Innovation and Economical Growth

Innovation is a continuous process, one that never sleeps and continues to grow. Netflix is a company founded in 1997 by Reed Hastings, who conceived the idea from an overdue movie rental that was found in his closet. After paying the $40 late fee, Reed began considering alternative ways of providing home movie service that would better satisfy the customer. Through innovation, strategy and marketing Netflix, the company the Hastings founded, has been able to successfully flourish as the leading innovator in an online movie rental service industry.

Home video rental was a fragmented industry largely populated with “mom-and-pop” retail outlets according to (Page 2 of the Netflix Case Study, NCS), of which Blockbuster Inc. was the leading retailer. Blockbuster consisted of 5,194 U.S. locations of which 4,225 locations were company owned, the reason for such a large number of retail locations was Blockbuster’s growth strategy. Blockbuster’s growth strategy consisted of geographical coverage, in 2006 according to the Netflix case study on page 2; Blockbuster management claimed that 70% of the U.S. population lived with in a 10-minute drive from one of their 5,194 locations. Although the stores carried 2,500 different movie titles, shelf space was reserved for hit movies and new releases for impulsive movie renters. Blockbuster also charged late fees for movies not returned on the designated date, which made up 10% of it revenue (600 million dollars). The reason was because if the rentals were delayed in being returned an increase of stockouts would occur. If stockouts would occur then there was a chance that the rental opportunity would decrease, as would the customer satisfaction.

Netflix emerged at the beginning of the Internet retailing days concentrating their efforts on technology and convenience. Hastings, founder of Netflix, used three characteristics to identify what Netflix had to offer customers, 1. Value 2. Convenience 3. Selection. At the time DVD’s...