How did Netflix leverage digitalization to serve their customers better, and beat the competition?

1. D I G I T A L B U S I N E S S
S T R A T E G Y
How did Netflix leverage digitalization to serve their customers better
than ever before?
NETFLIX

2. MEET THE BLOCKBUSTER
CUSTOMER
"The Soccer Mom"
Age 30-45
Drives: Ford Suv
Busy and under a lot of family stress
Wants to please her childern aged 3-13
Rents new releases on VHS
Returns movies on time
2 0 2 0 B R A N D I N G G U I D E L I N E S

3. MEET THE NETFLIX CUSTOMER
"The Nerd"
Age 18-35
Lives in his parents' basement
Drives: old Honda Civic
Wants to rent old cult classics
Uses PC to watch movies on the new DVD-format
Wants to watch a single movie 10 times
Irresponsible, returns movies late
Hates late fees

4. F I N D I N G
N E M O
2 0 0 3

5. WHAT HAPPENS AT
BLOCKBUSTER?
Finding Nemo was so popular that Blockbuster
couldn't keep up with the demand

6. 2 0 2 0 B R A N D I N G G U I D E L I N E S
When you realize no Finding Nemo
tonight
BAD CUSTOMEREXPERIENCE

7. 2 0 2 0 B R A N D I N G G U I D E L I N E S
HOW DOES BLOCKBUSTER
RESPOND?
Invest in increasing the number of copies in the new
releases section to guarantee The Soccer Mom her
copy
Forced to scale down the old classics section in
the store

8. 2 0 2 0 B R A N D I N G G U I D E L I N E S
Meanwhile in the basement
"I don't care about Finding nemo"
"I want to watch Dirty Harry for the 37th time"

9. 2 0 2 0 B R A N D I N G G U I D E L I N E S
Netflix knows what their customers'
want
Offer old cult classics on DVD via mail (the Civic
was often broken)
Monthly subscription model
Let the customer keep the movie as long as he
wants
No late fees or due dates
Limit renting if previous not returned

10. When the Finding Nemo craze is over
A large inventory of videos no-one
wants to rent anymore.
The investment starts to erode.
The Nerd segment is lost.
No effect. Old cult classics are
evergreen and will be rented
steadily over time.
Just stay away from the volatile
new releases business.

11. The Netflix long tail earning logic
Time
Generatedrevenue/title
80% of earnings
/ title
New
Releases
Old Cult
Classics
The Netflix
Earning Sweet
Spot

12. 2 0 2 0 B R A N D I N G G U I D E L I N E S
Why digitization made perfect sense
for Netflix?
The customer base already used PC to watch the
movies
Monthly subscription model already in place
The nerd can now watch the movie unlimited
times on demand
Digital inventory is cheap to maintain and expand
No logistics costs or warehousing

13. 2 0 2 0 B R A N D I N G G U I D E L I N E S
Why digitization made perfect sense
for Netflix?
Old cult classics have low copyright fees and generate
steady revenue long tail
Netflix's business not dependent on the late fees unlike
Blockbuster's This kept Blockbuster from going into
streaming until it was too late
No additional marketing costs for old movies due to the
intelligent recommendation system
When straming service was launched in 2007, fast
internet connections were widely available.
NETFLIX HAS STAYED LOYAL
TO THEIR ORIGINAL
CUSTOMER SEGMENT UP
UNTIL THIS DAY

14. Olli Auvinen
olli.auvinen@intopalo.com
Use freely
THANK YOU FOR
READING