by Tony Fannin, President, BE Branded
The demise of Blockbuster dominated the business news last week. It got me thinking about the root cause. Was this a case of an out-dated business model being crushed by the new world order of Netflix or was it something deeper?
At first glance, it seems like a simple case of the brick-and-mortar store not being able to keep up with new technology and a paradigm shift. The costs of running a physical store is much more than a mail order or online streaming delivery system. The cost was reflected in the rental rates; $3.99 per movie for Blockbuster and $9 a month for Netflix regardless of how many movies. Another disadvantage of Blockbuster is the limited customer reach per store. Netflix is practically virtual. And finally, Netflix poured advertising money into TV, print, radio, online, social media, and about any other channel you can think of while Blockbuster drastically cut back on their marketing investment in the last 4-5 years. So, is this an example of the “horse and buggy” being overran by the automobile?
Though all of the above conclusions I believe are true, it’s not really a case of technology upending a former powerhouse brand. To me, it is a situation where the company forgot what their brand was. You see, Blockbuster partnered with, the now failed, Enron to deliver movies over broadband. They were way ahead of the technology game. They did understand that was where movies were heading way back in the 90′s. But, they took their eye off the brand ball. At their core, Blockbuster was about delivering the newest entertainment available. Their main vehicle was to open convenient, neighborhood storefronts. This fit perfectly when Blockbuster started in 1985. It was Starbucks before Starbucks. They saturated a city with dozens of storefronts. This also became their best advertising. You couldn’t miss seeing a Blockbuster in, what seemed, like every other neighborhood. As newer technology was created, Blockbuster did try to keep up with the Enron deal, but unfortunately, Enron didn’t keep their part of the bargain. The strategy was correct, though. It fit with their brand of delivering the newest entertainment and what better way to deliver new than streaming broadband.
Instead of aggressively pursuing this strategy, Blockbuster decided to grow by two other tactics: more stores and more per-store sales. Instead of concentrating on keeping their brand promise, they were distracted by the “retail” mentality. Use movies to sell other, higher margin items like soft drinks, snacks, magazines, and movie promotional toys. I’m not saying they shouldn’t have sold these items. It made sense. The problem is Blockbuster concentrated on impulse sales too much to where it forgot what they stood for as a brand. If they would have remembered their promise to deliver the newest entertainment available, they would have continued to invest and develop the broadband delivery system and be light years ahead of any competition that would have come up. In fact, Netflix and Redbox would have had a harder time establishing any type of foothold in the category. Instead, Blockbuster relied on the tactical things (store fronts, impulse items, etc.) to drive profits and in the process, lost their identity. They were too tied to the brick-and-mortar to give them up in the face of a changing environment and that there were better ways of delivering their brand promise. The cost of this was they gave up their huge brand position and mindshare almost without a fight. They allowed someone else to deliver their brand promise better.
In my viewpoint, Blockbuster lost their brand identity and who they are. This was the root cause of their downfall. Technology only sped up the process. Technology alone is almost never the cause of a brand’s demise. It is usually because companies rely too much on a strategy and a tactic and forget why they are in business in the first place.