Innovative strategies, like including coupons in DVD cases, were crucial for Netflix's success in the early days of DVD-by-mail service testing and marketing.
Redbox's creative tactics, such as eye-tracking patterns for rental title placement, played a significant role in enhancing transaction rates and revenue generation.
Sophisticated risk assessments helped Netflix and Redbox combat fraud, reducing annual losses exceeding $100 million and ensuring transaction approval based on rental characteristics.
Deep dives
Challenges in Mailing DVDs
When mailing DVDs in the early days, challenges included cracking, scratching, and compatibility issues with different DVD players. The technology was still evolving, requiring constant testing and solutions to improve customer experience and profitability. An innovative strategy involved including coupons in DVD cases provided by manufacturers to incentivize sign-ups for services like Netflix.
DVD Return Challenges and Innovations
Managing DVD returns posed logistical challenges, especially estimating the percentage that would get lost or damaged. To enhance customer experience, a solution involved printing return envelopes in advance to expedite the process, but privacy concerns led to the reconsideration of this approach. The company also tested disruptive strategies like Netflix Express kiosks in grocery stores for return and pick-up but faced financial challenges due to excessive movie rentals.
Fraud Prevention Strategies and Redbox
Fraud posed a significant financial burden, exceeding $100 million annually by 2009. To combat fraud, advanced risk assessments were conducted for each transaction, considering rental characteristics like time, locations, and movie types. Characteristics such as renting horror movies late at night were indicative of potential fraudulent behavior, influencing the decision to approve or deny transactions. These sophisticated risk assessments significantly reduced losses from fraudulent activities.
Challenges with Studio Sale Refusal
Three major studios conducted surveys at Walmart revealing potential lost sales due to Redbox rentals, prompting them to cease DVD sales to the kiosk company. The studios calculated a $400 million loss at Walmart alone, affecting their $5 billion DVD sales. Redbox's $1 rentals were shown to generate more revenue than Blockbuster's $4 rentals, creating tensions among studios and retailers.
Innovative Strategies and Corporate Culture
Redbox utilized creative strategies like placing hit titles in a specific order based on eye tracking patterns to enhance transaction rates. The company legally acquired DVDs from retailers, utilizing the 'first sale' doctrine to rent movies. Mitch Lowe's genuine approach in sharing his mistakes emphasizes the importance of open communication in fostering innovation and growth within a company.
How Netflix tested, marketed, and made its DVD-by-mail service work at a time when the profit margins were low and its brick-and-mortar competition was high.
How Redbox DVD rentals filled a consumer niche between Netflix and Blockbuster — and was so successful that one machine was being installed per hour for every hour of the day, three years in a row!
Redbox's loss-prevention and cost-capturing strategies for what were essentially unstaffed video vending machines in operation 24/7.
Obstacles Netflix and Redbox faced from business interests entrenched in the status quo (and how they were overcome).
Why Mitch once faked a heart attack to get out of a meeting with Walmart executives.