also increased customers’ lists of preferences. In essence, adjusted prices, convenient delivery systems, and availability of DVD selection are the main features that distinguished Netflix’s business model from that of Blockbuster.
Due to its inability to evolve in the online sphere, Blockbuster gradually lost space to DVD postal services and early streaming platforms that were expanding rapidly. According to Shih et al. (2009), Blockbuster online failed partly because the company made hasty choices in a bid to outdo its competitors. According to Johnson et al. (2008), a company’s response to competition is a key determinant of growth and success. A company may compare its operations to competing firms and develop better strategies. However, Blockbuster made wrong choices powered by the desire to dominate the market. Imitating Netflix, Blockbuster’s management eliminated late fees payment, a move that led to a loss of $600 (Shih et al., 2009). Recovering from that loss was challenging because the company realized a minimal increase in market share.
The change was ineffective because advancing a business concept of either a DVD-by-mail or online service required a significant shift in Blockbuster’s existing operational model. Penetrating the online industry late was disadvantageous because the company needed extensive advertisement campaigns to establish its online presence. Although capitalizing on new technologies is vital, according to Johnson et al. (2008), such an undertaking requires resources that the company did not have. Therefore, Blockbuster was only compelled to concentrate on the regions where it was still financially rewarding. In essence, the company suffered from high operating costs and revenue reduction that made it impossible for the company to expand its online campaigns and sustain its operations. Lastly, the shift from brick-and-mortar to online operations was quick. The company did not have enough time to evaluate its resource capability.
Works Cited
Johnson, Mark et al. “Reinventing Your Business Model”. Harvard Business Review, 2008. Web.
Shih, Willy et al. “Netflix”. Harvard Business School, 2009. Web.