Major Shifts in Netflix Strategy
Netflix Case Study
1) Compare Blockbuster’s and Netflix’s profit models and value proposition prior to the establishment of Blockbuster online:
Blockbuster’s Value Proposition and Profit Models: • By establishing over 5000 locations to represent “70% of the U.S. population by a 10 minute drive,” Blockbuster’s value proposition is its convenience by geographic location. The physical convenience as well as established brand name made the Blockbuster experience attractive to potential movie rental customers.
• Their profit models were based highly off of their utilization of shelf space. Most prominent shelf space would be dedicated to the newest releases.
• Another part of Blockbuster’s profit model was to maximize the number of days a video was rented. This financial aspect of the profit model allowed more rentals, thus more revenue.
• Late fees contributed to Blockbuster’s profit model in two ways. The fees accounted for $600 million or 10% of Blockbuster’s revenue in 2004. They also enhanced the company’s consistency in timely rental returns. Since customers usually want to avoid late fees, returning their rentals in a timely manner allowed the videos to be rented by another customer.
1) Compare Blockbuster’s and Netflix’s profit models and value proposition prior to the establishment of Blockbuster online:
Blockbuster’s Value Proposition and Profit Models: • By establishing over 5000 locations to represent “70% of the U.S. population by a 10 minute drive,” Blockbuster’s value proposition is its convenience by geographic location. The physical convenience as well as established brand name made the Blockbuster experience attractive to potential movie rental customers.
• Their profit models were based highly off of their utilization of shelf space. Most prominent shelf space would be dedicated to the newest releases.
• Another part of Blockbuster’s profit model was to maximize the number of days a video was rented. This financial aspect of the profit model allowed more rentals, thus more revenue.
• Late fees contributed to Blockbuster’s profit model in two ways. The fees accounted for $600 million or 10% of Blockbuster’s revenue in 2004. They also enhanced the company’s consistency in timely rental returns. Since customers usually want to avoid late fees, returning their rentals in a timely manner allowed the videos to be rented by another customer.