LOVEFiLM is the largest online movie rental company in the UK. With over 1.2m active subscribers it generates approximately 50% of all UK DVD rentals. The business has been a remarkable online success story with 94% of subscriber’s recommending the service to friends and LOVEFiLM CEO Simon Calver expects to hit the £100m-turnover mark in 2009.
So how did this small start-up enter the market and beat established players like Blockbuster? This post highlights the most important lessons and best practice from the LOVEFiLM experience.
1. Understand what your customers care about the most then deliver a great value proposition
LOVEFiLM is built on a simple idea that consumers passionate about film want choice, convenience and value-for-money. Your business must create a unique customer-focused value proposition to compete and win.
-
Choice: While the average rental store can hold a few thousand titles LOVEFiLM can provide over 65,000 from the latest releases to cinema classics.
-
Convenience: Website where you can fine-tune your rental order list and DVD’s are sent by next day delivery service.
-
Value for money: Lower cost per rental, free delivery and no late fees.
2. Minimize operations costs and quickly generate cash flow to support brand building and customer acquisition
Lower fixed overheads and rent: Rather than retail stores LOVEFiLM has one centralized distribution centre that services all of the UK, providing lower fixed overheads and rent.
Inventory efficiency: LOVEFiLM can fulfill customer rental orders on the same day to provide a speedy service that delivers on its brand promise.
Generate cash: Importantly many new online start-ups struggle to generate positive earnings because they offer their product for free to early adopters who then resist paying when companies try to monetize their product. From the start LOVEFiLM insisted on a business model with a monthly subscription fee because it provided a positive cash-conversion cycle that enabled growth. This business model is smart since upfront cash can be reinvested quickly in brand advertising and customer acquisition.
Pay-for-performance contracts: Signing performance-based affiliate marketing and channel partnerships for new customer acquisition ensured LOVEFiLM only paid for an active subscriber and not clicks or cold leads.
3. Design your website to make navigation easy, provide relevant content and make the purchase and billing system simple to use
LOVEFiLM is essentially a long-tail business with 80% of DVD rentals coming from the back catalog – movies over 3 months old – so the website is designed to make it easy to search for popular titles or browse films by genre.
Your company website and the customer service experience is such a key driver for building your brand. In the digital world it’s important to understand how your customers search for information and move through the buying process. Therefore use customer research to make your website navigation intuitive, place content where it's easy to find and keep the registration and billing process simple.
4. Allow customer personalization and community to deepen engagement with the brand
The LOVEFiLM website not only lets customers create their own personalized rental lists and watch movie trailers but also encourages them to add to their own film ratings, reviews and recommendations. By creating an online community where customers create the content, share information and interact, LOVEFiLM deepens customer engagement with the brand.
It’s a common misconception that user-generated content is hard to control, requires additional resources and the ROI difficult to measure. Because fast-growth companies like eBay, Amazon, Expedia and now LOVEFiLM are using online user-generated content to give their customers a voice and to differentiate their brands in a crowded online space.
5. Make continuous product and pricing innovations
Product innovation: By using data to understand unique customer needs LOVEFiLM was able to introduce new product packages such as Unlimited, Capped and Pay-as-you-go monthly rental plans, catering to different segments. LOVEFiLM has recently added video games and is also developing a movie on-demand service to address behaviour shifts in customer entertainment and media.
Flexible pricing: LOVEFiLM started with one standard price but soon after the initial marketing push the customer rate growth slowed. Research indicated they were missing out on different audiences who didn’t want one-size-fits-all pricing so LOVEFiLM now provides different price points. New businesses are often reluctant to discount their core offering then feel surprised when new lower priced competitors steal market share. A good lesson here is to listen to customers, be flexible on pricing models to serve different segments, lower the entry point and don’t be afraid to cannibalize your brand or someone else will.
6. Blend digital and offline channels to monetize your marketing
With growth in new subscribers and increased website traffic LOVEFiLM now has 4.3m unique visits per month to the UK site and has been able to monetize their website and weekly email newsletter via ad sales.
Since DVD’s are sent by first class post, LOVEFiLM generates additional revenue in partnership with film studios and distributors by using envelopes and inserts to advertise the latest upcoming blockbusters and new releases.
New films and Hollywood stars are always in the headlines. LOVEFiLM actively monitors the newswires and engages in proactive PR to connect with news stories drive awareness of the brand and traffic to the site. A quirky LOVEFiLM review of the latest Star Trek movie received national coverage on the BBC and YouTube promoting the back catalog of Star Trek DVD’s.
If your business has a customer database and regular communication channels you can explore ways to monetize and extract value through ad sales, PR and partnerships like LOVEFiLM.
