Tag: case studies

David vs. Goliath the story of Netflix vs. Blockbuster

David vs. Goliath

Over the weekend, I was doing some industry analysis for a client. She had a great idea, and a novel one at that. Well, it turns out that there was one other company in the same niche. A direct competitor…that has the early mover advantage. This reminded me of David vs. Goliath the story of Netflix vs. Blockbuster.

So what do you do when you’re the new kid on the block?  Like anything else, with lots of hard work and a great deal of luck.  Let’s look at the case of Netflix vs. Blockbuster for guidance.

In 2004, Blockbuster was the proverbial Goliath with about 9,000 stores globally and revenues of over $6 billion.  Netflix was David and had started just 7 years prior.  Fortunately, it had several things going for them:

1.  Hard work

  • Competitive Advantage – Netflix’s algorithm takes user ratings on movies they rented and then makes recommendations for other films that they might like, including movies that the viewer may have never heard of.  This rating-based recommendation is very commonplace now (seen everywhere from Pandora to Amazon), but in 1997, Netflix’s algorithm was a competitive advantage.  Viewers get recommendations they really enjoy, customer retention & satisfaction increase, and money comes in.
  • Constantly Improve – One of Netflix’s criticisms is that DVD delivery is often slow.  Creating a logistics and inventory management system that receives orders and quickly sends out products, in addition to receiving returns and repackaging for reshipment, was key to customer retention & satisfaction.  Netflix is still staying current by moving from DVDs to streaming VOD.

2.  Lots of luck

  • Competition was Flat-footed – Blockbuster kept the same mentality of a 1985 video rental shop.  They held on dearly to their late-fee revenue source, and its high fees and strict enforcement soured customers’ views of the business.  The late-80s/early-90s business model put them behind.  All they did was immitation.  In 2005, they finally did away with late fees.  In 2009, they introduced Blockbuster Express, a DVD rental kiosk designed to compete with Redbox.  By now, customers are streaming videos and renting DVDs at kiosks, while Blockbuster is trying to offload their many stores.
    • Additionally, Blockbuster did not consider the rapidly expanding prevalence of broadband internet in US homes. By 2009, 68.7% of US households had broadband internet. Also, in 2008, the Broadband Data Improvement Act, a bill to improve the quality of federal and state data regarding the availability and quality of broadband services was passed, ushering a digital highway for movie streaming.
  • Competition Thoughtlessly Expanded – Blockbuster rapidly expanded, adding its 1,200th store by June 1990 and 9,000 stores worldwide by 2004.  They wanted to be the biggest.  And fast.  They filled their stores with not just movies but video games, candies, and other goods.  Unfortunately, all these stores require operating expenses.  Operating expenses that were greater than the gross profit (i.e., Revenues minus Cost of sales).  Also, among many stumbles (which is much too long for this post but I put some references below so you can read to your heart’s content) is they failed to anticipate how media consumption will change.  From analog to digital.

Fast forward to today, Netflix has a share price of over $400, revenues of $4.37 billion USD, and over 2,000 full-time employees.  Blockbuster is bankrupt. David had defeated Goliath.

However, like most engaging stories, the end is never the end.  Dish Network purchased Blockbuster and its remaining 1,700 stores on April 6, 2011 for $233 million and took over Blockbuster’s $87 million in debt and liabilities.  Dish now continues to license the brand name to franchise location, and keeps its “Blockbuster on Demand” video streaming service and the “Blockbuster@Home” television package for Dish subscribers.  Maybe this strategy to resuscitate a nearly-dead brand  sounds foolish.  However, so did mailing out DVDs.

For more info:

http://www.referenceforbusiness.com/history2/93/Blockbuster-Inc.html

http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-online-giants

http://www.fastcompany.com/1690654/blockbuster-bankruptcy-decade-decline

http://www.getfilings.com/o0000930661-02-000951.html

Click to access BBI_10_K.pdf

Contact us for help with Industry and Market research so you can make the right decisions for your company.

When is everyone having your product a bad thing?

When you are a luxury brand.

The next thing people might be wondering is, “aren’t luxury product expensive?  how is everyone buying them?”

To answer this, we have to take a step back and look at marketing.  Lots of people think marketing is just advertising.  Advertising is one part of marketing.  Abstractly, marketing is everything that goes into getting the product/service into the customer’s hands.  When you push the art of marketing further you get to branding (i.e. brand image).  Branding can be described as the “persona” of the product/service the company wants to portray.  Why will some people pay $5 more for a plain white t-shirt with a swoosh or an alligator on it than one without the logo?  The t-shirts are likely to have been made in similar factories, made from the same materials, and have similar levels of workmanship.  Branding!

Branding goes beyond saying a product is “good” or has “quality” and that the company “cares about its customers” etc.  Branding pushes marketing to a level that makes the product/service alive.  Excellent branding is one of several reasons Apple now has a market capitalization of $700 billion.  How does a company make a product “alive”?  This is a very complex answer but in short, having a consistent image that is portrayed through the unison of the product/service itself, advertising, sales price, customer service, and distribution channels.  Alexander Chernev’s Strategic Marketing Management goes into excellent depth on the various components of branding.

Michael Kors in Fresno, CA.
Image from http://fresnobeehive.com/archives/29400

So going back to the original question “when is everyone having a product a bad thing?” is what luxury handbag maker Michael Kors is facing now.  When everyone has your purse, then the exclusive element of its luxury image is weakened.  How is everyone getting your purses?  Through your distribution channel.  Michael Kors used to just sell their goods in their 231 stores.  However, after their 2011 IPO, they tripled their store count to 703 in 2014.  Although Michael Kors is enjoying high profits now, if it continues to sell in every market, it may fall into the same category as Liz Claiborne.

What is in a name?

One of the most important decisions an entrepreneur has to make is what to name his/her company.  It should be short, memorable, and capture the essence of the business.  Not an easy task.

Skype got its name from the shortening of sky-peer-to-peer, which turned to skyper, then finally Skype.

3M was originally Minnesota Mining and Manufacturing Company.  Not as creative sounding now but probably very unique at the time.

You can read the inspiration of other famous companies in the article here.

Logos are another mountain in itself.  Fortunately, there are lots of companies (such as 99 Designs) with talented graphic designers that can help you create a beautiful and practical logo for a relatively inexpensive price.

MBWA: Master By Walking Around

In one my business school classes we had Mr. Leonard Lavin come speak to us about entrepreneurship.  Mr. Lavin is an American businessman, who founded the Alberto-Culver Company in 1955.  Alberto-Culver was a corporation with international sales whose principal business is manufacturing hair and skin beauty care products under such brands as Alberto VO5, Andrew Collinge, St. Ives (skin care products), TRESemme, FDS, Consort, and Nexxus.  Alberto-Culver was purchased by the Anglo-Dutch consumer goods company Unilever on September 27, 2010 for US$3.7 billion.

When asked about his education Mr. Lavin said his business education came in the form of an MBWA, “master by walking around.”  This means that everyday Mr. Lavin is speaking with his employees of all levels and directly observing how things are run.  Words cannot express how important a ground-level understanding of the day-to-day operations.

Business shouldn’t be run from the boardroom using only preformance reports and metrics to steer its direction.  However, as companies grow, leadership finds it difficult find the time to do this crucial research.  In one episode of Undercover Boss, Gina Rivera, Founder and President of Phenix Salons INC., a franchise which offers independent salon and business professionals the opportunity to own and operate their own luxury salon suites, goes undercover to see if it will color her perception of how the company is running.  As this company is making that difficult transition from small to medium sized enterprise, Ms. Rivera realized she was losing ground-level knowledge of what her franchisees are experiencing.  A must watch!

Wowza!

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That’s more than most small businesses make a year.  Nonetheless, go big or go home right?  Targeted advertising is most effective and efficient but if your target is the general US population, then few places match the Super Bowl for exposure.  This is why you won’t see wealthy but relatively niche players such as hedge funds advertise while companies like Anheuser-Busch InBev, Pepsi and Chrysler spend a lot of money.

sb advertisers

A gadget’s journey

This holiday season little thought goes to the awesome path the various components of electronics takes to make it to the store shelves and under our tree.

From mines, to factories and cargo ships, many gears of the global economy work together to bring us our shiny electronics.

Read the entire here.

Of course not only electronics take this journey. Everything from food to t-shirts make a similar trek before reaching us.

Clients

Over the past few years I’ve had the great pleasure of helping many clients create and expand their business.  Here are a few projects I have been fortunate to work on.

9 bar

9 Bar Roasting is a coffee kiosk in one of the busiest intersections in Los Angeles — Hollywood Blvd. and Highland Ave.  I wrote a business plan for 9 Bar Roasting so they could move into an existing business.

 

adrADR Solar Solutions is a solar panel installation company based in Woodland Hills, CA.  Among their many projects they are credited with the largest residential installation in the world — at the 6,000 sq. ft. house of esteemed green architect Mr. Carl Harberger.  I wrote a business plan to help ADR expand their current operations to a retail space in Calabasas.

 

dgaplusDGAPlus is a specialty firm providing innovative strategies and solutions that meet the many requirements of enterprise utility companies and agency partners.  I created a business proposal for DGAPlus to present to partnership targets to incorporate their patented systems. 

 

 

her houseH.E.R. House is a private women’s only lifestyle club in Newport Beach, CA.  I made a business plan so that H.E.R. House could find the startup capital and equity investors needed to launch this rather large operation.  Coming soon.

 

maitri Maitri Yoga Store is a yoga clothing  and accessories specialty store based in Culver City, CA.  I wrote a business plan for Maitri so it could attract startup capital from lenders and investors.  Open Feburary 2015!

 

 

 

 

hakeemSkyview Consulting Group is an advisory firm based in Beverly Hill, CA, specializing bringing foreign companies into the US.  I wrote several business proposals for Skyview to help them with a roll-up strategy for multiple business sectors in the Antelope Valley, Santa Clarita and surrounding areas.

Whasssap!!!

Budweiser is not a great beer and Bud Light Lime is a terrible Frankenstein experiment gone wrong of a concoction.  However, one thing that Anheuser Busch more than makes up for its lack of delicious libations is its creative marketing and branding.  What is branding?  See my article on the Redbull Flugtag.

In its 150 year history it faced Prohibition, economic Depression and Recessions, and acquisition.  Nonetheless, it is still going strong despite of new ownership.  There’s a great 2 minute video summarizing Budweiser’s interesting history.

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