Photo: Mike Dillingham via Compfight

Back in 2004, Blockbuster woke up. The company created what many thought would be a Netflix killer - Total Access. For about five years Netflix had steadily grown and Blockbuster had decided that it wasn’t going to let this upstart win any more of its market share.

Except it was too little, too late. The origins of Blockbuster’s demise were rooted in its apparent disdain for its customers. With mediocre inventory, surly staff members, and late fees the company unknowingly communicated a clear message — we own the rental experience and if you don’t like it, we don’t care. However the brand was nowhere near as solid as they thought.

Blockbuster one ups Netflix then buys ads…lots of ads

No late fees and all-you-can watch for one monthly rate was quite different. It resonated with people because it was built around what people really wanted. It solved a problem for them. Not surprisingly, Blockbuster dismissed Netflix early on.

Then, when the company saw the traction Netflix achieved, it tried to copy the service. It took a couple of years, but it actually created something that really resonated with consumers — Total Access.

It was a combination of DVDs-by-mail and in-store rentals that from a consumer value perspective could not be beat. So Blockbuster started to blanket the airwaves with ads in an attempt to buy market share.

Buying market share worked…or did it?

For a while, it worked. Netflix saw subscriber growth flat-line and then dip. To the outside world it seemed Blockbuster was going to win. Not quite.

Internally Netflix was doing its own analysis by tracking Blockbuster spending and growth metrics. Netflix knew that Blockbuster was buying market share, which is when a company spends gobs of cash to advertise a product or service in an attempt to take market share from another company. If a company has a great offer, deep pockets, and a solid brand this can work really well. However, without a solid brand, it ends up lowering switching costs.

Switching costs?

First off all, “switching costs” are not penalties put in place to punish a consumer if he/she wants to leave. It refers to making what you offer so good (from a product, value and brand standpoint) that to switch to a competitor’s product or service would feel counter-intuitive. Think of switching costs as everything a company does to keep you wanting to enjoy their product or service.

Blockbuster lowered switching costs by compounding its mistakes.

First was the customer experience — late fees, surly employees, and a mediocre selection fed a seething cauldron of dissatisfaction. One that was ready to explode when a better alternative such as Netflix came a long.

To stem the tide, Blockbuster offered a money-losing program with tremendous customer value. But it only compounded the problem as it couldn’t be sustained long-term. The existing customers who were enjoying more value than ever were suddenly going to have the rug pulled out from underneath them.

Not only did Blockbuster launch Total Access, they focused on making the new program their primary business, advertising it everywhere and even forcing new members to sign-up in their stores. While not technically a true bait-and-switch, it ended up being a long-term version of just that from a brand perspective. People were lured in by an offer that was eventually changed and then shut down altogether.

It all started with brand

The foundational problem with Blockbuster was that it was seemingly clueless about its brand. Attempting to buy market share in this case was just throwing money out the window. Had Blockbuster paid attention and made sure its brand was on solid footing, it may have survived. But since a brand is systemic it would have meant a top-to-bottom revamp of the entire company. And this was never going to happen.

How to avoid a similar fate

To put it succinctly, know thyself. To put it less succinctly:

1/ Understand your brand. Below is a mere starter list of a few questions you should be asking yourself with regard to your brand:

• Why do you exist?
• What attributes are you trying to convey?
• How do you help your customers’ lives?
• How are you applying the attributes of your brand?

2/ A brand is systemic. It should work externally, but it’s equally important that it is understood and embraced internally. This allows the essence of your brand to be communicated in everything you do by default. From a purchase flow on a site, to a TV ad, to a customer service contact.

3/ Listen to your customers (note: I don’t mean literally do whatever they want but really listen, digest and respond). Take your brand pulse on a regular basis. Don’t rest on your laurels.

4/ Be consumer-focused. It’s all too easy to get caught up in what’s best for your business while ignoring the implication for your brand (see also example in the the postscript).

5/ Do the brand work now. The longer you wait to tackle the brand work, the more complex everything gets. It’s the reason why that change was never going to happen at Blockbuster.

Last thought

Obviously, there were a host of other factors that also led to Blockbuster’s demise. This was just an attempt to identify the big, consumer-facing brand blunders from a fifty thousand foot level. The point of it is to share their story so that you can learn from those mistakes.

Postscript — In all fairness, since I worked for Netflix, I should reference the decision to split that company in two as well. Netflix backtracked from that decision but it was still significantly brand damaging at the time. While they’ve been able to right the ship by continuing to execute a fantastic experience and original programming, they also benefited tremendously from fortuitous timing. When it happened there were no true competitors. Hulu was saddled with ads. Amazon was bundled with shipping products, an annual subscription, and suffered from a lackluster movie and TV catalog. And HBO was bundled with Cable/Satellite. This gave Netflix the time and a second opportunity that most brands never get.

Big thanks to Bronagh Hanley and my Kaizen partners James Parks and Gary McMath for help with this article.