Lessons From NetFlix

If you read my column on a regular basis, then you probably know that I’m a bit of a movie junkie. I love movies, even bad ones. Heck, I’ll watch paint dry if it’s on a film screen. Nary a week goes by that I don’t visit my local theatre, and I’ve all but abandoned television programming for DVD and video.

That’s why I hold a company called NetFlix near and dear to my heart. For those unfamiliar with NetFlix, it is an online DVD rental service. Instead of paying a “per movie” cost, NetFlix customers pay a $20 monthly subscription fee that entitles them to unlimited rentals and no late fees. (Though rentals are technically “unlimited,” customers are limited to three films checked out at a given time.) Users order DVDs from the NetFlix web site (www.netflix.com), which features over 15,000 titles. Customers maintain a list of the movies (called a rental queue), which they can modify as frequently as they like (I, for example, currently have 38 titles on my rental queue). DVDs are shipped out to customers via the United States Postal Service, and after a movie has been viewed, it is shipped back to NetFlix in a pre-paid pouch. When the company receives the returned DVD, it sends out the next DVD from the customer’s rental queue. For users located new one of the 20 NetFlix distribution centers, shipping takes about a day.

As with any business, there are caveats. If you don’t rent at least five movies a month, it's probably not worth the subscription fee. On rare occasions, DVDs arrive damaged or scratched, or don’t arrive at all. (In those instances, the customer simply notifies NetFlix of the problem and a new disc is immediately shipped out.) But overall, I’ve found using NetFlix to be a very satisfying experience. So much so, that I haven’t been to a brick-and-mortar video store since signing up with NetFlix six months ago.

NetFlix has become incredibly popular in a relatively short amount of time. It now has 1.3 million subscribers. An even more telling testament to NetFlix’s success is the fact that both Wal-Mart and Blockbuster have launched their own imitations of the online subscription service.

The NetFlix story offers a valuable lesson for those of us in the metal finishing industry. In identifying and developing a niche market (people who generally rent several movies per month and/or consistently incur late fees), it was able to capitalize on changing behaviors that traditional video rental stores had taken for granted, stealing away a lot of customers in the process. And video stores, in their refusal to adapt to the changing behaviors of their customers, are now losing a significant chunk of their business to subscription services.

What are some areas that we—as suppliers or finishers—have taken for granted? Is a potential competitor waiting to swoop down and steal away your business because you’ve failed to address changes in your customers’ behavior? What opportunities exist for you to carve out a new niche by exploring different business models or modifying existing ones? Are there new ways in which you can use internet technology to change the way you do business?