What If We Eliminate Late Fees?

The Weekly What If...Chronicling companies that transformed their business by Exploring What if

Praised for its clever business model, it was really this What if that started its massive growth.  Based on its market value and number of customers, there is a good chance you use, Netflix. I do. Their mail order driven business model kicked Blockbuster’s drive up business to the curb! Since its meteoric rise the company has garnered a huge valuation and the esteem of strategic thinkers like the authors of the Blue Ocean Strategy for its ability to take a completely new approach to video delivery.

But what few people realize (including me) is that NetFlix’s early mail order business model almost failed. In the early days, NetFlix, like Blockbuster, charged late fees if you didn’t mail the videos back in time. “Desperate to boost sales” founder, Reed Hastings, decided to explore a new approach, What if we eliminate late fees. “This was considered a radical move at the time because no one had ever peddled movies by subscription before.” (Late fees were also likely a key part of the revenue stream). “But within a month, he knew he had a winner. Eighty percent of the people who signed up for a free trial converted to paying customers.” (Source: “The Felt Need” Dan Heath and Chip Heath, Fast Company November 2010).

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