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Do You Have the Same Blind-Spot as Blockbuster?

We’ve all heard about the problems happening right now at Blockbuster: The one-time giant in video rental has announced that it will file for bankruptcy this September. What lessons can we learn from this? How could Blockbuster’s position have eroded so far?

We’ve all heard about the problems happening right now at Blockbuster: The one-time giant in video rental has announced that it will file for bankruptcy this September. What lessons can we learn from this? How could Blockbuster’s position have eroded so far?

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From a traditional marketing and strategy perspective, it seemed to be doing everything right. It had a globally recognized brand (a marketers’ Holy Grail), it offered competitive pricing compared to the movie theaters, and it had prime retail locations with economies of scale, consistent layouts, and impulse buys (popcorn and candy). The company abided by many of the best practices of retailing — but they had a blind-spot.

Customers Continually Seek Ways to Save Time

Blockbuster overlooked one of the hidden but powerful Laws of Time-onomics (Time-Value Economics): When given a reasonable choice, people will opt to save time. Although most businesses devote considerable resources to brand recognition, pricing, and demographics, they pay scant attention to truly understanding how time affects customer behavior.

Until recently, home movie watchers had no choice but to drive to the rental store and see what was available. Compared with the time to drive to the movie theater, the time spent was more or less equal, and Blockbuster offered greater choice and flexibility around when you used the product.

But then, Netflix changed the time equation on movie rentals. Netflix allows customers to experience both spontaneity and convenience: you can decide at any time to watch a movie and still have no need to leave the house to make it happen. Although watching movies is considered valuable time, driving to the movie store is not. This time savings resulted in Netflix taking 36% of the market.

Of course, Netflix subscribers probably spend as much time selecting movies, but the system time-shifts the selection phase, so you do not have to choose your night’s entertainment while your kids are hungry or your significant other is getting impatient. By enabling viewers to pre-select movies into a queue, and offering an automatic monthly subscription, Netflix baked in repeat purchases by making the option to continue easy. Viewed together, the Netflix experience offers a huge time-value advantage.

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The video rental market has continued to change since Netflix’s market entry, but the time factor has only become more important. Netflix and others have streaming video services now, further increasing speed and choice.

Physical rental has also made a huge comeback with Redbox’s automated kiosks in grocery stores, which now owns about 19% of the rental market. That was the nail in Blockbuster’s coffin. Before Redbox, Blockbuster had an advantage among viewers who hadn’t planned ahead or didn’t have the technology or expertise required for streaming. Redbox killed that advantage with added time-savings by linking their offering to the regular shopping routine and with lower prices, nailing Blockbuster on both sides of the Time-Value Tradeoff. (The Time-Value Tradeoff is the equation consumers tally in their heads before they buy: Is the value of the offering greater than combination of price plus time investment?)

The Invisible Hand of Time: Why We Pick the Shortest Line

The tendency to save time whenever possible is not limited to movie distribution. We see this invisible force in everyday decisions. Have you ever traveled to the store to pick up two items and ended up with a cartload? We risk overbuying products in order to avoid returning to the store later (and avoid wasting more time). This same force is the reason we agonize over whether we are in the shortest line at grocery store.

Just as we understand the laws of supply and demand, understanding the underlying forces of time for your business is important to comprehending customer behavior in today’s hectic economy. But this is not just about saving time. The drive toward time efficiency is just one of many Laws of Time-onomics. I’ll cover more about the impact of these Laws on your business in future posts.

To avoid Blockbuster’s blind-spot in your business, here are a few tips:

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Don’t confuse your business model with market requirements. Blockbuster considered itself a retailer (business model) and acted with that mindset. Accordingly they they did not consider Netflix a competitor. With today’s technology options, this is a dangerous way to view a business. Blockbuster is in the entertainment delivery business and should have strategized accordingly.

Map time elements of the customer experience that are considered high value vs. those that customers consider a waste. For consumers, watching an enjoyable movie is the valuable part. Picking a movie is not. How can you maximize the high-value time and reduce wasted time?

Consider time alternatives. What else could customer feasibly do instead of watch a movie? Play a game? Go to dinner? Spend time on social networks? Consider providers in these markets as competitors, and their products as opportunities.

And Blockbuster’s leadership indicates that they want to take all these players on when it revives from bankruptcy. I wish them well.

Adrian Ott, was called “one of Silicon Valley’s most respected (if not the most respected) strategists” by Consulting Magazine. She is author of the new book The 24-Hour Customer: New Rules for Winning in a Time-Starved, Always-Connected Economy and CEO of Exponential Edge® Inc. consulting. Follow Adrian on Twitter at @ExponentialEdge

©2010 Exponential Edge, Inc., All Rights Reserved

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About the author

Adrian Ott, award-winning author, speaker, and CEO of Exponential Edge Inc., was called “one of Silicon Valley’s most respected strategists” by Consulting Magazine. She helps relentless visionary executives to foresee disruptive opportunities and accelerate market leadership

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