Blockbuster, Netflix, and Information Systems

Introduction

Having a competitive advantage in the market is critical for companies. Competitive advantage refers to a situation where a firm is better placed to attract consumers and/or outdo other companies in the market. While competitive advantage promises great benefits to an organization, it is not permanent. Therefore, companies must initiate strategies to sustain it. Moreover, the Information System (IS) has been affirmed as a critical component for establishing and maintaining a competitive advantage. Constant implementation of Information Technology (IT) helps a company to handle internal, as well as external responsibilities that occur as a routine or in the long-term decision. Although recent researches concur that IS boosts business performance and market position, it has to be implemented through proper strategies that are consistent with the company’s agenda and customers’ requirements. The ensuing discussion analyzes how organizations can manage IS to gain a competitive advantage. It uses the example of Blockbuster and Netflix to confirm that proper IS strategies are essential to achieve a competitive advantage. It further explains the intrinsic and external factors that influence a competitive advantage. It also shows how to sustain a competitive advantage via IS//IT.

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The Case of Blockbuster and Netflix

The case of Blockbuster and Netflix is an interesting example that can explain how competitive advantage is a temporary position that companies must be attentive to implement strategic IS to sustain it. Although Blockbuster had become a corporate giant in the video rental market through an interesting strategic approach that attracted millions, Netflix took over soon after joining the market. Netflix applied competitive strategies that were different from the mundane tactics that helped Blockbuster to control the industry. It adopted an approach that highlighted why a company should promote a strategic IS that enables it to meet the tactical business objectives while boosting its performance and productivity (Trendowski & Sherman 2014).

The popularity of the video rental industry began in the 1980s following the revolution of the VHS player. Netflix joined the market in 1997 when Blockbuster already had significant control of the market. Established in 1985, Blockbuster had grown over the years. By then, it had controlled about 40% of the market. Other national companies and small rental shops shared the residual. The companies kept movie records, both new and old, in retail shops. About 70% of Blockbuster’s stocks were new movies.

Blockbuster earned its competitive advantage because of certain practices. It had over 500 stores stationed in strategic locations such as high-traffic, conspicuous, and highly populated zones. It charged cheaply for the video rentals while imposing an extra fee for late returns. The late fees not only earned it additional revenue but also ensured that it always had a substantial inventory in its stores. It also sold other items such as drinks and soda that interestingly blended well with movie enthusiasts. Moreover, it did not major in the competition since purchasing movies was expensive just like watching them from cinemas and television sets. Thus, movie renting was the most convenient option. Nonetheless, most consumers were dejected with the late fee charges, as some of them wished to watch the videos longer or were rather unsure when they would be done with watching. Hence, while Blockbuster’s model had gained its competitive advantage in the market, it suffered a clear loophole (Trendowski & Sherman 2014).

When Netflix entered the market in 1991, it aimed at capitalizing Blockbuster’s model shortfall among other subsisting developments such as the evolution of DVD players. Netflix mailed its cheap, quick, and reliable products to customers. It monitored delivery to ensure that it was apt and secure. Through the application of a centralized distribution technique, instead of a local model, it managed to monitor and handle demand fluxes. Conversely, this strategy did not work well with Blockbuster. The DVD pricing model meant that Blockbuster would earn less by renting DVDs than VHS. Meanwhile, customers preferred DVDs. They even opted to purchase them, rather than renting. This situation created a balancing dilemma for the company at a time when Netflix was increasingly taking hold of the market.

The arrival of the DVD player was coupled with the popularity of the internet. Hence, enterprises in the home entertainment industry could easily ignore traditional business techniques and adopt an IT-based strategy to gain competitive advantage. Although Blockbuster already had an online site, it was meant for eCommerce just like Amazon and other online retailers. Blockbuster decided to adjust its model to join the online retail market. However, at this point, it did not have adequate resources to operate an eCommerce business. Therefore, it invested heavily and signed contracts with other companies to sell DVDs and VHS to online customers. Unfortunately, the move to commence online retailing was not strategic, as the eCommerce business was struggling (Trendowski & Sherman 2014).

Conversely, Netflix developed a strategy that worked impressively. It initiated an online-based subscription program. Through the online subscription, customers could get DVD movies at a reasonable fee of $20. Afterward, the subscribers could receive other DVDs available on an online queue (wish list) soon after returning the initial movies. Hence, customers could not only enjoy quality movies at an affordable price but also use them as long as they desired. Moreover, the company also catered for transportation costs. The model increased the company’s productivity. By 2002, its shares were being traded publicly, thus raising its capital even higher.

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Blockbuster attempted to counter the challenge that was being posed by Netflix by aggressively joining the online market and providing services that were almost similar to its core rival. However, it had major setbacks. First, since it did not have adequate skills to handle the logistics of the online retail business, unlike Netflix that had internal established logistics software. Consequently, the processing of customer orders was slow to the extent of leading to poor customer satisfaction. Secondly, it had limited movie selection options. Its inventory comprised a huge percentage of new movies just as it did traditionally. Online customers required a long-list of movies that targeted the various types of shopper demands. The situation required the company to understand how to counter the competition in the market and to apply proper strategic information systems. Eventually, Blockbuster filed for bankruptcy after facing a debt of more than $1 billion (Trendowski & Sherman 2014).

Lesson from the Case of Blockbuster and Netflix

First, companies should consider the changing needs of customers. Blockbuster was not attentive to adjusting customer preferences. In particular, the company did not notice that most customers detested the late fee. Netflix exploited the loophole and seized its customers by mailing DVDs without any extra charges. The strategy also underpins the need for companies to pinpoint effective competitive advantage. Secondly, firms should always reevaluate their competitive strategies to ensure that they conform to contemporary technology and drifts. Blockbuster overlooked the challenges that were posed by its competitors, especially Netflix. Despite having a website, it hesitated to join online retail, even though it was evident that the traditional model was becoming ineffective. Conversely, Netflix consistently reevaluated the strategies that gave it a competitive advantage. It utilized both the benefits offered by the advent of DVDs and the internet.

Thirdly, price should not be the sole focus for achieving competitive focus. The dominance of Netflix has not been sustained because cheap products are among a wide-range of factors that unanimously lead to customer satisfaction. There is a need for businesses to consider the superiority, handiness, and consistency of products. This strategy ensures that companies can retain customers while controlling the market, despite price fluctuations. Additionally, it is important for companies to focus on where they are best experienced, rather than focusing on competitors. Blockbuster made serious strategic miscalculations such as focusing more on the internet than the stores. It was apparent that it had the logistics to satisfy customers through its stores. Unfortunately, following the competition of online retailers such as Amazon and Netflix it opted to go online where it was largely inexperienced. The move only led to failure. However, since it has begun refocusing on the stores, the company is gaining more customers (Mustafa 2015).

Internal and external factors that influence competitive advantage

One of the factors that affect the competitive advantage of a firm is the degree to which clients identify with the firm’s products or services. The consumer is the focus during production. The ability of a firm to meet the needs of the consumer gives the company an edge over all rival firms. The production scale and market share of a company also determine its competitive advantage. A greater ability of a firm to reach out to a greater clientele with its products leads to greater competitive advantage. The popularity of a firm plays a key role in enhancing its competitiveness (Mustafa 2015).

Another factor that has a great effect on the competitive advantage of a company is the entry of competitor firms into the market. A company can easily lose its market share to new entrants into the business. Therefore, it is crucial for a company to ensure that it maintains its client base by improving its products constantly through the innovation of products and product features. The growth of the industry may improve the competitiveness of a firm. It may also be a risk where the company can lose its market share to new firms.

Knowledge is a pivotal factor when it comes to competitive advantage. It is crucial for a company to be in a position to acquire competitive intelligence that will help the firm to enhance its competitive advantage. Competitive intelligence can work to the advantage or disadvantage of a firm, depending on who holds the information. Such information may enable the company to carry out production in a competitive manner by learning from the weaknesses of competitors or improving its weak areas (Drnevich & Croson 2013).

Technology enhancement is another focal factor because it can only work to the benefit of the party that takes advantage of the development. A firm can take advantage of technology to enhance its production by opting for cheaper production means, which enable it to sell its products at a cheaper price. The company can also take advantage of technology to advertise its goods. Information technology can also be used to research innovative ideas or create a closer relationship with the consumer. However, enhancement in technology can work to the disadvantage of a company if it does not take advantage of the development (Mustafa 2015).

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According to Roberts and Grover (2012), skilled labor and good managerial capacity are crucial for a successful company. Having professionals who have the knowhow to create quality products and/or offer quality services is critical for a firm. Production of quality goods is advantageous in boosting competitiveness. Having a qualified workforce guarantees creativity and innovativeness in the production and marketing of goods and services. A qualified labor force also ensures the quality administration of the company.

It is vital to have proper management of a company because it dictates a company’s processes of policymaking, as well as its departmental running. The creation of expenditure policies that minimize the cost of production while reducing product prices enhances the competitive advantage of a company. Government policies may also affect the competitive advantage of other companies. If some practices that enhance a company’s competitive advantage are illegalized, they may affect the aggressiveness of the company (Lipaj & Davidaviciene 2013).

External factors are more important than internal elements when it comes to competitive advantage. In most cases, an individual firm has no control over them. When there are major shifts in the market or policies, an individual business may not be in a position to reverse the situation. Thus, it may suffer a great loss. However, the management of a company can change internal factors that affect its competitive advantage negatively (Mustafa 2015).

Sustaining Competitive advantage via IS/IT

One strategy for maintaining a competitive advantage is through cost leadership. Cost management can be achieved through efficient disbursement within the corporation, competitive retail practices, and assisting clients and service providers to cut their operating costs. Another means of maintaining a competitive advantage is by offering a different service, product, or product feature. This strategy enables companies to sell their products at a higher price while retaining their market share. The niche strategy may also be effective when companies choose a niche market where they offer the best quality, prices, and speed in products or service delivery. For example, producing customized products for specific businesses may give a firm an edge against other firms (Breznik 2012).

Working with business partners also provides opportunities for the company to grow and diversify by going into new ventures. The innovation of products is also instrumental in maintaining a company’s competitive advantage. Innovation can also mean the introduction of new features into an already existing feature. This strategy differentiates a product from goods produced by the firm’s competitors. Constant innovation is vital because most products, especially electronic devices, are phased out with time since competitors are able to duplicate products. To maintain a competitive edge, it is important for a company to keep inventing new products or features (Drnevich & Croson 2013).

Time is a great asset that can be utilized to enhance the competitive advantage of a company. Information travels very fast on the internet. Therefore, delivering information about the company via the internet in good time creates an advantage to the firm in terms of marketing its products (Breznik 2012). Creating the impression of the consumer base that a firm delivers in time is vital. It is important for a company to be receptive to a quick change in customers and market demands by responding in time.

The ability of a company to create barriers to the entry of competitors in its market can work to its advantage. A company can achieve this goal through the introduction of pioneer products or using Information Technology to provide unique services. Exceptional service levels make it difficult for new firms to enter the market. Another strategy for maintaining competitive advantage involves convincing suppliers and customers to remain with the company, rather than going with rival firms. It can be attained by introducing loyalty programs that favor reliable clients. A company can also discourage its clients and suppliers from moving to rival firms by making it more expensive for them to shift than staying with the company. This strategy goes hand in hand with offering great reliability and expediency to the clients.

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Conclusion

Research has shown that information system are essential in creating and sustaining a competitive advantage in the market. It is important for a company to consider factors that may affect its competitiveness. A company may create strategies that enable it to maintain its competitive advantage. Blockbuster, a movie rental company, controlled the market until the entrance of Netflix. Blockbuster lost a huge part of its market share to Netflix for failing to implement strategies that would have maintained its competitive advantage. One of the factors that favored Netflix was its timely entry into the industry at the advent of the internet’s popularity. It also took advantage of loopholes created to offer better services. The fall of Blockbuster’s market share led to a decline in its competitive advantage, which led to its filing for bankruptcy in 2010. Companies should not only acquire a competitive advantage but also strive to maintain it to avoid losing their market share to rival companies.

References

Breznik, L 2012, ‘Can Information Technology Be a Source of Competitive Advantage?’, Economic and Business Review, vol. 14, no. 3, pp. 251-269.

Drnevich, P & Croson, D 2013, ‘Information Technology and Business-Level Strategy: Toward an Integrated Theoretical Perspective’, MIS Quarterly, vol. 37, no. 2, pp. 483-509.

Lipaj, D & Davidaviciene, V 2013, ‘Influence of Information Systems on Business Performance’, Science: Future of Lithuania, vol. 5, no. 1, pp. 38-45.

Mustafa, H 2015, ‘The Role of ICT Management to Achieve Organizational Innovation’, International Journal of Organizational Innovation, vol. 7, no. 4, pp. 48-56.

Roberts, N & Grover, V 2012, ‘Leveraging Information Technology Infrastructure to Facilitate a Firm’s Customer Agility and Competitive Activity: An Empirical Investigation’, Journal of Management Information Systems, vol. 28, no. 4, pp. 231-270.

Trendowski, J & Sherman, P 2014, ‘Txtbookrental:Netflix or Blockbuster?’, Journal of the International Academy for Case Studies, vol. 20, no. 3, pp. 17-23.

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