Question #1

„Would you buy Blockbuster stock or short it at the time of the case? How about Netflix? Why?“
That’s a difficult question because the case was written in November 2007 and at that time BlockbusterInc.
I would prefer to sell the shares of Blockbuster Inc. because their management made a lot of wrong decisions in the past, which still affects the market share and the outlook of the company. We think that it was a big mistake to 
underestimate the importance of entering the online DVD retail market as soon as possible. This decision was a perfect example of marketing myopia because it wasn’t very customer orientated. They had seen themselves in the video retailing business but they are in the entertainment business and they under-emphasized customer needs and wants. And if you look at the stock quotation of Blockbuster Inc. you can see that there is a peak in 2002 (fifth consecutive year of same-store sales growth; IPO of Netflix) and after that the share price decreases significantly until today. 
Failures in the management stopped their growth and that‘s why Blockbuster Inc. is a perfect example for marketing myopia.
If you look at Netflix the situation is completely different. Their management didn’t make the same mistakes. They are very customer oriented and they changed their marketing strategy to satisfy customer needs and facilitate the access to a huge personalized movie library even if the customer isn’t very familiar with the Internet or the “online world”.
Just looking at the marketing strategy (customer oriented; no marketing myopia) you must come to the conclusion: Buy! But before buying a share you also have to look at the financial ratios. The ratios of Netflix in 2006 were pretty good and because of that we think that it would be a good decision to buy the shares of Netflix.

Question #2
„Did Netflix offer same values for consumers that Blockbuster did? How did this evolve over time?“
∗ For Netflix there exists a personalized experience, you can find the movie easily online that fits your taste and needs. For Blockbusters, on the other hand, most of the time the newest movies are offered and you are not able to personalize your needs.
∗ Netflix has the prepaid service, you can have several movies at one time in your possession and when you return them after one month you can order again more than one movie. At Blockbuster you are forced to hand in the movie(s) after one day or within one week.
∗ The recommendation system that Netflix has and Blockbuster has not offers the opportunity to get recommendations on older and independent movies (not very well-known movies) whereas Blockbuster only offers the well-known movies.
∗ When a customer subscribes to Netflix but leaves after a while, their information (profile) stays intact in case they want to return.
With these points in mind, we can say that Netflix certainly does not offer the same values as Blockbuster. Both 
Netflix‘ s and Blockbuster’s goal is renting out movies to customers however they have a totally different strategy. The points mentioned above make these differences clear. Netflix operates through the internet and tries to make the customer aware of good old movies but Blockbuster offers and makes the customer aware of the newest movies and operates through stores.
Over time Netflix improved its services through critiques expressed by its customers, through this Netflix was able to grow and increases its market. Blockbuster made a change in its strategy by offering online movie rental and became a competitor of Netflix.
Question #3
„Compare Blockbuster’s and Netflix’s profit models. How might the differences affect the respectivecompany’s 
strategies?“
For Netflix, part of the profit model is due to the agreement with the studios. They reduced the up-front price and received more copies which increased customer satisfaction and profits. Furthermore, reducing the delivery time increased customer satisfaction and attracted new customers.
The most important part of the profit model of Netflix is the customer recommendation system. This enables Netflix to rent their old movies, which are cheap to buy for the company instead of the new and more expensive movies. The rental of old movies plays a key role in Netflix profit model; it has a bigger share compared to the rental of new movies.
For Blockbuster the important key in the profit model is the revenue from ‘late fees’. In the beginning this also played a key role in Netflix’s profit model however, they changed their strategy from ‘late fees’ to ‘all you can watch’. Now customers are able to have more movies in their possession for a longer time and when giving it back, receiving new movies.

Question #4
„As you examine each major shift in Netflix’s strategy, what might have been the assumptions that they might have at each stage? What assumptions will you make upon evaluating VOD?“
In order to have a better overview, we put the assumptions into bullet points. The sequence is accidental and not chronological.
∗ To bet on the DVD future and the importance of the Internet as a major way of consumption -> The foundation of Netflix
∗ Deciding whether Netflix should be product-oriented or consumer-oriented (-> consumer-oriented)
∗ Changes operated in pricing model (unlimited offers)
∗ Making available the whole range of entertainment products (from blockbusters to Red Envelope Entertainment; latest movies and niche products)
∗ Using Data Mining Marketing that leads to a personalized recommendation system
∗ Settlement of partnerships with their major suppliers (USPS & movie studios)
∗ Expansion of the number of distribution centers (-> each consumer can be reached in one day within the US)
∗ Increase customer satisfaction by facilitating the unsubscribing process
Video-on-Demand:
∗ Consumers don’t want to wait for one day (or longer) to have the movie. They want to decide which movie they want to watch and after that decision, they just want to relax and enjoy.
∗ This is the most convenient way of consumption (e.g. no car ride, no time of waiting)
∗ Lack of transportation costs. No additional charges for consumers.
∗ Combination of PC/Internet and TV (especially since the introduction of high-definition television HDTV)