George S. Day and Christine Moorman

Don’t get caught in the rubble (or the mail)

Friday Nov 12, 2010

In 2006, Blockbuster, Hollywood Video, and Netflix were the top contenders in the video rental space. As of 2010, Hollywood Video was out of the picture, and Redbox, Apple, Amazon, Comcast, and Hulu came into the picture. Netflix launched its DVD by mail service in 1998. By 2002, Redbox placed automated kiosks in convenient locations, and added online reservations in 2006. After a period of intense competition, marked by price wars and collapsing margins, Blockbuster filed for bankruptcy in September of 2010.

Blockbuster failed to pay sufficient attention to shifting consumer preferences and did not adjust its business model fast enough to survive. It continued with business as usual for too long and lost the strength of the brand in the process. While Redbox allowed movies to be returned to any location, Blockbuster insisted on same-store returns. While Netflix perfected its search and recommendation algorithms, Blockbuster’s CEO invited customers to “browse in stores.” Blockbuster tried. The company added a mail rental service and on-demand streaming similar to Netflix. Like Redbox, Blockbuster experimented with vending machines. However, even as Blockbuster tried to match the offerings of its new rivals, the company’s thinking was still tied to the autonomous store model. Rivals, on the other hand, had already moved on to strategies that focused on the customer relationship—either lowering costs (in the case of Redbox) or making switching hard (in the case of Netflix). By clinging too long to its bricks and mortar, Blockbuster now finds itself in a heap of rubble.

Whether Blockbuster will emerge from bankruptcy remains to be seen. Barnes & Noble is fighting a similar battle. What can it do to respond to competition from Amazon? It can connect with customers through new channels, as it is doing with the e-reader, Nook; it can offer a broader in-store experience, as it already does with Wi-Fi and café facilities; it can work on a search and recommendation engine to rival Netflix in order to deepen its connection with the customer. These customer relationships and the capabilities they represent can be morphed into new strategies as customers evolve and change over time.

The problem is that without a market focus, capabilities can easily become liabilities. If the firm does not relentlessly and honestly evaluate what current and potential customers’ value, a desire to leverage current capabilities will naturally move the firm deeper into its current strategy. This is not bad per se. However, when customers change and competitors are more in tune with their requirements, those companies that persist in marching to the tune of their own powerful capabilities face strong headwinds. Instead, companies must look at their market from the outside in for answers and be ready to move beyond their current capabilities, whether delivered through bricks-and-mortar, metal boxes, or the mailbox.

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[…] Don’t get caught in the rubble (or the mail) – George S. Day and Christine Moorman strategyfromtheoutsidein.mhprofessional.com/apps/…%E2%80%99t-get-caught-in-the-rubble-or-the-mail/ – view page – cached In 2006, Blockbuster, Hollywood Video, and Netflix were the top contenders in the video rental space. As of 2010, Hollywood Video was out of the picture, and Redbox, Apple, Amazon, Comcast, and Hulu came into the picture. Tweets about this link […]

November 14th, 2010 | 10:15 pm
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