Innovators are looking to wedge their way in between energy suppliers and their customers, Mitch Lowe said in his keynote address at the 2017 KPMG Global Power & Utilities Conference
Lowe knows something about the topic; the Co-Founding Executive of Netflix, CEO of Movie Pass, and former President of Redbox has made a career out of disrupting market leaders.
Companies like Netflix in reality really were just offering a different way to consume a product someone else created, that could happen to you. - Mitch Lowe the Co-Founding Executive of Netflix, CEO of Movie Pass, and former President of Redbox
Lowe told his insider's tale about Netflix and its focus on analyzing and understanding customer behavior to beat established companies, particularly Blockbuster, at their own game.
To start, Netflix leveraged emerging technologies to meet customer demand for greater convenience in movie rentals, the dominant form of home entertainment in the `80s and `90s. The company capitalized on the development of lighter, smaller and higher-quality DVDs (vs. VHS tapes) that customers could rent or buy online and receive via mail. Blockbuster tried to compete with its own DVD-by-mail service to complement its video stores, but its per-rental fee was a poor match for Netflix's radical subscription model.
Netflix also determined that speed of delivery was paramount to its customers. Once technologies supporting online streaming had progressed enough to offer movie watchers a high-quality experience, the company moved ahead to cannibalize its own DVD rental business in favor of streaming, killing Blockbuster in the process.
In recent years, Netflix began offering exclusive content to help make their subscriptions sticky. The company now has well over 100 million subscribers in more than 130 countries. Blockbuster, meanwhile, is just a memory.
Netflix and other upstarts succeed because they find ways to address the 'friction' that depresses consumption, Lowe said.
He pointed to Amazon's trial brick and mortar convenience store, Amazon Go, as an example of how the company has removed as many barriers as possible to sales and customer satisfaction. Through sensors and other technology, Amazon Go shoppers are identified by their smartphones and automatically charged according to the products they walk out with - no checkouts, no lines.
“Do anything you can to make it as close to, `I think I want to buy a product, and instantly, I have it.' If you can do that, you are way ahead of the game.”
Lowe acknowledged how tough it is for companies to consistently support efforts to build and improve products and services.
“So many times, we had to claw back innovation budgets,” he admitted. It's hard to allocate significant money to a team within an organization, on top of everything else that needs to be done, and then wait five or six years to see if it pays off, he said. But it's worth it. “You know you could always use that money, but I encourage you to do it.”
Lowe also emphasized hiring from younger generations who tend to not worry about upsetting the status quo or egos, and are ready to challenge preconceptions. If you don't make them part of your team, these same young people will be challenging your company from the outside, he said.
Regina Mayor, KPMG's global sector leader for energy and natural resources, KPMG in the US, asked Lowe how he staves off copycats and fights to maintain number-one status. To him, competition is a positive, not a negative.
“You have to welcome the competition. It's a sign you really do have a good business,” he said.
Competition can also fuel growth, he said. Netflix's significant expansion period occurred after the more established Blockbuster launched an exact copy if its service.
“The beauty of startups is you can attract the absolute smartest people, and that competition invigorates them.”
Now Lowe is trying to manage his latest innovator, MoviePass, through its early stages. With the subscription-based ticketing service, Lowe seeks to exploit the cracks in the cinema business, which he called 'broken.'
Ticket costs have exploded up more than 80 percent in less than 20 years, while the box office take is down everywhere except in Asia. More troubling, the key movie-going audience segment of 18-to-49-year-olds has dropped off 20 percent.
Instead of going to the theater, viewers have chosen to stay home with streaming companies and content creators. While the at-home movie experience has been transformed by innovation, the theater business has done little to keep up.
Some established industry powerhouses are fighting back, but some companies have failed to evolve, making way for innovative competitors who are better at anticipating consumer needs.
“It is so important for you to own the relationship with your customer,” he said. “If you lose that, you start to lose the understanding that will allow you to compete in the future.”
* The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG International. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.