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Wednesday, September 5, 2007

Blockbuster is going to mop the floor with Netflix

It is war between Netflix and Blockbuster. As the September 4 New York Times reports (http://www.nytimes.com/2007/09/04/us/04fashion.html?ref=business&pagewanted=print), in an attempt to stanch the flow of customers who are leaving the service, Netflix has implemented an all-telephone customer service system, with no email option, because of the belief that customers prefer human contact to impersonal computer-based interaction.

It's an iffy bet. According to the Times, Netflix has started losing market share to Blockbuster ever since the latter introduced its Total Access program, which lets people return online rentals to stores and get an in-store movie in exchange. Netflix added 480,000 new subscribers in the first quarter of 2007 vs. 780,000 for Blockbuster. By the second quarter, Netflix lost 55,000 customers while Blockbuster added 525,000.

How long do you think Netflix is going to retain its approximately 3 million customer lead over Blockbuster in the online DVD-ordering business?

Consumerist (http://consumerist.com/consumer/video-wars/the-ace-up-netflixs-sleeve-excellent-customer-service-291033.php) thinks the all-telephone customer service system is an "Ace up Netflix's sleeve," stating that this is "an exceptionally prescient move by Netflix." Certainly it's in line with Netflix's brand emphasis on customer loyalty.

However, what Consumerist is missing is that Blockbuster simply offers a better service than Netflix. Blockbuster is leveraging its bricks-and-mortar presence to offer something that Netflix simply cannot.

There are limits to branding—all the customer loyalty in the world can't save Netflix from being only a virtual reality compared to its rival.

It's a shame, because Netflix had a good idea. But this is a case where an upstart brand is being challenged by an industry behemoth that copied its innovation, and may well ultimately lose out.

See a comparison between Netflix and Blockbuster here: http://reviews.cnet.com/4520-11445_7-6325775-1.html