GameFly had a great idea: rent games like Netflix rents movies. Simple enough, right? As with all great ideas, companies will copy them if the potential profit is large enough. Netflix and BlockBuster decided to move into the game rental via mail niche. Since they were already shipping large volumes of movies to their clients, why not expand their offerings? GameFly stopped being “the” place to go for game rentals and gained competition.

As a gamer, the concept is great, especially if the gamer is one not to finish a game or is picky about purchasing games without playing it first. Demos are great but not all games have demos. There are also games that might be fun to play but have no depth making the odds of re-playing the game minimal. Spending $50-60 per game can add up. The “need” for a game rental service is there if the customer is able to:

1. Get the games they want, for example popular new releases, in a reasonable time.
2. Get the game shipped and returned in a reasonable time.
3. The price is reasonable.
4. Customer support is decent.
5. Convenience: the less the customer has to do the better.

When the service first came out, people loved it. GameFly was highly recommended because the above criteria GameFly’s service met the above criteria. Unfortunately for them, there are many complaints about the delivery times for games. GameFly has filed a report with the Postal Regulatory Commission alleging that their competitors receive better service from the USPS and that many game discs are broken in transit. GameFly mails out approximately 590,000 games per month and receive 510,000 back. Keep in mind that the customer does not have to return the game that month but over time the volume should balance out (but not be equal).

Even if you assume the number is one percent, and a game costs $50 to replace, that’s an astounding $295,000 a month in lost merchandise. As the company grows—and the complaint claims 34 percent yearly growth—that number will only get grow with it.

That’s not the only issue— games are also stolen in transit, which has lead to the arrest of 19 Postal Service employees.

Looking at the list of criteria above on what makes customer’s want, this one problem (game delivery) is the foundation of all the other criteria going haywire.

1. Customers cannot get popular titles if discs are delivered broken or worse stolen.
2. With the large amount of replacement discs and lack of the same level of service their competition is receiving from USPS, the customer cannot get the same delivery turnaround as their competitors.
3. The large amount of replacement discs means it will be hard for them to remain competitive and have a profit.
4. The lost or stolen discs add to their customer support expenses dealing with angry and frustrated customers.
5. If the customer is not receiving the discs promptly, the customer is inconvenienced attempting to find out what happened, getting replacement copies, etc.

The solution is to attempt to strengthen their relationship with USPS. What is the competition doing that GameFly isn’t? This might be part of the problem:

Netflix employs many former USPS workers to advise and consult. These people are paid well to help Netflix remove “problems” from the processing system. Netflix also operates its own fleet of trucks who go to the main post office branches in most areas and pickup the Netflix mailers so the USPS only has to do minimal work. Literally all they do is collect the mailers and Netflix does the rest. Anything that takes the load off USPS workers, anything that makes their lives easier, they like. They remember. This also increases profits for the PS because they still get paid the same price per mailpiece even if Netflix is picking up the mailers halfway through the processing.

Gamefly is not doing these things. Gamefly does not send out trucks to all the major mail processing centers because Gamefly doesn’t have facilities all over the US like Netflix. Gamefly is apparently not employing USPS workers to assists and advise and easy processing, for whatever reason. Instead of doing those things, Gamefly simply wants “fair treatment” without understanding you don’t get that for free with the USPS. There needs to be some “appreciation” of the hard work and effort being made by the USPS.

Let’s consider this a moment. If GameFly’s competitors are making an extra effort to ensure their clients receive the discs timely, then GameFly should be doing the same thing. Then the complaint about unfair treatment would hold water. Let me be clear: there is no excuse for USPS employees stealing discs. If GameFly has a high volume of broken discs (packaged similarly as their competitors) then there should be an investigation. However, since delivery is one of the major components for success, GameFly will have to put forth a better effort to compete (or even stay in business) if their competition really does make the extra effort. This should have been projected and researched in the beginning along with monitoring over time as competition entered the market.

Where Does That Leave You?

If you have a business or intend to start a business, take a strong look at your competition and see if you really can compete on the same level as they are. To succeed your company needs to be better than the competition to attract and maintain new customers. All companies cannot be “big” and should take measures to slow their growth until the foundation is strong enough to support strong competition with big companies or create a niche service to sustain. Do not put yourself in a position for your competitors to watch you struggle and put yourself out of business.

Take a look at GameFly’s situation and see if you have similar issues with your company, blog, or any situation where this is competition. In the WCG Ultimate Gamer series gamers compete with one another and the best person wins. WCG holds competitions all throughout the year. If a gamer spends 10 hours a week practicing because of work and personal responsibilities and has to compete against someone playing 40 hours a week, what are the odds the 10 hour per week gamer will win? Natural skill is an advantage but in the end, the effort has to be put in to achieve and maintain a goal.