Learning From Your Competitor To Build A Better Product

Author: Veena Epari IRMA - Institute of Rural Management, Anand

In the year 2010, a mere 25 years after it first came into existence, Blockbuster, the uncontested champion of the video rental industry, filed for bankruptcy Netflix had been instrumental in putting the American-based video rental service giant, which once had 65 million registered customers, to rest This was the result of 13 years of carefully analyzing its business competitor and building a better product, an improved business model, and a better value proposition for the customers Netflix had finally emerged as the biggest player in the industry

Back in the 90s, Blockbuster thrived with more than 9000 brick-and-mortar retail stores across the US, offering home videos and video game rentals to customers A customer looking to relax on a Friday night could leisurely stroll into one of the stores, pick out a movie title from the collection and rent it for a specific period of time Despite the popularity of the product offering, the business model of Blockbuster relied on rental fees, and to a large extent on late fees, which was often a cause for frustration for customers. In 2000, this fee mounted to a whopping $800 million, accounting for 16% of Blockbuster’s revenues.

Making the customer the hero of the story, Netflix swooped in and was able to offer the customers a better experience. It analyzed the gaps in the existing product, specifically the late fee issue, and introduced a new way to relax – rent out DVDs for as long as you want, without having to worry about fees piling up in the background Not only was their business model better, but they were able to improve on what Blockbuster had created

As suggested by Barney (1991 – VRIN Framework), firms that are able to utilize resources to create value that is not being implemented by any current or potential competitor can achieve a competitive advantage Companies that use precious resources to set up feedback and input routes and prioritize incoming changes from market research/stakeholders are the ones that not only succeed but sustain in the long run

Employing the same principle, Netflix used the mail delivery system instead of physical stores and used a subscription-based model that allowed the users the convenience of returning the DVD without any added pressure, eliminating the concept of late fees entirely. A post-paid return sleeve shipped along with the DVD ensured that the customer could easily return the spent DVD in exchange for a new title.

The growing popularity of streaming media in the late 2000s served as the final nail in the coffin for Blockbuster. Its bullheadedness to not adapt the product offering to the customer’s needs and Netflix’s sensibility to continuously evolve with changing times made all the difference. Soon Netflix began streaming content via the internet instead of DVDs, started producing its own content and expanded geographically across the globe. With its presence in more than 190 countries and more than 231 million paid subscribers, Blockbuster was left way behind Any attempts to catch up was now too little, too late

In a classic case of David vs Goliath, Netflix had won Just as David picked up Goliath’s very own sword to go for the final kill, Netflix had managed to take Blockbuster’s product, improve on it, and do away with Blockbuster forever Such is the power of building a better product

The pareto principle or the rule of 80-20 explains that 20% of the problems cause 80% of the pain to the customer Being receptive to this and improving the product along these inputs allows the company to become indispensable to the customer However, this is not a one-time investment

The process must be ingrained into the very soul of the company - bettering the product perpetually. One-way companies achieve this is by investing in market research and funding their R&D departments. In 2022, Amazon spent $42.74 billion on R&D, an amount almost equal to the GDP of Nigeria. All the giants of the business world – Apple, Google, Tesla and many more swear by the principle of continuous improvement via their product strategy.

The underdog story of Netflix does not end here – the threat of competitors, looking to use the same strategy (that Netflix did to oust Blockbuster), is still looming Amazon via its prime video services is finding ways to one up Netflix – by adding more titles, offering easier interfaces and a more holistic experience Looks like David is facing yet another hurdle, not from Goliath, but from another version of David itself That being said, the core of the matter doesn’t change –continuous product improvement is the elixir to success in the business world

As Benjamin Franklin once said, ‘When you’re finished changing, you’re finished’, learning from your competitor to build a better product will never go out of relevance in business