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Netflix Case Analysis Essay

Netflix was the first company to create an online DVD movie rental service. The service has created a new ‘movie’ market niche which has secured them a competitive ‘first-mover’ advantage in this new ‘high-tech’ venture. The popularity of the service has sparked the interest of market competitor Blockbuster who may become a growing threat to Netflix should they enter the online movie rental market (Perreault, 2004).

Netflix was founded by Reed Hastings, Netflix was incorporated on August 29, 1997 and began operations on April 14, 1998. Netflix began operations with an online version of a more traditional pay-per-rental model which included financial penalties for late returns (US$4 per rental plus US$2 in postage). It did not introduce the monthly subscription concept until late 1999 (Rosenberg, 2000). Since then it has built its reputation on its policies of having no due dates, late fees, or per-title rental fees.

Netflix was born as a result of a spontaneous reaction to the traditional movie rental model which included costly and annoying late fees. Hastings tapped into a new, emerging market venture which enabled customers to rent DVD’s online for a monthly fee. By subsequently copying a very simple ‘subscription’ based model, Netflix would grow into an entirely new market concept with unrivalled success. According to Cardy, & Selvarajan having a first-mover advantage, Netflix has identified a niche based on customer needs and responded by utilizing the internet to focus on customer convenience and timely delivery of DVD’s across the US. They have since expanded their facilities throughout the United States and have established themselves as industry leaders. Competitors such as Blockbuster and Hollywood video were relatively slow to respond and were initially unaware of the market share Netflix would capture in the upcoming years. This has given Netflix a sustainable competitive advantage.

StrengthsI believe Netflix entered the market for DVD rentals at a time when there were few other competitors in the market, allowing them to create a new ‘movie’ market niche which has secured them a competitive ‘first-mover’ advantage in this new ‘high-tech’ venture, also establishing their brand name and image for providing a unique service. Netflix are first- movers and were the first to offer DVD rental by mail and this allowed them to offer a greater variety of DVDs to customers as compared to their competitors at the time, as DVDs were relatively new to the market (Murphy, 2008). Combined with its excellent business model, Netflix’s first mover advantage has allowed it to maintain a high relative market share in the online DVD rental industry.

According to the test Netflix’s product offering is built around DVDs rather than videotapes. DVDs are chapter to ship and are steadily replacing videos as the medium of choice for viewing movies. From the very beginning of its entry into the market, Netflix Business model of making partnerships with the movie industry, the electronics industry, and retailers has given them a bigger selection than other video stores The average blockbuster store carries roughly 1,500 movies titles. Netflix, which isn’t limited by physical space, carries more than 75,000 titles including hard-to-find movies, foreign films, documentary and independent films that are usually not carried by other distributors such as Blockbuster Video and Wal-Mart (Coursey, 1998). Foreign films, documentary are particularly successful at attracting customer attention for this market, this selection gives Netflix a competitive advantage over other video stores.

According to their website Netflix has strong partnership arrangement with the U.S. postal service, the movie studio, and several retailers to help drive potential customers to their website. Because of that Netflix’s name was spread widely through promotions with complementary products, such as DVD players and movie websites. According to the text on its website, Netflix presents its subscribers recommendations for movies they might like based on their past selections. In fact it provides more than 18 million personal recommendations a day. No video store can do that.

Additionally, according to Earnings Digest quality leadership and customer satisfaction has enabled Netflix to stay afloat despite the advent of powerful competitors like Wal-Mart. Not only was Reed Hastings able to fend off Wal-Mart’s attempt to bankrupt Netflix, he was able to convince Wal-Mart to encourage customers to switch to Netflix after the Wal-Mart service fell through. By staying strong but cooperative, Netflix ended up profiting from many threats.

WeaknessI believe their biggest weakness is often has trouble providing enough copies of new, popular movies. As a result, a main cause of customer dissatisfaction is Netflix’s inability to completely satisfy the initial rush for a new movie (Coursey, 1998). However, the company knows it would be unprofitable in the long run to buy more copies just to serve the rush when a movie first becomes available, because the copies will not be rented with nearly as much frequency soon after the rush. Customers have caught on to the fact that Netflix only purchases a limited quantity of new releases right away, opting to wait a few weeks to buy the bulk of its supply at lower costs. While this might save Netflix money, it also has the tendency to drive away current and potential customers. Finally, Netflix does not have a direct connection to any movie studios so it must purchase its entire media through the consumer market (Coursey, 1998).

One disadvantage is time management, Netflix’s customers have to wait; often for several days for the next movie on their list to arrive in their mailbox. In addition in most cases, by the time the subscriber receives the DVD, they may no longer be in the mood to see that particular movie.

OpportunityNetflix has great potential for growth right now. Previously, sending movies to customers through the mail was a novelty in the rental industry. Now, delivering movies straight to computers of customers is likely to be the next revolution in how consumers view movies in their homes (Steinberg, 2008) For Netflix, this service is only available as a per-viewing basis which is a big plus. Netflix can seize this opportunity if it is successful in efficiently providing streaming content to a customer on a time usage basis rather than a per-viewing basis which is an added advantage.

TreatsThe Biggest threat to Netflix is Blockbuster and other established rental businesses. Beyond this, customer satisfaction is very important to Netflix, because this is the only aspect of this business that can make or break a company.

In the case of Netflix I believe its strengths is sufficiently compelling its weaknesses because Netflix has stayed strong in its entire business model also they were cooperative. In the long run Netflix ended up profiting from many threats listed above.

Netflix’s partnership network has really help its business model; according to the text Netflix’s has strong partnership arrangement with the U.S. postal service, the movie studio, and several retailers to help drive potential customers to their website. Also Netflix Business model of making partnerships with the movie industry, the electronics industry, and retailers has given them a bigger selection than other video stores.

If I were advising Netflix, I will tell them to aim at changing the way people access and view movies by setting long term goals and I believe their goal should be keeping prices low and generate profit, all the while maintaining industry leadership, and sustaining competitive advantage.

In order for Netflix to sustain its competitive advantage the most important factor which they must attend to are the growing needs and preferences of consumers which are slowly changing as technology advances the industry. Technological change is fast paced and competition revolves around rapidly evolving product features (Smith, & Sharif, 2007).

It would be suggested that Netflix enhance their services to include options such as downloadable movies from their website and also extend their product line by adding additional services such as renting and/or downloading video games. Since only a few firms are following a similar differentiation approach, this move would allow Netflix to match services available by their competitors. By providing consumers with all the possible services as other competitors in the industry, it would allow Netflix to sustain their competitive advantage and maintain industry leadership (Montgomery, 2008).

In order for TriggerFinger to succeed, they must first convince game publishers to stop selling the renters games and instead share in the revenues. NetFlix only started making money when the company partnered directly with studios, who charged little to nothing for the DVDs the company sent out and instead took a share in the rental fees. That is the only way for companies like these to keep their inventory costs and risk on slow moving titles reasonable.

Reference:

Anonymous. 2003. TriggerFingers Ports the NetFlix Online Rental Model to Games. Electronic Gaming Business. Retrieved August 13, 2003, from http://findarticles.com/p/articles/mi_m0PJQ/is_9_1/ai_110307533Cynthia A Montgomery (2008). PUTTING LEADERSHIP BACK INTO STRATEGY. Harvard Business Review: Special HBS Centennial Issue, 86(1), 54-61. Retrieved February 18, 2008, from ABI/INFORM Global database. (Document ID: 1406854331).

Brian Steinberg (2008, January). Transforming the movie-rental model. Advertising Age, 79(1), 6. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1414464841).

David Coursey (1998, October). Harbingers of DVD. Upside, 10(10), 46. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 34415370).

Earnings Digest — Media: Netflix Inc. (2008, January 24). Wall Street Journal (Eastern Edition), p. C.6. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1417462521).

James C Hayton, Donna J Kelley. (2006). A competency-based framework for promoting corporate entrepreneurship. Human Resource Management, 45(3), 407. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1146578581).

John McManus, Neil Botten. (2006, July). Competitive analysis: Thinking beyond stage one. Management Services, 50(2), 10-12,14-15. Retrieved February 18, 2008, from ABI/INFORM Global database. (Document ID: 1072068401).

Perreault, W.D. (2004). Basic Marketing: A Global-Managerial Approach. New York, New York: McGraw-Hill Companies.

Samantha Murphy (2008, February). Movies Made Easy. Chain Store Age, 84(2), 50. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1429472471).

Robert L Cardy, T T Selvarajan. (2006). Competencies: Alternative frameworks for competitive advantage. Business Horizons, 49(3), 235-245. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1014853181).

Roger Smith, Nawaz Sharif. (2007). Understanding and acquiring technology assets for global competition. Technovation, 27(11), 643-649. Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1381251581).

Rosenberg, Y. (2000). Successful internet business. Boston: Harvard Business School Press, Retrieved February 17, 2008, from ABI/INFORM Global database. (Document ID: 1417462521).


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