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Where brand leaders meet
Is there a branding fix to their problem?
The recent news that Netflix is reducing its monthly fees to undercut Blockbuster sent the company’s stock down–and raised the specter of the organization’s demise. Is DVD rental a commodity, only to be driven by price, which is what the action seems to say? Is there no barrier to entry in this category, once you have distribution and inventory handled? Obviously, being first to market (and inventor of the market!) isn’t enough of a brand advantage.
Netflix finds itself in two major branding conundrums. First, because the more people like the service, the more they use it. Netflix’s variable costs go up with usage, without being able to charge for the additional services. This puts Netflix in the unenviable position of losing more money the happier they make their customers, a brand-building kiss of death. Why spend time trying to improve service or make your customer experience more positive when you know it will not add to your bottom line? Secondly, Netflix has not found a way to differentiate itself from Blockbuster (except in a negative way by not having an in-store experience for exchanges and free rentals). This week’s Brand Challenge: What should Netflix do to differentiate itself?
-Lynn Parker
3 Responses to “Netflix versus Blockbuster — Branding Challenge”
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July 24th, 2007 at 4:43 pm
Dear IB,
I am not sure that there is anything wrong with the Netflix brand. I know in our household, Blockbuster represents the dark side - mainly because of the horrific customer service that seems to be common place within the stores. And, of course because Netflix gives us what we want, when we want it for a fair price. We are moderate users so they make a profit on our membership which we are totally fine with.
One of the things that Netflix may consider is that competition is good so they don’t want to crush the dark side but rather just stay a step ahead. I think they are doing well at this and I would not give away all the fees they are collecting from customers like us that would be happy to pay even more if they could continue to create more value for us.
With that, of course I have some suggestions…
Netflixs likely needs to look at changing their cost model to a postage type model. In other words, if you are a power user then you will pay a little more to cover the cost of the postage and distribution. Netflix could consider a cap that would begin engaging the additional fee on top of their monthly fee as option for how to implement this. Lots of ideas that I am sure they have already thought of.
Additionally, I would suggest they consider the option of offering their services for free. Yes! For free. They have the one commodity that many other brands need, consumer eyeball time. Assuming their eventually go to a downloadable membership version (which by the way seems like it was likely their plan all along - they have just been waiting for the market to catch up to their ability), then they should be able to pretty easily integrate some common sense commercials into the download process that would mean the movie is essencially sponsored by some product or company. I don’t think that most people would mind watching something like that knowing they enabled the movie night. They may even consider two membership options. One being a sponsored option for free or very inexpensive and the other a commercial free option that would of course cost more.
I am not foolish enough to think that everyone has to offer everything for free but I have learned that asking the question, “what would we do if we were forced to offer our services for free,” is an educational process for any company. It forces all of us to think through other possible revenue streams. None of this will be new to the people at Netflix. They would not have the model they have if they didn’t have a forethinking team.
Regards,
Jerrod
Jerrod Sessler
CEO
206.387.7090 cell
jerrod@hometask.com
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July 30th, 2007 at 4:31 pm
Have them license Zagat’s advanced search technology so you can browse for movies based on more criteria at once (beyond what’s there now); maybe even promote together somehow, as Dinner and a Movie (i know, dinner is out and the movie is in, but this is just meant to be a springboard). Home drive in movie if they deliver.
-Lisa Fernow
August 10th, 2007 at 12:25 am
Yeah, it’s really about thinking about what role Netflix plays in the hearts and minds of consumers and then delivering more of that through easier access, more selection, etc. When all they’re trying to do is stay one step ahead of Blockbuster, they will fail. Sad, but true. I, for one, love Netflix and hate Blockbuster, but Blockbuster tooks some risks and figured out what role even their retail stores played in a digital world - and now they’re going to the next level. Watch out Netflix.