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Once upon a time, little more than a decade ago, if you wanted to rent a movie you had to physically visit a video store. You had to drive your gas-guzzling vehicle through rain and snow, busy streets, and crowded parking lots. When you actually arrived at the store, you encountered less-than-enthusiastic employees, little selection, and draconian late fees. You would pay a steep price per movie, and you would have to bring it back again the next day to avoid more fees. If you wanted a specific film, you probably should have called ahead to see if it was available at your local store, because otherwise you’ll end up watching whichever new release is still on the shelf.

Nowadays, the movie fan has many more options that do not involve the negative experiences described above. More and more people are signing up for online rental services like Netflix, which revolutionized the way we watch movies when they begun service in 1999. They are drawn to the convenience, selection, and service that a traditional brick-and-mortar store cannot offer. Netflix spokesperson Steve Swasey points out, “You can rent from wherever you want, whether you’re at home, at work, or at Starbucks.” Best of all, compared with the average video store’s selection of 3,000 to 5,000 titles, Netflix now offers over 90,000 films of every possible genre.

The subscription service works on a very simple model. Members sign up for one of nine different plans, each offering a different number of movies at a time/per month, and each at a different price point. They can then search Netflix’s catalog of films and add them to a personal “queue”. Films will be shipped based on their order in your queue, and you can reorganize the order at any time. Your DVDs arrive in those tell-tale red envelopes which are designed to be your return envelope as well. The business model is smart, efficient, and it filled a real need in the marketplace. In fact, Netflix finds themselves with with 70% of the online movie rental market, with approximately 7 million subscribers. They are still growing rapidly, and they are poised to be very competitive in the $8 billion movie rental industry.

Obviously, as the largest of the traditional video chains, Blockbuster had to step up to the plate. They announced a service to rival Netflix called Total Access, which allowed customers to receive DVDs in the mail and exchange them in the store, all for lower prices. The Total Access service was successful in the short term, and it caused Netflix to drop their prices and add more DVDs to their catalog, but it wasn’t as competitive as they had hoped. It seems that people don’t want to go to the video store, even if it means getting more movies at once, and Netflix’s members seem to be abnormally loyal. This is bad news for Blockbuster, who’s third-quarter results are looking dismal. They have been forced to close hundreds of stores in the past year and cut many jobs to keep their heads above water.

As CNET’s News blog points out, “Blockbuster has been a victim on an online company finding new and inventive ways of bringing a product to a customer.” Why has Netflix been so successful? Why are their customers so loyal? Swasey attributes it to Netflix’s commitment to improving the customer experience: “We continued to invest in content by adding Blu-ray and HD DVD options and improving our user-friendly website. We added price plans so there would be something for everybody.” Indeed, the focus on website customer experience has paid off, as Netflix has been named the #1 rated website for customer satisfaction for five consecutive periods as a result of independent surveys conducted by ForeSee Results.

Netflix cares enough about user experience to offer a $1 million prize to any programmer who can improve their movie recommendation application by 10%. The system allows members to rate movies they’ve seen, then recommends other movies of similar genres, themes, and styles. So far, one team has been awarded a progress prize of $50,000 for their efforts, but the big money is still on the table. Other website improvements are also a priority, with the newly added “drag and drop” queue and the “watch instantly” function which allows users to see films directly in their browsers. In addition to improving the online experience, Netflix recently moved all their customer service to a call center in Oregon, so users can actually talk to a real person if they have a problem with service.

More and more traditional businesses are seeing market share slip away to e-businesses, and their efforts to hold onto customers are not terribly successful. Like Blockbuster, many of these brick-and-mortars compete only with prices without regard to the level of service that consumers want. They undercut not only their online rivals, but also themselves, and their services are not financially sustainable. The best way to compete would be to take an honest look at the user experience, which is something most brick-and-mortars never do. E-businesses and traditional businesses alike could look to market leaders like Netflix for solutions to their customer service shortcomings. In the meantime, I think I’ll take a look at what films await me in my Netflix queue.

Thursday, December 13th, 2007 Both comments and pings are currently closed.

By Haley January Eckels