Lessons We Can Learn From Blockbuster's Demise

By Kate Luther on 4 October 2010 5 comments

There's a common perception among business owners that adding an online presence to an already existing brick-and-mortar business is a no-brainer.

That's not surprising. Marketing gurus have been touting the power of the Internet for years and given its exponential growth and success, there's been no reason to argue that strategy. But the recent bankruptcy of the video giant Blockbuster has caused many of those same experts to take another look at that philosophy as we try to figure out what went wrong. After all, Blockbuster should have been the easy winner in the video rental war, certainly beating out its smaller — and online only — rival, Netflix. Instead of coming out on top, Blockbuster has been reduced to a case study. Netflix on the other hand, is as stable as ever, currently trading well above $100 per share.

So, what went wrong? Does this mean that going online isn't a good idea after all?

Quite the contrary — having a web presence is still a very smart move and remember, it wasn't the website itself that resulted in Blockbuster's demise. Instead, their fall is being attributed to a number of factors that range from excessive operating expenses to a lack a proper planning to, well...a severe case of complacency.

The truth is, there are a number of things that Blockbuster could have done differently and while your company's fiscal footprint may not be nearly as big, there are still lessons to be learned.

A website is just a website

Simply having a website doesn't automatically make it successful and by the same token, there's no guarantee it can save a struggling business. I can't count the number of clients that have come to me wanting a website, only to become frustrated when they don't see an immediate increase in sales.

Success on the web requires the same research, effort, and attention as your physical location — something that many brick-and-mortar businesses overlook. While Blockbuster's website was certainly more than just a static presentation it was at least for a while, neglected and somewhat painful to manuever. Blockbuster took several years to actually integrate their online offerings with their physical storefront and then discovered after the fact that running such a program would cost much more than they had anticipated.

As a result, they increased the prices of their Total Access program while simultaneously decreasing the benefits, upsetting many of the loyal customers they had in their existing base. Netflix of course, had already figured out how to streamline online delivery and reduce expenses, making them the obvious alternative for disgruntled Blockbuster customers.

Don't just follow the crowd

Blockbuster wasn't just slow to enter the world of online video rental, they also failed to capitalize on their unique selling proposition once they arrived.

With a large and loyal customer base, Blockbuster should have entered the online arena like gangbusters, touting the obvious advantage they had over Netflix — rent online, return at the store. But Blockbuster didn't do that. Instead, they made their grand entrance by copying what Netflix had already done...except that Netflix was doing it better and cheaper.

By the time Blockbuster got around to distinguishing themselves from the competition, Netflix had gained quite a bit of steam, not to mention quite a few of Blockbuster's customers.

A leader can be toppled

But perhaps the biggest mistake in the Blockbuster saga is their obvious reliance on their past success.

For years, Blockbuster was the frontrunner in video rentals and unfortunately, this "can't touch us" kind of success affected their ability to see the bigger marketing picture and thus, the potential threat that Netflix posed.

The world as we know it, is changing. Customers are looking for easier, more effective ways to get things done and technology has been happy to oblige. As a result, companies from every industry are having to rethink their marketing approach, giving serious consideration to the possibility that their biggest rival might not be the competitor down the street, but rather a faceless, virtual store with lower overhead and a clear understanding of how the internet and its users work.

Even law firms and CPAs, industries that were once seemingly exempt from such traditional marketing concerns, must now compete with do-it-yourself software programs and downloadable forms, both of which offer the client the same end result but at a fraction of the cost. This sink or swim ultimatium has become painfully clear: either join the technological revolution or be left far behind.

It's no longer enough to simply offer a set of services or products — you must be diligent in your efforts to show customers why your version of those services and products are better than the alternatives.. even (or perhaps especially) when those alternatives are online, non-personal solutions.

The bottom line is that the marketing gurus were right — you must have a website to compete. But it will be your ability to embrace this new way of doing business — not the virtual real estate itself — that determines your ultimate success.

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Guest's picture

I think it is definitely a case of they thought they were the top dog and that they could continue their existing business model. This is one instance where the consumer won. Blockbuster made a lot of their money gouging consumers on late fees. Netflix came up with a model in which they thought of the consumer first. I could not be happier to see Netflix win this battle.

Guest's picture

The other lesson? Don't treat your customers like criminals. As soon as other viable options became available, many of us "talked with our feet". What amazes me is how suprised the business community is ... Blockbusters business policies were ... insulting ... and extremely harsh. Not only was I not suprised by their demise, I was thrilled (and suprised it took so long).

Guest's picture

In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.
- Theodore Roosevelt

Guest's picture

I have to agree with Marc and Melanie and I'll even go a step further. I really don't believe Blockbuster's failure has anything at all to do with a business model or how you go about marketing via the web. Their failure is strictly their own doing, by treating their customers badly. They only have themselves to blame.

I despise Blockbuster and their failure actually brings me happiness. Bitter? Maybe, but they never got the $300 that they had the audacity to bill me for (back in 2002, for only 3 movies), this after the movies were turned in ON TIME. I cannot answer why they couldn't find them, but how does one prove that you actually DID turn them in? When the movies were found ("... in a box in the back), did they send me an apology? Of course not. THAT was their customer service at work, and that is what destroyed them.

I hate them.

Guest's picture

In the end I think they could have saved themselves if they offered better video game rentals. Movie rentals were dead but retro gaming was huge, it still is. Many people would pay a decent price to rent games from older systems, Blockbuster instantly stopped renting old games as soon as a new system came out. I have read that online piracy killed Blockbuster, but in actually only accumulated to around 1% of total sales lost in any industry. Blockbuster killed itself.