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. Netflix Value Proposition and Profit Models:
• Netflix’s key value proposition was offering a completely different format of movie rental. Not only did Netflix offer its product through a different channel (the internet), but they also focused on utilizing DVDs, which was at the time considered early-? technology. The popularity of both the internet and DVDs were increasing at the time of Netflix’s launch. With an increase in popularity of new technology, Netflix’s unique service offering became very attractive among the early-? adopters of these technologies. The utilization of a subscription-? based service also added to its value proposition.
Enabling subscribers to exchange DVDs as frequently as they wanted made Netflix even more attractive. • One aspect of Netflix’s profit model was its marketing strategy to only target DVD consumers. By developing a cross-? promotional program with manufacturers and retailers of DVD players, Netflix did not waste marketing to other consumer groups who don’t have the new technology to even use DVDs. • In regards to
Netflix’s operational aspects of its profit model, Netflix expansion of nationwide distribution centers contributed to the company’s efficient process. The expansion improved delivery time and also nationwide coverage. Also, the low costs of investing in an additional distribution center further added to the company’s profit model. 2) List each major shift in Netflix’s Strategy • The first major shift in Netflix’s strategy was the transition to a prepaid subscription service. Netflix realized its original pricing strategy of paying $4 for reach rental was •