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Strategy And Case Analysis Of Netflix

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Question:

Discuss about the Strategy and Case Analysis of Netflix.
 
 

Answer:

Introduction

Strategic analysis of an organization is a significant process for maintaining and improving its position in the industry. It helps the company to understand different strategic aspects and adopt effective strategies to gain competitive advantage against its competing brands. There are several frameworks and tools such as PEST analysis, SWOT analysis etc. that can be used by the organization to analyze the environment strategically (Grant, 2016). The main aim of this report is to discuss the strategic analysis for case study Netflix and Blockbuster. Netflix is an US based organization that offers television and movies by streaming online media and delivery by mail. The report discusses about the history about both Blockbuster and Netflix. Furthermore, it examines that how Netflix is able to beat Blockbuster via its effective strategies and technology advancements. The last section of report analyzes about the dominance of Netflix in the sector of online video streaming. After this analysis, it talks about the future of Netflix in online video streaming industry.

Institutional Background

Brief History of Blockbuster

Blockbuster Inc. is a US based organization that provides entertainment services and offers video games and home movie rental services through DVD mail delivery, media streaming, video rental shops, on-demand video and cinema theatre. In the era of 90s, the company has become internationally known. In 2000, it had offered acquisition to Netflix, but it had denied the offer. Netflix is running its operations as the biggest rival of Blockbuster. After its establishment by David Cook, the company has recruited more than 84,300 people across the world that include around 58,500 from United States and 25000 from other countries. Now, the company is operating its business through 9094 stores all over the world (Blockbuster, 2017). The organization is facing various risks and challenges such as Redbox automated kiosks, on-demand video services and competition threat from Netflix. These are the reasons behind the final demise of Blockbuster. During 2000s, Blockbuster started to drop in its revenues and it demanded for bankruptcy prevention.

Brief History of Netflix

Netflix is also an America based firm that has started its operations in the year 1997 by Reed Hastings and Marc Randolph. It is an entertainment service provider which was established in Scotts Valley, California. The company provides different services which are related to streaming video on media. It offers its customers different opportunities to stream the movie and TV episodes via internet. In the starting phase, the model of Netflix included DVD rental and sales. Though, Hastings unrestricted the sales of DVDs after a year of its foundation so that this could emphasize on rental DVD delivery by mail. From past few years, the company is running its business in foreign markets by providing more and better services than its competing brands. Presently, it has its operations in over 190 nations and it has 109.25 million subscribers across the world including 52.77 million in United States (Netflix, 2017). Along with the TV episodes and range of movies, Netflix’s series is also available on the internet for its potential customers.

 


In today’s competitive business environment, Netflix is operating its business with the mission to increase its subscriber base for video streaming in both national and international markets. For this, it is continuously enhancing customer experience by increasing the range of its services. By emphasizing on its mission and using effective strategies, Netflix wished to be one of the best entertainment service providers globally. Additionally, it helps the content developers across the world so that it can increase its customer base on international level. It adopts many corporate and marketing strategies to generate more profits and revenues than its rivals (Netflix, 2017).

How Netflix Beat Blockbuster

From its establishment, Blockbuster Company had administrated the rental movie business for so many years. In the year 2005, the value of organization was more than $8 billion. In the meantime, Netflix began using postal service for the delivery of DVDs. By implementing effective marketing strategies, it has been operating the business as an industry leader and soon Blockbuster has sued for bankruptcy. In 2010, it had lost $518 billion and locked its stores. After that, Netflix achieved 16 million subscribers by running its online video business (Sicoli, 2018). Its effective leadership has enabled it to beat the blockbuster. The major factors behind this beat are given below:

Changing Technology

In the initial stage of Netflix’s operations, the organization was offering its targeted audiences with the DVDs on demand. With the changes in the customers demand, the firm has implemented more emerging and updated technologies its operations. The main factor behind this business development is that Netflix’s managers came to understand that enhancing technology can improve the delivery of rental movies and DVDs. It has formulated a technology strategy which was implemented under different stages. Moreover, it has adopted the strategy of internet and media streaming and virtual firm so the firm can provide its services inexpensively and perfectly (Chopra, et al, 2017).

Considering the market environment, Netflix’s management has understood that content is very unique and important. After understanding this, the company has altered its catalogues. By making advancement in its technology, now organization is providing many versions of videos and episodes that are most suitable for its subscribers. Another component of its technology was to avoid the accountability of retail outlets by operating the online business. Thus, it has used modern and updated technologies to provide satisfactory services to its subscribers. Moreover, Netflix gathers the information base from its most watched movies and shows then it released a list of viewers (Mcdonald, 2016). In this way, Netflix beat the Blockbuster as Blockbuster failed to use modern technologies.

Retail Outlets versus Operating Online

Netflix is an online movie DVD rental organization so this has avoided its liability towards physical stores and it has operated its business online only. The company has established few warehouses and offices and it has become virtual firm with no physical stores and sales people. Netflix believes that operating business through retail outlets as Blockbuster may limit the business area range and its targeted population. This is the reason that it has implemented Open Source Approach that allows Netflix to supply the movies on DVD players, mobile phones, computers and TVs. Currently, the company is offering online streaming videos and DVD through mails that differentiate it from rivals in the industry (Armstrong, et al, 2015). Additionally, the delivery costs of DVDs are relatively higher in marketplace so people prefer to enjoy online videos. The online video offering has enabled the organization to gain more customers than Blockbuster and it has become a leading player in entertainment service sector.

 

Pricing Strategies

As mentioned above, Netflix offers its products and services by two different modes i.e. DVD via e-mail and online streaming videos. Although, it has confronted various problems but it is able to overcome these issues by offered modern and exclusive services. In international entertainment service industry and video streaming sector, Netflix has a leading position due to its effective strategies. The pricing strategy of Netflix is one of the major attractions of its entertainment services. It has affordable and attractive plans for its subscribers which help the organization to entice more people (Gomez-Uribe and Hunt, 2015). It offers its services on monthly subscription basis. There are three major plans through which company offers its services. These plans are given below:

  • For One title at a time: $8.99 
  • For two titles: $13.99
  • For three titles: $16.99

All the above plans of Netflix allow its customers with the unlimited DVDs and video streaming each month. In the case of rental movies, it does not charge additional for due dates and late return. This strategy makes it different from local movie rentals. Blockbuster adopts outdated pricing policy and it charges $5 per movie. The chief reason behind Blockbuster’s failure is that its subscribers disliked the late fees charged by it (West, Ford and Ibrahim, 2015). The company is continuously improving its pricing strategies.

Netflix Innovations

Innovation is the major focus of marketing strategy and business operations of Netflix. It has used many innovative processes and techniques to improve its business. It is able to entice more customers towards its products and services. In 2017, Netflix is ranked in the list of most innovative firms worldwide. When the company had started its operations, it had used disruptive innovation. To implement these innovative processes, the firm has focused on four components such as start small, think big, scale fast and fail quickly (Abushova, Burova and Suloeva, 2016). Through its advanced innovations, the company is able to win the sector of online streaming videos. To deal with the competition, it has distributed a user interface guide and placed the poster images with preview of videos. The video preview automatically plays when any visitor scrolls over title card of DVD. In entertainment industry, it is first company to deliver the DVDs by mails. In addition to disruption, the company has implemented open innovation as well.

Netflix has made a huge investment in the innovation so that it can improve its technology and business processes. Along with the movies and TV episodes, the company provides all the information about a particular movie such as online trailers, reviews, critics, movie ratings from viewers and synopses (Gandel, 2010).

Thus, these strategies and innovations have made Netflix better than its competing brands such as Blockbuster.

 

Netflix as a Dominant Provider of Online Video Streaming

Netflix has started its business operations in 1997 and it has attained a better position in online video streaming and entertainment market. In order to enhance its operations and processes, the organization is continuously implementing innovative and effective strategies. This is the reason that company is able to capture the entertainment industry. Apart from this, Blockbuster is another major player that has its operations in the same industry. As compared to Netflix, Blockbuster is charging additional fees from viewers on late return of rental movies. To compete with this, Netflix has reduced the rates of its plans. Currently, Blockbuster is facing the issue of bankruptcy. At that time, Netflix used effective strategies and tactics and it is able to capture a larger market share in the industry. In this way, Netflix has dominated the online video streaming and entertainment service sector (Cook, 2014). Apart from Blockbuster, Netflix has other competitors also such as Television Stations, Kiosk Machine services, cable service providers etc. By looking at the intense competition in market, Netflix has adopted effective pricing policies and advanced technologies. It helped the company to gain the dominant position in the online video streaming market. One of the critical success factors of Netflix is that it is emphasized on its current business rather than expanding the business in new services. It allows the company to dominate the online video streamlining and entertainment service industry.

Netflix Stumbles: The Demise of Qwikster

After experiencing significant growth through its business activities and operations, Netflix had launched its new subsidiary in 2011 i.e. Qwikster. Through this subsidiary, the company has introduced its intentions to rebrand and redesign its DVD Home Media rental services. Qwikster was an autonomous subsidiary which separated different services i.e. DVD rental services and video streaming.  It was DVD by mail facility that included video games as well. The company had made different websites for Qwikster and Netflix, as the head of company thought that it will enable them to provide equal consideration to improve both services (Gandel, 2010). However, this company made sincere efforts to introduce this new service but this had adverse impact on company. It did not work in the favor of Netflix. There were many reasons which have affected introduction of this subsidiary like website split, change in the names, increase in services prices etc. This new subsidiary i.e. Qwikster influences the viewers of Netflix to use the DVD subscription and forces them to create different account for managing them. It was not able to associate both of its websites in any way such as bills, separate ratings, separate preferences for Netflix and Qwikster, despite held by same company. Netflix Organization has confronted the Qwikster’s demise as new viewers failed to recognize that both of the firms are owned by similar company (Indiviglio, 2011). In this way, it is the main reason which forced its subscribers to choose a different service and it led the Netflix to lose millions of its customers. Thus, the Qwikster was failed due to above reasons which affected the growth of business in the perspective industry.

Netflix Rebuilds: The Rise of Original Content

After facing the demise of Qwikster, Netflix has made efforts to regain its customer base and strategic position in the industry. Considering this, the company has entered in the business of content development and launched its first series i.e. House of Cards. After Qwikster’s failure, this new service assisted the firm to rebuild its position. It has considerably extended its business in the production of film and television series and it is providing the “Netflix Original” content through internet library of films and television. Till 2016, the company has launched approximately 126 series and films that are better than other network and cable channel. It is making more investment on original content development than other players in the same industry like Hulu and Amazon.com. As per the study of 2015-2017, the significance of real content was enhanced (McLean, 2018). In this period, this business has attained more awareness among customers like a main reason to pay for online video. This company works as balancing service to pay for the TV packages as it allows the subscribers to watch the content that is free from ads.

In the year 2017, Netflix has made investment of $7 billion in content development services that were more than last year’s fund (Tryon, 2013). In order to entice more viewers, the organization has emphasized on enhancing its marketing efforts and investment of content designing. In this way, it is totally focused on new content creation and catalogue so that it can create a large customer base. By analyzing the situation of Netflix, it can be stated that there is no room for development of other contents such as news, sports, music and human-generated data, but still it prepare effective and better content in pay-per-view and DVDs. Thus, this expansion in the business of Netflix assisted the company to rebuild its brand image and regain the revenues after Qwikster’s failure (Walker, 2016).

The Future of Netflix

As mentioned above, Netflix is at the top position in entertainment and online video streaming industry. Past records and position of the company shows that future of company will be brighter than other competing brands i.e. Amazon.com, Kisok and Hulu. There are various factors that are changing with the time like changes in lifestyle and status, affordability, convenience, customer behaviors and changes in people’s interests. If the company focuses on these factors positively, it can lead it towards future growth and success. Based on the above evaluation, it can be said that Netflix is on good position in online streaming video and entertainment service sector. Furthermore, it implements various impactful strategies and tactics which will assist the organization to become a leader in this industry (Barney, 2014). The major components of this strategy are:

  • Company provides its customers with an extensive range of DVD titles.
  • Buying original content by developing and maintaining beneficial relationships with the video service providers.
  • It is offering its users an alternative to watch online streaming video and original content of quick delivery of DVD via mails.
  • It makes it very easy for its subscribers to choose the movies that they like to watch.
  • Making investment on marketing to attract more people towards its products and services.
  • It is developing brand awareness about the services of Netflix (Gilligan and Wilson, 2012).

These are the major components which are the reasons behind the growth of Netflix over its competing brands. The company confronts immense competition from its competitors like Blockbuster because this offers the services like Netflix. In the future, the company will be able to attract the customers due to its innovative and unique strategies. On the other hand, Netflix’s business model requires high speed of internet to run its videos but still the company has the ability to attract the subscribers because internet costs are decreasing. By considering different factors, it can be stated about Netflix that company will experience a considerable growth in the duration of next five years. It can be forecasted that the company will be able to attain the customer base of 80 million from foreign countries and produce approximately 7 billion revenues by 2020. This growth of company is a sign that it is directed in correct direction. It will be not only getting more visitors every year but they will be able to retain them. The company attains this growth and development due to its reasonable pricing strategy (Peteraf, Gamble, and Thompson, 2014). Therefore, the firm will be able to enhance its financial performance in the future.

 


In the coming future, the organization needs to improve and make advancements so that it can attain its business objectives. In addition to online services, it should establish its physical stores and kiosks where customers can have free access with their card. In this way, Netflix is dominating the video streaming industry and it will dominate in the future as well.

Conclusion

From the above analysis, it can be concluded that Netflix is one of the fastest growing company in online video streaming and entertainment industry. It offers its services very effectively so that it can attain its customers for longer time. Operating the business as a leader in the industry, the company is facing some issues like competition, increase in marketing costs, new purchase expenses etc. The company can overcome these challenges and issues by applying more effective strategies to attract customers towards its products and services. The above report indicates that company is able to beat its largest competitor i.e. Blockbuster. The company is able to overcome the issue of Qwikster’s demise by introducing original content development services. Currently, Netflix has dominant position in the industry and it will face significant growth in the future as well.

 

References

Abushova, E., Burova, E. and Suloeva, S., 2016. Strategic analysis in telecommunication project management system. In Internet of Things, Smart Spaces, and Next Generation Networks and Systems (pp. 76-84). Springer, Cham.

Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction. Pearson Education.

Barney, J.B., 2014. Gaining and sustaining competitive advantage. Pearson higher ed.

Blockbuster, 2017, Home: Find a Kiosk or store, Available from https://www.blockbuster.com.au/home. [Accessed on 25 May 2018].

Chopra, S., Chopra, S., Veeraiyan, M. and Veeraiyan, M., 2017. Movie Rental Business: Blockbuster, Netflix, and Redbox. Kellogg School of Management Cases, pp.1-21.

Cook, C.A., 2014, Netflix: A Stepping Stone in the Evolution of Television, University of South Florida St. Petersburg Journalism and Media Studies.

Gandel, S., 2010. How Blockbuster failed at failing. Time Magazine.

Gilligan, C. and Wilson, R.M., 2012. Strategic marketing planning. Routledge.

Gomez-Uribe, C.A. and Hunt, N., 2016. The netflix recommender system: Algorithms, business value, and innovation. ACM Transactions on Management Information Systems (TMIS), 6(4), p.13.

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Indiviglio, D. 2011, 5 Reasons Why Qwikster Is Now Deadster. Available from https://www.theatlantic.com/business/archive/2011/10/5-reasons-why-qwikster-is-now-deadster/246465/. [Accessed on 25 May 2018].

Mcdonald, M.A.L.C.O.L.M., 2016. Strategic marketing planning: theory and practice. In The marketing book (pp. 108-142). Routledge.

McLean, M., 2018. Understanding your economy: Using analysis to guide local strategic planning. Routledge.

Netflix, 2017, See What’s Next, Available from https://www.netflix.com/in/. [Accessed on 25 May 2018].

Peteraf, M., Gamble, J. and Thompson Jr, A., 2014. Essentials of strategic management: The quest for competitive advantage. McGraw-Hill Education.

Sicoli, C., 2018, How Netflix Beat Blockbuster And Became Huge, Available from https://www.therichest.com/business/how-netflix-beat-blockbuster-and-became-huge/. [Accessed on 25 May 2018].

Tryon, C., 2013, On-demand culture: Digital delivery and the future of movies. New Brunswick, N.J: Rutgers University Press.

Walker, N., 2016, The rise of Netflix, Available from https://www.businessreviewusa.com/leadership/5478/The-rise-of-Netflix. [Accessed on 25 May 2018].

West, D.C., Ford, J. and Ibrahim, E., 2015. Strategic marketing: creating competitive advantage. Oxford University Press, USA

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