Among all the recent year-end roundups and summaries was a surprising piece of business news. Blockbuster, the last surviving sentinel of the video rental industry announced that it would close its remaining 300 or so company owned stores across the United States. Many have been quick to credit Netflix with the decline of the once formidable Blockbuster. Indeed, the ubiquitous red envelopes and subsequent streaming services are an example of “Big Bang disruption”—an innovation that is not only cheaper, but better, too—according to Larry Downes and Paul Nunes in Harvard Business Review.
That Blockbuster was painfully slow to react to a changing market—defined by competitors like Netflix and Redbox—barely needs to be mentioned. Even so, it is not immediately obvious how a company with more than 9,000 retail stores and 60,000 employees at its peak in 2004 could be completely dismantled by relative upstarts.
In fact, the case of Netflix versus Blockbuster shows that disrupting an entrenched industry requires much more than competitive pricing and improved service: it requires a complete reorientation of business strategy based on a more thoughtful use and understanding of data.
I believe this truth will again be underscored by three important trends in 2014 and beyond.
1. Business Leaders Will Stop Mimicking Competitors
The true death knell for Blockbuster may have been its late shift towards online and kiosk services. That it trailed competitors—namely Netflix and Redbox—already established in these markets is only part of the problem. Blockbuster’s strategy to chase close competitors was its fundamental flaw.
Without data, business leaders must watch competitors’ innovations—and have little option but to respond in kind. When an upstart like Netflix enters the market, entrenched players like Blockbuster are already behind the trend when they step up to match the service. When companies drive strategic decisions with data, innovation bubbles up from user behavior and the imperative is on meeting customer needs, not matching competitors’ offerings.
Realizing that certain customers respond to an incentive to become members or are motivated by subtle reminders to complete a checkout can inspire shifts in strategy. But coming to understand, through data analysis, that one customer segment has fundamentally different needs—more information, more opportunity for purchase, or even different products—than others allows a business to capitalize on budding trends before their competitors.
Companies like Netflix and Amazon are notable examples of this approach—and in 2014 we will see the strategy expand into other industries and to other brands as well.
2. Businesses Will Stop Fighting Customers
It may sound strange, but many businesses position themselves to fight their own customers. Often, it begins with a new revenue opportunity that seems too good to be true: Supermarkets sell shelf space to the highest bidding merchants, for example, or producers give preference to distributors at a premium. It’s hard to turn away from such secondary revenue streams, even as businesses begin to realize they may hinder customer experiences.
Internal politics can also influence decisions that alienate customers. Granting ownership of individual sections of a website to different groups, for example, encourages the formation of internally focused strategies, often to the detriment of the customer. Netflix knows, for example, that the video in the first position of the first row gets the most plays. But instead of giving one group the responsibility of programming this space, Netflix avoids politics and influence-wielding by using a data-driven algorithm to serve an offering customized for each member.
The best way to build a case against practices that repel customers is to collect and use data to influence a regular, robust testing program—pitting competing strategies against one another in front of real customers to determine which is most effective. As testing expands in 2014, more and more companies will gain the confidence necessary to abandon customer-sabotaging practices in favor of more customer-focused strategies.
3. Brand Power Will Bend to Customer Preference
When it came to home entertainment, Blockbuster strove for consistency: Any store, anywhere in the country, would have the same selection of recent releases and popular classics. It’s a conventional and proven strategy that helps build intense loyalty over time. It’s why every Big Mac tastes the same, why Nike has used the same slogan since 1988, and why the screen of every laptop in Apple Stores is tilted to precisely the same angle.
Netflix, however, took a different approach: using customer data to create tailored, personalized experiences. Begun when the company was exclusively a “DVD by mail” business, the service has expanded rapidly with its online streaming service.
Joris Evers, director of global communications at Netflix, has commented, “There are 33 million different versions of Netflix.” The obvious implication here is that every member gets a unique experience, with personalized recommendations, niche genres, and even targeted trailers for new features.
But data lets Netflix do more than optimize landing pages and navigation. By analyzing the data set, the company is able to make smart decisions about acquisitions, too. User behavior, for example, influenced Netflix’s decision to acquire original series like “House of Cards,” or pass on expensive box office hits like “The Dark Knight” in lieu of lesser-known titles with cheaper licensing options that are congruent with recorded viewer habits.
Moving into 2014, these personalization practices—none unique to Netflix—will become more commonplace. Initially, it will be the difference between laptop screens tilted at the same angle and screens tilted to your preferred angle. Beyond this will be custom digital storefronts filled exclusively with products that interest you most.
It’s something John Reith, as general manager of the BBC, recognized in 1922 when he commented, “He who prides himself on giving what he thinks the public wants is often creating a fictitious demand for lower standards which he will then satisfy.” Until now, brands have been able to rely on this practice, even if doing so incurred considerable opportunity cost. Soon, however, those who don’t adapt will lose ground to those who listen and react—not to competitors or internal demands, but to customers. The trends will make 2014 the year we customers begin to be offered intuitive experiences, driven by our own unique behaviors, and tailored to suit our individual needs.
Brooks Bell is the founder of Brooks Bell, Inc., which brings scientific disciplines of testing and optimization to the traditionally subjective field of marketing. She speaks regularly on entrepreneurship, analytics, and marketing, and serves as a judge and mentor for Duke University’s entrepreneurship programs.