Netflix Inc.’s Strategy, Innovations, Expansion

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Table of Contents

Introduction
Netflix Strategy
Netflix and Innovation
Core Competencies
Growth Maturation
International Expansion
Conclusion
References

Introduction

Netflix is a U.S.-based corporation that provides customers with access to licensed video content through video rentals and online streaming. Having been founded in 1997 to take advantage of the improvements in the availability of Internet services, it has consistently introduced innovative approaches to the industry. As a result, it was able to become a market leader, but some issues accompanied its rise. Competing services were able to take advantage of these weaknesses and become viable alternatives to Netflix’s services. This case study will analyze Netflix’s past and current situation and provide suggestions for future actions and choices. It will also provide a scenario where the same variety of analyses can be applied in the author’s life to a familiar company or the family business.

Netflix Strategy

Netflix relies on shows from content producers as well as its originals to attract and retain customers. In the VRIO model, both resources are valuable due to their ability to attract large audiences and interest them in other shows. They are rare because it is challenging and expensive to obtain the rights to a show (Rothaermel, 2016). They are costly to imitate because the famous actors involved tend to favor offers from existing large companies. Lastly, Netflix has been able to organize itself to take advantage of the resource. The development of original shows works well with this approach because competitors cannot obtain rights to these shows without negotiating with Netflix. However, the company’s fast growth may be outpacing the capabilities of the Internet, and some people cannot use its services to their full capacity.

Netflix and Innovation

Strengths Large library of shows Convenience for viewers	Weaknesses Does not deliver its services directly Challenging to retain customers (Talbot, 2018)
Opportunities A large international market where on-demand streaming is underdeveloped The continuing decline of physical rental services and television channels (Maheshwari and Koblin, 2018)	Threats Emerging competitors with popular exclusive shows Internet providers can throttle users’ access to Netflix and make demands in exchange for restoring it (Collins, 2018)

Netflix’s innovations have consistently been focusing on the customers, increasing convenience for them and undercutting the competition. As a result, it introduced mail-based subscription services and then moved to Internet-based streaming. As a result, its innovations have been able to keep up with the advances in technology and capitalize on them ahead of the competition.

Core Competencies

Primary Activities

Inbound Logistics: Suppliers provide finished shows to Netflix directly.
Operations: Netflix produces original shows and compresses the provided ones for online delivery.
Outbound Logistics: Netflix relies on ISPs to deliver its shows.
Marketing and Sales: Netflix presents itself as a superior alternative to traditional television and uses a subscription model.
Services: Netflix provides customers with suggestions for shows that may interest them.

Support Activities

Firm Infrastructure: Netflix has extensive management, financial, and legal systems.
Human Resource Management: Netflix is renowned for its excellent approach to HR.
Technology Development: Netflix relies on its technological capability to obtain a competitive advantage.
Procurement: Most shows will only have one possible supplier.

Netflix’s core competencies are its resources and its subscriber base. They help the company procure shows, produce originals, and ensure that enough viewers watch them to justify the costs and attract more people. Most of its competitors lack either the resources or the customer base. To hone and modify these competencies, Netflix has to ensure that it keeps providing popular, high-quality content to people.

Growth Maturation

Porter’s Five Forces

Threat of Entry: low due to the expensive deals and extensive infrastructure required.
Power of Suppliers: high, as they have near-complete control over their shows.
Power of Buyers: medium, as they can find the products elsewhere at the cost of a higher price and possibly worse convenience.
Threat of Substitutes: low, as Netflix is phasing out most of its substitutes as a superior alternative.
Competitor Rivalry: low, as most competitors rely on highly popular exclusives and do not offer most of the shows on Netflix.

Netflix can increase demand for its services by introducing high-quality shows and drawing public attention to them. To ensure future growth, it can try to capitalize on its current capabilities to offer a platform to independent content creators.

International Expansion

PESTEL Analysis

Political: Medium importance; countries can ban Netflix over specific shows and ideologies, but most will not;
Economic: Low importance; Netflix costs less than traditional TV, which most people can afford;
Sociocultural: Low importance; Netflix mostly appeals to young people, who tend to appreciate innovation;
Technological: High importance; a country needs widespread and fast Internet speeds to accommodate Netflix;
Ecological: Low importance; Netflix does not harm the environment directly;
Legal: Medium importance; licensing issues can arise in some countries;

Markets outside of the U.S. will have different cultures and may not be interested in its shows. The service can try to secure popular local shows to answer this issue pre-emptively, but the lack of suitable originals will hurt it. Netflix should focus on English-speaking, technologically advanced countries such as the United Kingdom as well as other Western nations such as the European Union first due to the similarity of their cultures.

Conclusion

Netflix’s strategy has enabled it to stay ahead of the market in the past and become an undisputable leader. Other services that emerge usually do not compete with it directly but aim to exist alongside it, offering a different product selection. However, the company is reaching market saturation in the U.S. and should consider expanding internationally. The tools used in this analysis can be applied to any company at any time. A likely scenario for their application to a family business would be when its sales would stall at a specific level or begin declining. The analysis would help the owners understand the reasons for this change and possibly offer ways to address it.

References

Collins, K. (2018). Net neutrality has officially been repealed. Here’s how that could affect you.The New York Times. Web.

Maheshwari, S., & Koblin, J. (2018). Why traditional TV is in trouble.The New York Times. Web.

Rothaermel, F. T. (2016). Strategic management (3rd ed.). New York, NY: McGraw-Hill.

Talbot, P. (2018). How to succeed in the new world of subscription-model marketing.Forbes. Web.

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