According to Tompson, a company’s strategy indicates the choices made by top executives about how to attract and satisfy customers, how to respond to changing environmental conditions, how to compete successfully, how to grow business, how to manage internal capabilities and weaknesses and how to achieve performance targets. Netflix’s Vision According to Reed Hastings, Netflix CEO, the company’s vision is to change the way people access and view the movies they love. According to Netflix’s annual report of 2004, goals set for 2005 are aggressive but realistic.
They intend to continue their rapid subscriber growth and reach more than 4 million subscribers by the end of the year. It is also mentioned that Netflix’s long-term strategy is to seize leadership of the Internet delivery market by building a large subscriber base and offering those subscribers the choice of mail or Internet delivery. Netflix objectives It is obvious that the main objective of Netflix is to strengthen its subscribers’ base by both acquiring new customers and retaining the existing ones.
In order to achieve that it will apply innovation across all company’s levels. They want to expand their distribution channels by applying both the existing mailing service and by developing Internet delivery. They are also eager to expand their services lines tightened to its core business of renting movies. Netflix current strategy identification According to Thompon’s et al (2005) five generic competitive strategies, Netflix can be considered to follow a number of them jointly.
More particularly, in terms of target market, Netflix is considered to follow a focused market niche strategies, as online rental DVD movies business is actually a niche market of the total home entertainment market or even of the total DVD rental market, among others, to some of the Blockbuster Video Company’s executives.
In terms of differentiation, Netflix offers its product through an alternative channel -online rental-, however being differentiate from direct competitors by offering a range of parallel services like recommendations system, absence of due dates and late fees, ect.
Therefore, combining target market and differentiation, it is concluded that Netflix follows a focused strategy based on differentiation. However, Netflix trying to exploit high scale economies compared to physical retail stores which has far more reduced costs and, thus, it can also be considered to jointly follow a best-cost strategy provider strategy, as it has the opportunity to offer lower prices than traditional rental movies’ channels. Netflix’s strategic actions
Concerning the attraction and satisfaction of customers, Netflix applies a simple idea. Its customers just sign up for a subscription and create a ‘wish list’ of all the movies they want to see. This list could be changed at any time. Provided the movies were available in Netflix’s inventory, DVDs were shipped to the customer free of charge. Therefore, attraction of customer didn’t required physical approach and physical stores involving. The free of charge shipping was not the only offer of to its customers.
Actually, the company provided all the benefits of a typical movie rental store but without the hassle of having to return the rentals at a specific time. This was a unique aspect of Netflix. It is clear that the company’s strategy focused on customer’s needs having identified that a special problem in renting movies was the pressure to customers to watch the movie and return it back at within a short time period. Netflix’s absence of dates due and late fees was considered as a great competitive advantage.
Concerning the satisfaction of customers, Netflix offers them a lot of possibilities. By applying the innovative service of CineMatch expert system, Netflix offers customers several recommendations about what is the proper movie to rent and watch, according to their past preferences and rates. Indeed, it has been observed that over half of company rentals come from this recommendation system. Moreover, in order to provide fast services, Netflix has developed a sophisticated distribution system to speed up mailing times.
This distribution system ensured as fast delivery as soon as possible and allowed Netflix an advantage over competitors. Although, Netflix is considered as a successful company on online movie rental business, company’s executives don’t stop to study any possible future opportunities and threats come from the external environment. Different channels for rented DVDs are being developed, along with new players entering the online movie rental business. Moreover, technological and socio-economic factors may change the market conditions.
Netflix’s executives recognize these revolutions and prepare relevant future actions. Netflix’s rivals’ actions As it has been already mentioned, Netflix faces both direct and indirect competition. Direct competition comes from companies that apply the same distribution channel (online rental). These companies can be considered as Netflix’s key rivals. More particularly, these companies are Blockbuster Video, Wal-Mart and Movie Gallery, but the immediate competitor is Wal-Mart. Wal-Mart developed a rental DVD offer nearly identical of that of Netflix.
In terms of pricing, it offers one price that corresponds for unlimited service, while Netflix offers a range of prices corresponding for a number out of time in each price point. Wal-Mart envelopes and movie selections were also nearly identical to Netflix’s. In terms of distribution, Wal-Mart operated only 7 distribution centers, compared to 15 of Netflix’s, but planned to open more centers and other Wal-Mart facilities. In terms of software, Wal-Mart was also still working out the bugs with its online software, whereas Netflix had already spent several years debugging its software.
Blockbuster Video although it was the world leader in the videocassette, DVD and video game rental industry, it has only recently began to investigate the online DVD rental market. In order to enter that market, it acquired a small company that was one of Netflix’s smaller competitors. Movie Gallery had not implemented any online DVD rental service. However, being a large company and having a diverse geographic spread, its entry in online rental industry was not expected to be far away.
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