Netflix, Inc. is one of the most prominent e-commerce companies providing movies and television services to customers. The company was founded in 1997. It started by offering online movie rentals and now has expanded its services to provide other entertainment services like television streaming. The number of subscriptions has been increasing steadily over the years (Netflix, Inc., 2011).
Netflix Pricing Issue
It is important to note that in a free market economy, the levels of demand and supply determine the prices. The law of demand is responsible for price fluctuations in the market. Since the membership to Netflix services has been increasing tremendously, the demand for services has been on the rise against supply.
Therefore, it is economically sensible for the company to increase the prices of the products (Ball & Seidman, 2011). Even though the amount by which a company may increase prices of its products is decided by every individual company, the 60% increase in price by Netflix is justified due to the growing demand for its services worldwide.
Looking at the trend of Netflix’s customers increase since its inception in 1997, it is evident that the need to provide more services to meet increasing demand is necessary. Besides, the increasing number of members subscribing to both television and DVD rental services might have increased the cost of operations for Netflix, especially in terms of overhead. Therefore, in order for the company to increase and retain its profit margins, it is important that it increases its product prices by 60%.
In addition, Netflix sources DVDs from producers and hence they pay some fees in order to possess the products. It is possible that Netflix might have entered into an agreement with its major suppliers to pay certain fees that might have also increased its operation cost and hence the need for price increment of the products. This is crucial if Netflix is to stay in business and earn share value for its shareholders.
At the inception of the company, streaming and DVD rentals were still subscribed to by few customers. However, due to growing access to both services, they have been growing at significant rates. Because of this, the two services are accessed by customers with different needs.
This makes it important for the two services to be separated and DVD rentals let to operate independently. This will ensure that the company attends to effectively to individual customers’ specific needs. In addition, price structuring for both streaming and DVD rentals is different.
Therefore, to maximize the profit margins and also services to customers, it is appropriate for the company to separate its DVD rental services from streaming. Besides, this move will also make it efficient for the company’s accounting officers to have sufficient financial controls within each line of product. If the two services are left together, it may not be easy to identify their individual profitability, especially due to the fact that customers for both streaming and DVD rentals have been steadily increasing over the years.
Increase in the price of products is mainly influenced by economic or market forces (Pride & Ferrel, 2010). This may be the basis on which Netflix has increased the price of its products by 60%. However, this increase in prices may backfire if the company does not make effective its customer services and make efficient its service delivery to both existing and potential customers.
After price increment, it is crucial that the company should improve its service delivery system and also respond appropriately and kindly to customers’ concerns. This implies that the customers should access the company services with more after the price increasing. This will give them added value and hence make them justify the price change. Besides, every customer’s complaints should be taken serious.
This fact is reinforced by the genuine perception of customers that the company should consider them crucial to the company’s existence and success. It is important to realize that customers always want to get maximum utility for the amount of money they use on company’s products. The bottom line for convincing the customers not to leave after price hike is to improve efficiency in service delivery and also enhance the ease of access to its services by the customers (Engelbrecht, 2007).
Conclusion
Netflix was founded in 1997 as an online company offering online movie rentals (Netflix, Inc., 2011). The company has since diversified its lines of services and now provides its services in other areas such as television streaming.
The price increase by 60% is justified due to possible increase in the operation cost. However, the company can only retain its customers if it improves the efficiency of its services to both existing and potential customers. It can also retain and increase its customer base by handling customer issues to their satisfaction (Engelbrecht, 2007).
References List
Ball, M. & Seidman, D. (2011). Supply and Demand. New York: The Rosen Publishing Group.
Engelbrecht, E. (2007). Customer Service Management: a holistic approach. South Africa: New Africa Books.
Netflix, Inc. (2011). Netflix Revolutionizes the Way People Watch Movies. Retrieved from https://media.netflix.com/en/.
Pride, W. & Ferrel, O. (2010). Foundations of Marketing. New York: Cengage Learning.
Netflix is an American Company that specializes in providing online streaming media as demanded by its customers in Canada, the United States and Latin America. It is also known for its by-mail DVD delivery services to millions of subscribers across the United States. By the end of February 2007, Netflix had realized a billionth delivery of its DVD. Its recent move to rebrand DVD rental services into an independent subsidiary company called Qwikster raised mixed reactions among customers and other analysts.
The move by the company could be one of the best decisions ever made by the management as echoed by the company’s chief executive officer, Mr. Reed Hastings. Based on the long term strategies that the company is focused on, it is aimed at enhancing a sustainable competitive advantage for long term business operations.
By separating renting of DVDs from online streaming of movies, the company is likely to expand its customer base and meet their individual needs based on specialized services and products being offered by individual companies with distinct websites i.e. Qwikster.com and Netflix.com.
On the other hand, the move may have a negative impact on the company in terms of its relationship with customers and its ability to win their confidence through rebranding. Notably, the reactions from customers on facebook page of over 16,000 subscribers indicate that the move was not welcome by most of its subscribers who think that this would inconvenience them.
Although the move may turn out profitable, reactions from subscribers show that most of them were not well informed about the rebranding changes. Moreover, it is not clear why the company was renaming a brand which has continuously built its reputation.
It is true that streaming will allow quicker services to consumers as compared to DVD mailing. With this in mind, it is not clear why the company had to rename the brand. From this perspective, it could be viewed that the move targets benefiting the interests of the company at the expense of its subscribers.
What should Netflix do? Regardless of the future plan of the company in terms of expansion and digitalization of its services, consumer satisfaction is equally important. From the enormous negative comments noted by customers, there seem to be some disconnection between the vision of the company and the needs of its customers.
Of significance would therefore be reassuring current and prospective customers of the expected advantages of renaming and rebranding the company in order to win their trust and develop a good public image. Together with the entire management, Mr. Hastings has the responsibility of clearly weighing the benefits of Qwickster against the disadvantages of DVD mailing that has built the company’s reputation for years.
As mentioned in the above segment, the need to pass information to existing and prospective customers cannot be ignored by Netflix. This is key in assuring consumers that they are still valuable and relevant amidst renaming and rebranding. Nevertheless, the mode of communication has to be founded on convenience and accessibility.
After the announcement was made on a Sunday evening, the company recorded comments from over sixteen thousand customers in less than twenty four hours. This implies that most of the company’s subscribers appreciate the role of social networks in communication and business marketing. The company should consider using Facebook and Twitter in reaching out to its subscribers through adverts and updates that insinuate benefits of the move and discussions to address customers’ concerns.
Netflix was founded to fulfill a glaring gap in the movie rental business. Since the company rents out movies by mail and via streaming, and with no insistence on the customer for a set date of return of the DVD movie (for the mail rentals), the company has steadily grown to became the best choice for movie enthusiasts keen on a fantastic deals insofar as movie rentals are concerned.
Since its founding in 1997, the company has steadily grown and is now the market leader in the online movie rental business in the US. This steady growth has been due to the adoption of forward-looking policies and plans by the management team at Netflix.
Choruses of disapproval from customers and industry experts alike have met the recent announcement by Netflix that it was separating its mail order and streaming services. Netflix has now established a separate website, (Qwikster), for its mail order movie rental services.
The cost for the two desperate services has thus increased for Netflix subscribers, and the separate website for the mail order service means customers will have to create new accounts distinct from their current Netflix accounts. Although the move has been roundly criticized, with CEO Reed Hastings even issuing an apology for the abrupt changes in pricing and services offered, I personally feel that the change is a smart business move that will prove beneficial in the future.
Presumably, the management team at Netflix has correctly concluded that the mail order service for its movies is facing an uncertain and not-so-bright future. The mail order service is slow and is prone to misuse; for instance, there is exposure to late return of rented movies, broken discs, and inadvertent sending to wrong recipients.
The world is quickly shifting to web based transactions, these transactions being quick and convenient. Web based sales, cash and business transactions, when correctly monitored and regulated, are superior to physical transactions of the same.
Therefore, the future of Netflix lies in its online streaming services, and its decision to focus on this service will ensure the company remains competitive for a long time. I think the decision to separate the two services is thus an indispensable strategic step that the company has taken, a step which might not bear fruits presently but in years to come.
In light of the foregoing, Netflix should take the following measures to ensure it retains its subscribers and reaches out to new customers. It is obvious from the reaction by customers and Netflix subscribers that, the gripe they have is not so much because of the separation of the two services, as it is about the increased cost of the two services. By maintaining separate rates for the two services that previously were under one price scheme, Netflix has effectively nearly doubled the cost of its services.
Therein lays the biggest source of complaints from its subscribers. Therefore, I feel that Netflix should first reduce the cost of its online services in order to retain its subscribers. Netflix should then engage in promotional offers aimed at increasing its subscriber base and acquiring new customers, for instance offering free streaming of a certain number of movies for new customers.
In keeping faith with online transactions and communication, Netflix should send an email highlighting this promotional offer and new prices to all its customers, and the email should contain links that will enable customers to subscribe to the new offers, with other links enabling customers to invite friends.
The email advertisement should also offer benefits to subscribers who invite the highest number of friends, thus increasing Netflix’s potential of retaining and acquiring new customers. With this simple yet effective strategy, I believe Netflix and its Qwikster subsidiary will be able to remain competitive and offer the best movie rental and online streaming services well into the future.
Netflix is an online company with corporate headquarters in Los Gatos, California. Netflix was founded by Hastings who is also the CEO of the company. Netflix’s key business is online rental services in the software industry. Netflix’s software business services span various software products and services.
Among these are DVD movies and several other software products. Despite disappointing results on its performance at the beginning, the innovative entrepreneur continued to tailor the company while identifying and exploiting new opportunities that presented themselves. That was when the company designed and developed a website that saw it host millions of subscribers making it rake in huge profits. That was in 2006.
Netflix was founded at a time when the video industry was largely populated by small retail outlets which were characterized by long product delivery time. The market was dominated by the then giant Blockbuster Inc. Blockbuster had no real marketing strategy and customer royalty was based on impulsive buying. It enjoyed booming sales with almost 100 percent success when Netflix joined the market.
Upon its entry into the market in 1997, Netflix realized that the market that was dominated by the brick and motor marketing methods. The launch of this company was at the time of the beginning of internet retailing. Online selling was gaining an upper hand to brick and motor methods. This compelled Netflix’s to launch its own website in 1998 that specialized in the use of cross platform technologies in service delivery. At this time, different pricing models were tested to increase sales volume.
Netflix was also adept at countering new entrants and developments in the market. One of this was the development of a video provision services on line.
Porter’s Generic Strategy
According to Porter (1974), successful business organizations incorporate one or more of the generic strategy options to propel it to success. Among these strategies are cost leadership, focus, and group differentiation.
A critical analysis and evaluation of the cases study reveals that Netflix had to various extents incorporated these strategies in its business pursuits with each generic strategy contributing to the success or failure of the company in its pursuits. Netflix emphasized on the focus strategy with the other strategies playing a minor role in the firms’ pursuits.
The differentiation strategy is where a company concentrates its efforts in developing a single product then invests in identifying and incorporating unique attributes that meet customer needs (Porter, 1974). Porter (1975) asserts that by adding value to a product and creating uniqueness in product to attract customers, customers are likely to purchase the product at a higher price.
That was the case with Netflix. Netflix original move into the market targeted the renting of videos in the movie industry. That strategy could be achieved by the use of recently developed and upcoming internet marketing technology which other companies had not incorporated in their business pursuits.
The case study reveals that Netflix’s newly launched website integrated a search engine that enabled each customer to search and access products of one’s choice. Netflix’s management showed such talent and ingenuity in marketing their products by employing already available and established supply chain infrastructure and technology. One of the infrastructure tools included the US’s postal services. The firm incurred slight expenses in delivering the DVD’s to the customers as they were light in weight.
In creating value and uniqueness to its products using the group differentiation strategy, Netflix endeavored to characterize its products with value, user friendliness and convenience, and unique selections. That was evident when Hastings coined a term for their customers that Amazon used to refer to its customers, eBay.
According to Porter (1975), a company that invests in this approach should be led by a well skilled and dedicated team. That was the case with Netflix. Netflix’s management was led by Hastings, an entrepreneur at heart.
In addition to that, Porter affirms that a company organized around pursuing excellence and aiming at gaining a greater advantage in the market should have a good reputation should revolve around high product quality and innovation. The case with Netflix is outstanding here. Netflix did not only focus on DVD sales, they had other serious considerations in product innovation. Among these were a focus on video-on-demand and alternatives to VOD.
Porter (1974) argues that a company may not necessarily integrate all the generic characteristics depending on the nature of its business. An analysis of the case study indicates that Netflix did not pay much attention to cost leadership. Some of the pricing models did not work for Netflix.
One such model involved a situation where the firm spent several thousands of dollars in adverts only to gain a paltry income from such an endeavor. Netflix at times charged high rental fees for their online videos which at times drove its customers away. However, technology seems to have paced Netflix at an upper hand compared to other companies involved I the same business pursuits.
However to a large extent, Netflix incorporated the generic aspect of focus strategy. The focus strategy is where a firm concentrates on one firm and later on attempts to manipulate product prices to achieve an advantage over competitors (Porter, 1975). Netflix did not succeed with this strategy to a desirable extent but seems to have lost some customers due to that.
Porter’s Five Forces
Netflix entered a market that Porter (1974) affirms is driven by five forces. These include the bargaining power of customers, threat of new entrants, bargaining power of buyers, threat of substitute products, and rivalry among competing firms. At Netflix, the bargaining buyer of customers was realized when despite intensive marketing activities, the firm earned paltry sums far below their target. Instead of earning the company more customers, thus increasing the revenue, the company was facing a loss.
Customers had driven sense into the company’s executives that they could determine a company’s profitability and the model they use in pricing their products. This pricing element was evident when some customers felt dissatisfied by the pricing system compelling Netflix to rethink and introduce a new pricing mechanism.
Netflix could counter new entrants by its relentless pursuits to adopt new technologies and integrate them to the service sit was offering. That was the case when it entered the field of video-on-demand. Despite the huge investments it had made, Netflix did not realize quick returns as there were no technologies in the form of hardware platforms to support such services. Netflix is noted to have lost a chunk of revenue in advertising these service customers were not willing to pay for.
The case study however reveals that later innovations saw Netflix succeed in this field. One other case was the entry of VOD services and the fierce completion Netflix had to fight off before they could get a foothold in this widely dominated market by Netflix. Netflix swung into action by exploiting new technology platforms that were not characterized by her competitors in gaining a firm foothold.
Another force experience in this industry was the bargaining power of buyers. As discussed above, Netflix had to succumb to buyer’s buying behavior as in some instances; new innovations could not be priced as per Netflix’s dreams. That was the case with investments and intense marketing campaigns conducted by Netflix for the newly launched services, VOD.
Porter (1975) asserts that companies can endeavor to enter a market by offering substitute products that may serve the needs of current products offered in the market. The case with Netflix is a striking one. The case study reveals that substitute products were too below bar in competing with those offered by Netflix and the company was now enjoying an undisrupted share of the market. Netflix carefully blended these generic forces to its advantage.
Rivalry among competing firms saw Netflix to be a runaway case. Arguments demonstrate how competitors went to the extent of accusing Netflix of infringing upon copy right laws in offering these videos online. This line of attack was shaken off by Netflix’s executives who argued that Netflix was offering these services just like any retail outlet could buy and sell a product, except Netflix was using the new internet technology that these other firms had not put to full use.
Value Chain
Netflix’s management was keen at exploiting information technology in incorporating value chain activities in its service. A striking example was when the company’s turnaround time for product deliveries was drastically enhanced by the use of appropriate technology.
Each customer who opted to stay or leave the company could be requested to leave an answered questionnaire about their decisions. These could be used to identify the weaknesses inherent in the system and determine new methods of fulfilling customer needs and wants. One such revelation was identified with the company’s ever changing rental fees.
Other value chain addition activities spanned the infrastructure the company was using and its implementation of new technologies to enhance value for its customers. Netflix’s system product acquisition was also automated, with automated searches using an integrated search engine.
Implementation of Information Technology in Netflix
To stay afloat in the already large market and maintain the customer base, Netflix will have to implement an IT infrastructure that could offer reliable support for its business transactions (Smith, & Short, 2001). One of these could be a data mining application. The data mining application could be integrated in the organizations’ information system to assists in decision making.
Netflix is a highly customer focused organization. Data mining could help enhance communication, help the company compare its prices with other companies evaluate customer satisfaction, evaluate supplier relationships, enhance staff skills, and provide an overview of company progress and performance.
On the other hand decision support system could be incorporated into the company to help improve decision making from the company’s data warehouse, provide real time sales compressions, and model decision making context (Shermis, Stemmer, Berger, & Anderson, 1991). The outputs from this system could significantly depend on the inputs from the company’s data warehouse and the decisions made could reflect the actual potion of the company.
In addition to that, a customer relationships management should be incorporated as it helps the management to sustain its old and new customers, meet customer needs, and establish a good working relationship with other companies and customers.
According to Silverman (1993), a supply chain management system if well incorporated into this company could help create competitive advantage for the firm by enabling it to optimize all factors relevant to customer satisfaction and company benefits. This system could help the company identify key factors central to its success and enable management optimize all aspects of controls in its marketing strategies and supply and acquisition logistics (Smith, & Short, 2001).
Recommendations
Based on the above discussion, Netflix should continuously adapt to changing technological dynamism and new market opportunities in reaching various markets. Netflix’s management should hire experts on cross culture management to ensure a cross culture component is incorporated in its pursuits.
This could be the case since newer opportunities lie outside Netflix’s current market that is characterized by a fairly uniform culture. In addition to that, the firm should incorporate user friendly software products that are cross platform and compatible with other software products to enhance usability.
To maintain a large market share, the company should always incorporate faire business practices in its pursuits. In addition to that, Netflix should endeavor to develop software that can bar piracies on its products in addition to patenting its products. The company should invest in software technologies that bar any could be illegal downloading of files or unauthorized access or copying of its products.
That could bar illegal usage of its video products since it denies the company legitimate profits that could accrue from those sales. The company should continuously evaluate the role played by information technology in propelling it to its position, the ever changing trends in the industry I terms of provision of services and other related services. It should continuously revise its plans to make them current and relevant to the identified changes and endeavor to incorporate new technologies in its pursuits.
References
Porter,M.E.(1973).Consumer Behavior, Retailer Power, and Manufacturer Strategy in Consumer Goods Industries. Harvard, Cambridge MA.
Porte, M. E. (1974). Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries. The Review of Economics and Statistics, 56(4), 419–‐436.
Shermis, M. D., Stemmer, P. M., Berger, C. F., & Anderson, G. E. (1991). Using microcomputers in social science research. Boston: Allyn and Bacon.
Silverman, D. (1993). Interpreting qualitative data: Methods for analyzing talk, text, and interaction. London: Sage Publications.
Smith, C., & Short P. M. (2001). Integrating technology to improve the efficiency of qualitative data analysis—A note on methods. Qualitative Sociology, 24, 401-407.
The availability of new opportunities through which the various consumers could watch movies had greatly created a ripe environment for the development of competition in the movie rental industry. Market research indicated that the industry was very lucrative as it totaled a combined consumer expenditure of $9.5 billion in 2004.
The industry was made up of four segments. The first was the rentals via mail which raked in total revenue of $2 billion. There were also In-store rentals which brought in revenues totaling to $5.8 billion. Video on Demand (VOD) accounted for $1.3 billion while vending machines brought in $400 million.
The industry was projected to hold a higher potential for the increase by 68 per cent in the rental of DVDs between 2007 and 2011. Case 4 is about the competition that has been going on between Netflix and Blockbuster, two players in the movie rental industry.
Blockbuster launched Total Access, a concept that allowed subscribers to return the movies that they had rented by mail for a free rental.
This strategy that was employed by the firm worked greatly as the online sales of Blockbuster nearly doubled. By the end of 2006, Blockbuster had a total of 2.2 million subscribers. This was a huge chunk of the movie rental market given that the firm was started many years after Netflix had been introduced into the market.
Business Problem And Critical Issues
Porter’s five forces analysis
There is a high rate of competition in the movie rental industry in the US. This is supported by first, the high power of the buyers. According to Porter (2008), when there is a variety of substitutes from which users can choose from, they gain significant power and thus they can switch from one subscriber to the other depending on the products that they are being offered.
The users could access the movie rentals via live streaming, using their TV remote to place orders from their cable providers or even use Video on Demand services. Also, there was a high threat of substitutes as the users could either go to the theatres, buy DVDs or rent s all this were way through which they could be able to satisfy their viewing pleasure.
The threat of new entrants was more real in the industry as the cost of entry was not prohibitive. The suppliers also enjoyed a considerable power in the industry especially the movie production houses that were to rent out the various rights for the movies that they produced for rental services. This has been the force that shapes up the competition in the movie industry.
Industry driving forces
There exists a variety of driving forces that were being faced in the industry. First, there was an increase in the online rental of DVDs, movie file and music download and consumers were also highly interested in VOD.
This greatly increased the competition between the players in the industry as the firms that operated in the industry focused on how they could be able to provide the services that were required by the various buyers in the industry.
The online rental accounted for a big chunk thus a firm that provided the online rental services were more likely to acquire more market share in the industry where the firms operated (Porter, 2008). The industry was also being impacted on by the low prices of high definition TVs.
This has provided increased more quality viewing for the various consumers thus an increase in the viewing. The competition ill increase in the industry due to the rise in the number of players who will be involved in the provision of online movie rentals.
Industry profile and attractiveness
The industry is controlled by innovation. The innovativeness of a firm is a major contributor to the firm’s ability to be able to withstand the environment of the operations. Netflix is very innovative as it could anticipate changes in the tastes of the customers.
Those customers who were able to stream the movies direct to their PCs were given an opportunity by the discoveries that Netflix made. The firm was able to anticipate these changes and make discoveries for the technology that was needed. The workforce of Netflix is very innovative thus they are able to ensure that the market demands are met by the firm in terms of the design, production and marketing activities.
When such a scenario comes up, the firm will lose out in terms of both the quantity and quality of the product offering (Thomke, 2003). The movie recommendation software that was being used by Netflix also significantly increased their sales as the subscribers were given a list of movies together with their previews. This recommendation was based on the previous orders that the customers of the firm had made.
The strategy of Netflix is also long term, for instance, they properly anticipated the changes that would take place 3in the industry.
They engage in strategic partnerships for instance the partnership with LG that allowed for the instant watching of the videos direct to the television screens of the subscribers of the firm (Porter, 2008). Also, the firm was focused and anticipated that the profitability in the industry was pegged on the ability to stream content over the Internet and not the traditional method of postal delivery.
Even though Blockbuster had been the leader in the movie rental industry, it was faced with a myriad of problems which greatly affected the operations of the firm. The high costs that were incurred by the firm significantly ate into the profit that would have been enjoyed by the firm.
The firm also trailed behind Netflix in the various discoveries and innovations. The first instance is that of no limit on charges on the DVDs that overstayed and the use of online moving rentals. The firm still maintained the brick and mortar stores that were significantly incurring more costs than Netflix (Porter, 2008).
Considering the analysis, it can be rightfully said that Netflix was best positioned at it was well poised to benefits from the various changes that were expected in the movie rental industry. The innovations that the firm made and the alliances have put it in a strategic position to be able to capitalize on the changes in the climate when the changes do occur.
Parameters For Analysis
Key success factors in the movie rental industry
In the next 3-5 years, there is a variety of factors that will shape the competition in the movie rental industry. The first will be the ease of access. There is a growing consumer trend towards accessing the movie rentals through the provision of Internet.
This increased level of access has increased the number of consumers who may be able to access the movies (Gamble & Thompson, 2011). In most instances, the customers who were not able to access the brick and mortar stores have a higher opportunity to be able to access the movies. The growth has been split between the two major players in the movie rental industry (Porter, 2008).
The streaming of movies direct to the PC is also a trend that will take the industry by storm in the coming years. Since the speed of Internet access has been growing at an alarming rate, the players in the industry will need to provide a live movie streaming after subscription.
The opportunity will be for the downloading of the movies on VOD or straight into their TV sets. There are also the issues regarding the quality of the offering, for instance, late return penalties, the quality of the movies especially the use of High Definition TV, etc.
Strategy of Netflix
The generic competitive strategy that is employed by the firm is broad differentiation. The industry was characterized by movie rentals that were delivered by mail, but the firm has seen an opportunity through which it can increase its focus.
Apart from offering movies that could be streamed live to the PC of the subscribers, the firm also explored other opportunities for instance the broadening of the product offering to the other platform. The differentiation was good for the firm as the customers began to appreciate the quality that was being offered.
The quality of the viewing was an advantage that had been established at the firm (Gamble & Thompson, 2011). The type of competitive advantage that Netflix is trying to achieve is differentiation which was in terms of the products that the firm offered and also the quality of the offering of the products of the firm.
SWOT analysis
Netflix
There exists a variety of strengths that are enjoyed by the firm. The first is the high brand recognition. The firm entered the industry at a time when there were very few competitors in the market.
Therefore, the firm has continued to strengthen its brand through the offering of unique services, for instance, DVD rental by mail was an original idea of the firm, later, the firm also engaged in offering of a larger variety of products as compared to the competitors.
Secondly, the firm understands the competitor’s weaknesses and uses this knowledge to provide services that satisfy the customers. The first issue here is the late fees, when the firm realized that the customers were irritated when they were charged late fees, it scrapped these fees from its operations, therefore creating a good feeling in it customers (Porter, 2008).
Netflix recommended that customers be able to buy their movies from Wal Mart while Wal Mart encouraged the people looking for movie rentals to be able to visit Netflix website. Also, the website of the firm is an award winning (Chung & McLarney, 1999).
It has the capability to accurately predict and recommend the movies that the visitors will more likely want to rent. This was based on the algorithms that used the information regarding the last (previous) rentals of the customers.
The weaknesses included the inability to provide enough copies of newly released movies. This led to some dissatisfaction by customers as most people always prefer watching the movies around the same time that they premiere in the movie theatres.
In its endeavors to keep the cost of the operations down, the firm focuses on limited renting thus leading to loss of potential customers (Chung & McLarney, 1999).
The waiting period between the time the customers rent the movies and the time they are receiving them are also long. Finally, the firm has no direct connection with movie production studios and thus must purchase through the consumer channel making the movies expensive.
The opportunity that is available to the firm is the development of live streaming and the ability of the firm to absorb the current providers just as it was able to absorb the Wal Mart’s DVD section.
Finally, the threats that are faced by Netflix include the high rate of competition in the movie rental industry. The firm is also less suited to compete with hardware innovations such as Apple TV (Chung & McLarney, 1999). There is also the potential threat of entry by other firms for instance in VOD.
Blockbuster
The strengths that blockbuster enjoy includes brand familiarity. Secondly, the firm has global operations; the firm also has partnerships with movie studios thus significantly lowering the costs of the firm. The firm also offered more avenues through which the movie rentals can be undertaken; by mail or in the stores.
Customer satisfaction is achieved through offering a free movie rental for those who returned DVDs by mail, and finally the varieties of the movies chosen. The weaknesses included the damaged brand due to the previous charging of fees, low levels of success in the home delivery of movies and the low investor confidence (Leonard, 1995).
The opportunities that the firm had included the creation of store experiences, the development of online network of distribution, lower price offering due to the partnership with the movie production companies.
Finally, the threats that the firm faced include the VOD, increased competition especially from Netflix and the deregulation of broadband which would allow for the streaming of movies over the Internet.
Sustainable Competitive strength
The competitive strength of Netflix compares with that of blockbuster in that while blockbuster has physical stores from which it operates Netflix makes use of mail-orders.
Due to the nature of business that Blockbuster has adapted, it enhances its competitiveness through rentals since by renting in many places will ensure that it lowers the high fixed costs (Porter, 2008). Some of the marketing strategies that blockbuster has put in place are game and movie pass which allows clients to have a limitless game or rent movies for a month at a fixed rate.
For Netflix, the cost structure is totally different in that it has ensured that its fixed costs are far much lower than those of Blockbuster. In other words, while blockbuster makes use of physical stores, Netflix makes use of distribution centers, websites and inventory as its fixed costs and are much cheaper than those of Blockbuster.
Due to this, the average rental from Netflix is much lower than that of blockbuster and can attract a higher number of customers. Netflix ahs a better competitive advantage than Blockbuster in that it has a lower cost and also it can increase its markets share greatly by “stealing” customers from Blockbuster while it would be relatively hard for Blockbuster to do the same (Porter, 2008).
In other words, Blockbuster desperately needs to have market share something which Netflix does nott and Netflix can use that to its advantage whenever it needs.
Pros And Cons
Financial analysis of the firm
Netflix
The earnings per share greatly increased especially following the slump that was registered by the firm in 2000. From 2002 onwards to 2007, the increase shows that the firm has been on the path of success as there was an increase from $ 0.74 in 2002 to stand at $1.00 in 2007.
The operating margin of Netflix was increasing especially to 7.6 percent in 2007 from 5.5 per cent in 2006. The current ratio for Netflix stood at 2.07. ROA has been increasing, i.e. from 0.8 per cent in 2006 to 9.8 per cent in 2007 (Kipling, n.d.).
Blockbuster
The current ratio for 2007 is 1.02, thus, this shows that the firm has a high potential to pay its liabilities as the assets can be quickly converted into cash. The earnings per share of the firm have been on a downward spiraling posting very low figures in 2007.
Form $ 6.89 in 2004 to $ 0.45 in 2007. The operating margin of the firm decreased from 4.9 per cent in 2006 to 0.7 per cent in 2007. ROA has been reducing, i.e. from 1.6 per cent in 2006 to negative figures (Kipling, n.d.).
Considering the financial ratios, Netflix is in a stronger position as compared to Blockbuster. Netflix has stronger cash flow liquidity than its competitors.
Priority management issues
At Netflix, there are two main issues that must be addressed. There are concerns about the DVD based movie rentals. This is informed by the fact that there is a high increase in the development of new technologies. Secondly, focus on the provision of new movies (Gamble & Thompson, 2011).
Action Recommendations
The main recommendations that can be given in regard to that two issues include a focus on the provision of movies in other formats. This will be afforded by eh firm especially considering the fact that the firm has a huge reserve of assets that can finance the various operations.
The firm should also enter a partnership with the movie producers so that it can further reduce its costs of operation. This will further contribute towards strengthening the firm.
The issues that should be dealt with by the firm include high costs especially those that are associated with the expenses and the dwindling brand equity and recognition (Gamble & Thompson, 2011).
The recommendations that will be used in this case include a higher focus on using online avenues rather than the use of brick and mortar stores that require so many employees and high costs of inventory to keep. Secondly, the firm should increase the movie offering so that it can offer the quality that the consumers had known the firm for.
Conclusion
From the case analysis, it has been established that Netflix will significantly have a higher rate of returns for its investors and will continue to dominate the industry. This is possible to undertake through the differentiation focused competitive advantage, the strategic alliances and innovation at the firm.
References
Chung, E., & McLarney, N. (1999), “When Giants Collide: Strategic Analysis and Application”, Management Decision 37(3): 233 – 247.
Gamble, J., & Thompson, A. (2011), Essentials of strategic management: The quest for competitive advantage, New York, NY: McGraw-Hill/Irwin.
Kipling, R. (n.d.), A guide to Case Analysis. Web.
Leonard, D. (1995), Wellsprings of Knowledge: Building and sustaining the sources of innovation, Boston, MA: Harvard Business School Press.
Porter, M. (2008), “The five competitive forces that shape strategy”, Business Harvard review, January: 1 -18.
Thomke, S. (2003), Experimentation matters: Unlocking the potential of new technologies for innovation, Boston, MA: Harvard Business School Press.
The movie rental industry especially DVD by mail enables people to rent various film media online. The media include DVD’s, Blu-ray discs, and video games delivered to the consumer by mail. Most of the interaction takes place online through signing up to the respective rental service. The most dominant companies offering the above service include Blockbuster Video Online, Netflix, Lovefilm and eHit.
Though the movie rental industry still records impressive performance, there is some decline in some quarters attributed mainly to technological developments that have diminished the need for movie renting. Thanks to technology, online download and purchases and availability of substitutes like cable television and the internet pose a serious challenge to the long-term survival and relevance of the movie rental industry.
This analysis will focus on two of the companies mentioned above. The analysis will focus on various aspects of the companies mentioned to determine which is one is more successful than the other.
Additionally, there will be a brief analysis on the primary reasons for the different outcomes associated with the two companies. The discussion will contain two recommendations for the less successful company on ways of improving their fortunes.
Analysis
Both companies have their headquarters in the US. Netflix is the younger of the two having been in the business for slightly over fourteen years compared to Blockbuster’s twenty five years. Both entities display distinct business approaches that are clearly evident in their financial performance.
Blockbuster, by virtue of it s age has a larger network spread over seventeen countries with approximately 1700 stores (Ireland et al., 2011, p. 105). Netflix on the other hand has a smaller area of operation compared to its older competitor, with stores in the US, Canada, and a handful of countries in Latin America. However, the company has in place plans to expand to Europe specifically Spain, UK and Ireland.
Both companies offer more or less the same services. Even so, Netflix appears to offer a wider variety of services compared to Blockbuster (Schermerhon, 2011, p. 21). Besides disc rentals, Netflix also offers internet vide streaming as well as original programming.
Additionally, the company offers device support services by availing hardware and software support, video game consoles, set-top boxes for better quality digital transmission, Blu-ray disk players and hand-held services.
Block buster on its part is only involved in online rentals and retail operations such as GameRush stores and Blockbuster Express (Schermerhon, 2011, p. 27). Given the above status of services offered by both companies it is clear that Netflix has diversified its sources of revenue more than Blockbuster.
Unlike Netflix whose ownership has been steady, Blockbuster has had to change ownership a couple of times. The company stock’s tumble in 1994 led to a takeover by Viacom. Blockbuster however de-merged from Viacom in 2004 and immediately introduced the Game Pass nationally. At the same time, the company introduced Blockbuster Online, an online DVD subscription.
The takeover and apparent boardroom fights have had an adverse effect on Blockbuster, something its competitor Netflix has been successful in avoiding.
Netflix’s cautious approach to expansion and successful avoidance of the business twists that come along with takeovers and change of leadership are evident in their financial results (Hill & Gareth, 2008, p.50). At the same time, the effect of the above trends is clear in the financial performance of Blockbuster.
Near bankruptcy has led to the closure of numerous stores in Europe and a chapter 11 bankruptcy protection filing saw Blockbuster purchased by Dish Network. The company sought protection due to apparent failure to service its $900 million debt as well as mounting losses. Management by the new owners has seen the closure of hundreds of stores in its areas of operation including a wind up of the Canadian unit.
While Blockbuster is struggling with bankruptcy issues, its competitor Netflix recorded a net income of US$ 160 million in 2010. The company’s total revenue totaled US$ 2.17 billion while its operating income totaled US$ 283 million in the year 2010. Its total assets in the same year totaled US$982 million while total equity totaled US$ 290 million in the same year (Light, 2011, p. 56).
Blockbuster got delisted from the New York Stock Exchange on July 2010 due to a failure by its stockholders to pass a reverse stock split. This is in contrast to Netflix’s stock price increase by 219% in the same year. The share price was even better in 2011 registering $1.07 earnings per share in April 2011.
Additionally, the company added 8 million new subscribers to attain a total of 20 million subscribers (Light, 2011, p. 56). In 2009, Blockbuster’s leadership declined to release figures about its subscriber’s base. By 2007 however, the company’s base had hit 3 million, a far cry though from Netflix’s 20 million.
Financial performance, customer perception and stability of a business entity determine success of business (Klein, 2010, p. 45). On this front, it is clear that Netflix is more successful than Blockbuster. Blockbuster is experiencing boardroom feuds, poor financial performance and significant contraction while Netflix on the other hand is recording phenomenal growth, employing a cautious approach in expansion worldwide.
Numerous reasons ranging from leadership and expansion and penetration strategies can help explain the above company situations. The section below briefly outlines the three most probable explanations for the above situations.
It is possible that Blockbuster‘s leadership failed to capitalize on its initial dominance to establish a solid and loyal clientele, critical at a time like today. Presence in numerous other countries besides the US failed to net enough subscribers necessary for survival during hard economic times.
Furthermore, the company appears to have engaged in reckless expansion with little or no proper projection on return on investment. It is therefore possible that the company spent more on deliveries than what it netted out of the subscriptions. Besides, there appears are flaws on its franchise arrangements, access to credit and unsound business decisions probably due to multiple change of ownership.
Netflix on the other hand did what Blockbuster failed to do. It is apparent that the company seized the opportunity by implementing sound financial and business expansion strategies (Hitt, 2009, p. 275). Besides, Netflix embraced innovation and the use of technology to spur its subscriptions.
Recommendations
To improve its fortunes, blockbuster video needs to:
Concentrate on the primary market in the US before any diversification takes place. The current approach taken by Dish Network involving closure of stores is necessary to achieve the above.
To embrace innovation and carry out improvements based on the weaknesses of its competitors as well as market trends.
Conclusion
The comparisons given above are by any means not exhaustive. Though Blockbuster recorded many successes, it is easy to spot its failures especially on the backdrop of successful peers like Netflix.
The success of Netflix is comparable to that of Google and Facebook, entities that embraced technology and used then to their advantage. It will be premature however for any business entity in the same industry to write off Blockbuster. It is possible for the company to make a comeback and still claim its lost success.
References
Hill, C. & Gareth, J. (2008). Essentials of Strategic Management. London: Springer.
Netflix is an American company, which uses technology to enhance film distribution. The company started its operations in 1997, in California, headed by three social entrepreneurs Randolph, Reed, and Mitch. It started as an online-based film-rental company where consumers could rent an item and have it posted to their destination. During this time, Netflix charged its customers for postage and late return of borrowed items.
Later on, the company introduced a flat fee for unlimited rentals without imposing extra fees such as shipping and late fees. The company has continued to grow its customer base and distribution network. By 2007, Netflix distributed over 35,000 different films sending over a million DVDS a day. Netflix has expanded into Canada, Mexico, Europe, the Caribbean, and South America. Netflix continues to experience phenomenal growth in all the markets that it has expanded to (Keller & Kotler, 2011).
There are a number of cultural factors, which have contributed to the phenomenal growth in the company’s market share. Cultural factors are a number of values and beliefs held by a community or collection of individuals. People pass on culture from generation to generation and roots deep in the lives of these generations.
This influences their buying decisions greatly. For instance, certain cultures buy more than other cultures. Others only buy an item during certain ceremonies such as burials and weddings (Kashima et al, 1995).
All cultures also have a number of subcultures such as age sets, gender status, and religion. For instance, whereas Christians lavish on beef, it is a taboo for a Hindu to eat the same. On the other hand, it is unheard of for a Muslim to think of eating pork, a common delicacy with the Hindu. During a wedding ceremony, a Christian bride adorns a snow-white flowing gown. On the other hand, a Hindu bride must adorn a red cloth during a wedding.
For this reason, in an all-Christian subculture, white gowns will be on demand during wedding seasons, with red clothes having no demand. Another aspect of subculture is gender. A case in point is the fact that women buy more cosmetic products than men do (Keller & Kotler, 2011).
Since man is a social animal, social factors also influence the buying behavior. Such factors as, an individual’s roles in the society, status, immediate family members influence a consumer’s decisions. Every person has a number of people whom he compares with. This could be friends, coworkers, or relatives. Take for an example, for the case of Anthony who is pondering over which brand of a computer to buy.
Anthony will choose a brand according to the brands that his friends recommend to him. As well, people’s stages in life will influence their spending habits. For instance, bachelors will spend more on partying and luxury items whereas newlyweds will invest in a house or a new car. Those with children will spend in a way that secures their children’s future (Kashima et al, 1995).
Another social factor is an individual’s role in society. Take for a case two personalities, one heading a blue chip company and another one heading a local garage. The one heading a prestigious institution will spend more on clothing as compared to the one heading a garage irrespective whether the two have an equal income.
Netflix has succeeded in capturing the market by understanding the cultural and social factors influencing its customers in all the areas that it has expanded to (Kacen & Lee, 2002).
References
Kacen, J.K., & Lee, J. (2002). The influence of culture on consumer behavior. Journal of Consumer Psychology 12(2), 163-176.
Kashima et al. (1995). Culture, gender, and self: A perspective from individualism- collectivism research. Journal of Personality and Social Psychology, 69(5), 925-937.
Netflix is a company that provides its clients with an opportunity to watch videos through live streaming at their own pleasure. It allows an individual to watch episodes of programs through online streaming by choosing what they want to watch through subscription. Netflix was incepted in 1997 in California. It has so far it has spread to many other countries in the world through its subscription services.
The 4Ps of the Product
The 4Ps of marketing are the product, place, promotion, and price. The product in this case is the service provided by Netflix that allows an individual to access different media products online (Constantinedes, 2006, p.24). A client can choose the products that are available from a catalogue.
The service is available online at an affordable subscription price of $8 per month, which is a good price for a variety of products. The service is promoted online, on televisions, and on movies and music trailers as a way of directing probable viewers on where to find the specific media product.
Packaging and Labeling
Packaging of Netflix products happens in two ways. There is the packaging of hardcopy products such as discs, which are rented to clients on a monthly basis. In addition, there is the packaging of online products for access by the clients. Under the hardcopy packaging, discs are usually sent to clients in CD casings that ensure that the CD gets to the client intact. This strategy is part of quality service delivery that a client can always depend on when he or she is in need.
The catalogue of products has also been packaged online in an organized manner that categorizes different products for easy access. On the other hand, Netflix has labeled its products in an eye-catching artistic style that easily attracts the eye of a probable client (Walsh et al., 2010, p.147). The rental DVD packages are all labeled with the Netflix logo. Only the recipient of the package will know the contents of the package.
The online streaming screen has the word Netflix on top of the screen every time a client is watching live. As a marketing strategy, this style ensures that the image of Netflix is embedded in the clients’ mind all the time so that they will always think about Netflix anytime they need to watch something available online (Walsh et al., 2010, p. 150). Netflix is labeled in a way that it attracts people of all age groups.
Brand Differentiation
Netflix employs different elements to differentiate from its competitors, thus making it a product of choice (Underwood & Ozann, 1998, p. 210). The first element that it employs is quality. Netflix services are of high quality. In this way, they do not fail clients as evidenced in the high-quality media products and DVDs for rent, as well as the high-class media streaming it offers. This strategy ensures that clients get value for their money instead of apologies for non-delivery of services.
Another element the company employs is uniqueness of its services in that any producer can post his or her productions on the Netflix site. Different audiences will access the same information at a fee. The fact that individuals choose what to watch what they want without having to rely on the company’s time program makes it unique too (Walsh et al., 2010, p. 151). Most companies offering television services tend to have a time program for watching specific products.
Thus, one needs to be at his or her television at a certain time to catch the program. All people need is to pay and have an internet service that will allow them to watch from their televisions, mobile phones or computers, and tablets. The pricing of Netflix product makes it competitive because it is cheap to subscribe per month.
Reference List
Constantinedes, E. (2006). The Marketing Mix Revisited: Towards the 21st Century Marketing. Journal of Marketing Management, 50(1), 23-33.
Underwood, R., & Ozann, J. (1998). Is Your Package an effective Communicator? A Normative Framework for Increasing the Communicative Competence of Packaging. Journal of Marketing Communication, 4(4), 207-220.
Walsh, G. et al. (2010). Measuring Consumer Vulnerability to Perceived Product Similarity Problems and its Consequences. Journal of Marketing Management, 20(1/2), 146-162.
NetFlix provides streaming services to its customers in various countries including the United States of America, United Kingdom, and Sweden among others (Bell & Koren, 2007). Customers have issues that need attention from the service providers through support services.
In light of setting up the support services, they have to consider the needs of customers in order to ensure that the support services are focused on customers. Secondly, they have to evaluate the support services offered by their competitors to make sure that they earn competitive advantage.
Needs of Customers
Online Chat
Regarding NetFlix support systems, the service providers should have various services. Currently, they have provided solutions to the commonly asked questions and problems. For other problems, they allow their customers to make direct phone calls to the customer care center. It is understandable that calls are very expensive, especially for the foreigners hindering the customers from using their services and opting for other service providers (Bell, Koren & Volinsky, 2010).
As a result, NetFlix should incorporate online chatting system in their support services. The chatting systems are more efficient than making the calls. The introduction of the online chat support services will help retain the customers who are already attached to NetFlix and attract new ones.
Previous research, which was reported by Forbes magazine, showed that a company loses a lot of customers due to lack of online chats (Luo, 2008). This is due to the increasing demand for online chats in support services. In fact, it states that online chats have become a popular way of communicating and cannot be ignored. The magazine suggests that it cannot be ignored because it has become a way of life.
Physical Helpdesk
A physical helpdesk is a must-have for this service in order to serve the people who need physical attention. Such customers might be returning some DVDs or seeking some other help. This desk will help the business to attract such customers and retain them in their business. Although the introduction of online chat and helpdesk is essential for NetFlix, it is important to evaluate the competitors.
Support Services offered by Competitors
In this light, I shall consider Redbox as one of the robust competitors that NetFlix has in the market. Redbox has an online chatting system that allows its customers to chat with the service providers. This implies that they are ahead of NetFlix by enabling their customers to have more avenues for communication than their counterparts. Customers might prefer Redbox to NetFlix based on the efficiency of this communication between the customers and the support staff.
In addition, they have a toll free helpline for customers. The introduction of a toll free call line is a great idea by Redbox. This reduces the cost of contacting the service providers making it more appealing than a paid helpline (Luo, 2008). They have the question and answer platform that provide answers to frequent questions.
Competitive Effects
In this analysis, it is clear that Redbox has introduced more communication services as compared to NetFlix. This may lead to increase in the number of Redbox’s customers and a consequently decrease in the number of NetFlix’s customers. It is, therefore, important for NetFlix to consider a system that incorporates new communication avenues that they have not implemented yet in order to maintain their competitive advantage.
References
Bell, R. M., & Koren, Y. (2007). Lessons From The Netflix Prize Challenge. ACM SigKDD Explorations Newsletter, 9(2), 75.
Bell, R. M., Koren, Y., & Volinsky, C. (2010). All Together Now: A Perspective On The NETFLIX PRIZE. Chance, 23(1), 24-24.
Luo, X. (2008). When Marketing Strategy First Meets Wall Street: Marketing Spendings And Firms’ Initial Public Offerings. Journal of Marketing, 72(5), 98-109.
Founded in 1997, Netflix Company has grown and is currently well placed in the movie rental industry of America. Despite its outstanding performance and quick recovery from the global financial crisis of 2010, the company is currently facing the dilemma of a sustainable positioning strategy due to the current hostile business environment.
The threat of competition, non deliveries on Saturdays and the 28-days delay before delivery of new films has put the company in a fix (Cholewa et al. 305). Thus, this reflective treatise attempts to develop a product branding strategy and market segmentation for Netflix in order to remain competitive in the sensitive film industry of America.
Product development
In order to remain afloat, Netflix Company should offer the Kiosk model as part of its product brands in order to retain its customers that would be affected by the 28-days delay period before delivery of new films. Reflectively, the kiosk model will facilitate timely distribution of the films to clients and increase the returns since the aspect of convenience will not be compromised.
Besides, unlike its competitors, the company has better distribution network that might facilitate implementation of the kiosk model. Through the kiosk model, the company will offer films to its customers in convenience stores across its distribution channel. The kiosk model will counter the non deliveries on Saturdays since clients will be in a position to directly purchase from its virtual kiosks.
Consumer segmentation
The kiosk model targets home user consumers who form the majority of the Netflix market catchment. Since this target group frequent movie store, Netflix will be in a position to conveniently direct the customers to their designated delivery points and stores without having to directly deliver.
The company should merge the strategy with advertisements since this group of consumers has access to social media. Due to exposure to information sources such as new papers, television, radio, and magazines, product announcement through these avenues will come in handy.
Decision on the best product relies on information feedback after multiple exposures to different competing products. As forecasted in the market research, this strategy will be successful towards dominance as it offers a variety of options to consumers, while at the same time, maximizing benefits of economies of scale to the company.
Marketing Mix
The marketing mix is a selling model which is made up of four elements. These elements include price, product, promotion, and distribution. Reflectively, the penetration strategy should have minimal disturbances to the market and the company. Therefore, it is important to establish means and ways of reaching the potential market consisting of young and sensitive clients.
To achieve this, the company should segment and differentiate its ‘young adults market’ along consumer-based market segmentation procedures. The physical distribution patterns are with no doubt a critical area of focus, especially in this segment that is spread across the US market.
On the pricing mix, the US has a high purchasing power. Therefore, the kiosk model should use skim pricing strategy since demand for this company’s product is relatively inelastic. Concerning the place, the kiosk model should use the local media channels to keep in touch with the target segment.
Apart from the TV channels, the company should use the parent company’s channels to reach out to the market segment. Moreover, the company may enter into strategic partnership with other companies to advertise its products. On product, the kiosk model should be made flexible to satisfy the needs of different customers.
Work Cited
Cholewa, Vincent, Dreager Lori, Grilliot Greg, Lee Sze, Wallace Drew, and Wright Sean. Case 20: Netflix. Arizona: Arizona State University, 2011. Print.