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Running Head: NETFLIX CASE STUDY ANALYSIS
Reyte On Publishing
95 for more DVDs to be sent during a single order. California with two experienced IT businessmen Reed Hastings and Marc Randolph in 1997. The customers order directly from the website. Inc.com. There is also video streaming right from the computer for thousands of selections to see a movie immediately. b. The fee for services has multiple pricing points from under $5 a month to rent a single DVD at a time to $19. Industry information (History. has 33% of the company ownership. The idea for renting DVD movies online originally came from Hastings after having to pay $40 fee for a late movie rental.Biographical information on any prominent managers. Company history Netflix.2 Introduction a. Netflix has over a million customers that subscribe to their online service. The sale earned him $700 million.000+ titles and maintains an inventory of more than 5 million discs. He was also a vice president with Borland International. 2009). This allows them to ship DVD discs to customers very quickly often with turnaround shipment of a single day. The company has over 15. The company offers more than 15. The DVDs are sent directly to the customer by mail for a moderately priced monthly fee. is at the top of the market in DVD rentals online.000+ DVD movie titles to choose from and has several distribution centers throughout the country. These Netpreneurs had already been successful in ecommerce with Randolph starting up a computer by catalog company. Growth) . Jay Hoag. He had just sold his company Pure Software. Hastings had previously taught math students. He is the owner of Jay Hoag's Technology Crossover Ventures (FundingUniverse. The movies can be kept for as long as desired but must be returned to receive additional DVD rentals. c. etc. The company began in Scotts Valley.
. and Washington.com. It also drew the attention of competitors which begin to develop marketing tactics to compete with the company. The new name now Netflix Inc. Minneapolis. Seattle. cities such as Boston and Los Angeles I order to meet customer demands. II. Blockbuster changed their fee structure and offered unlimited and no late fee subscription services. the retail giant Wal-Mart lowered its pricing for their online rental services below Netflix price. Atlanta. The firm also opened new distribution sites in more U. drawing more attention to the company causing sales to skyrocket. Detroit. These competitors all targeted Netflix near the same time. Netflix was able to sign on several film distributors that would receive a 20% revenue sharing profit from Netflix rentals in exchange for DVD distribution rights. For example.3 2002 Netflix decided to go public where it sold over five million shares allowing them to rise $82 million dollars.e.) (FundingUniverse. SWOT analysis a. This resulted in instant growth in those areas. 2002). New York.S. This forced Netflix stock to drop in price by 50% as subscribers begin to cancel their memberships. Denver.C. Houston.S. Columbia House also was looking into doing a similar deal. Soon after several more distribution sites were added in major U. D. Also allows queue of movies to be selected based on a wish list. used some of their new funds to pay off debts of $14 million that related to advertising and marketing expenses (Taylor. Strengths • Customized ordering based on movie genre preferences. These are automatically sent based on availability and price tier. (i. cities. 2009). This was immediately picked up by the media.
property.4 • The overhead for staff.000+ titles • Conversion to HD DVDs a major effort to reformat current titles for over a million DVD library (with duplicates for distribution) c. Opportunities • Increase number of Video on Demand options to compete with Comcast or other Cable and Satellite entertainment services • • Increase the number of contracts with movie distributors to expand content licensing Add a Video Game on demand option d. and administrative expenses are very low because the company is online.S. Therefore the competition with a brick and mortar offline expense such as Blockbuster and neighborhood rental shops pay more in this area. • • The selection of DVD movies is the largest in the entire world There are over 30 distribution centers in the U. Threats . which allows for fast delivery of DVDs to homes. b. Netflix overhead costs are virtually fixed. Weaknesses • New movies require large investments of cash for licensing fees and manufacturing DVD copies to add to service offerings • Need more licensing to stream Video on Demand Movies only 10% available to day of 15.
This was a major competitive advantage of Netflix. Wal-Mart offering rental services Local stores carry video kiosks at very competitive pricing People choosing streaming movies on their computers. and Cable and satellite companies. Once the biggest threat to Netflix. This allows instant access to movies at no additional costs.com Other rental movie companies such as Blockbuster. • • • • Retailers such as Wal-Mart offering competitive pricing. Columbia House. This allowed members to get their movies at home instead of having to drive out to retailers. Apple iPod. and Iphone options versus ordering DVDs to watch movies. The advantage of downloading movies with current phone contracts for the long term (1-2 years at a time) may eventually outshine Netflix strategies (Beal.Strength of suppliers . Wal-Mart. Threat of New entrants. YouTube.5 • Cable companies such as Comcast that offer movies on demand. which may. 2008). However. Competitiveness of existing firms and b. cut into Netflix’ competitive advantage the most. External environment (Porter's Five Forces) a. remain the major competitors for Netflix. Blockbuster has had to concede its attempt at online rental as they move to 2nd place. to compete with the threats Netflix opened even more distributing centers that now could offer overnight service to subscribers. The number of iTunes and iPhone subscribers is also continuing to increase. Blockbuster cannot compete. Best Buy. • Rising costs of shipping and postage III. Amazon. in time. c. Also new to the market is Apple.
2009). This would be a major threat to Netflix and all other rental companies. There is a limit to how much of a movie can be watched however it is over 1 hour if you are willing to watch a few ads during the viewing (Beal. 2008). Another upcoming challenge will be free movie distributors that are highly popular online. Evaluation a. laptop. and others. Iphone.Strength of buyers Surveys show that customers love Netflix. d. For instance YouTube offers many movies free.6 Netflix has partnered with over 50 movie distribution companies in a deal that promises access to DVD of new releases as well as older movies that are being re-released such as Star Wars. Ipod and other electronic devices for multiple .com. e. Streaming movies to the desktop. Which elements in Netflix's value chain create value for them? Which ones do they need to improve upon? The service offering that needs the most improvement to date is the video on demand inventory. Transformers. The threat of iPhones and iTunes will be a force to be reckoned with in the very near future. Threat of substitute products or services Threats of substitute products are mainly through Apple at present. IV. They remain loyal even when not taking advantage of subscriptions they pay each month.Evaluate Netflix's value chain. In addition they tell others about their shopping experience which provides referrals that make the same decision (Rosencrance. The survey reports that subscribers are pleased with Netflix online support and services and they most often decide to buy services. According to ComputerWorld (2008) Netflix is at the top of customer satisfaction index over QVC and Amazon.
Through Google and other search engines the company has partnered with the entertainment industry to promote its pop-up ad any time the word movie or even certain actors are mentioned. This is costly to a company as each individual copy of the movie that is downloaded has a price tag.Of those elements that create value for Netflix. In addition the use of streaming technology requires a member to watch the entire movie at one sitting.Again as discussed Netflix has distribution centers in over 20 major metropolitan areas that can distribute requested rentals in a single day. This has proved a drawback versus downloading the movie and watching it at the convenience of the viewer (Beal. Why a sustainable advantage? Price. They remain loyal customers even if they rarely use the service. Referral marketing has also contributed to an influx of new subscribers as perks are given to current members who refer friends and family. . price.7 users requires licensing. This very robust distribution system allows them to outshine all competitors. Promotion. 2008). This meets nearly every budget requirement for an excellent service. Place. b. do any meet the four criteria for a sustainable competitive advantage? Explain in detail which ones and why they can be considered a sustainable competitive advantage? Most of Netflix success can be summed up in the ability to deliver movies to the door of subscribers overnight.Netflix has advertising all over the Internet. I have a membership at an entry level that I automatically pay each month and I haven’t used the service for several months.Netflix offers several pricing options from $4 a month to under $20. Another plus is people simply love Netflix. and promotion. This feature meets all four of the marketing 4 ps of product. place.
Summary and recommendations a. They have over one million copies in inventory to distribute. In January 2008 Apple has also grabbed up licensing rights with . Automated postage handling services that tie directly into the U. In addition stream video access is also available free based on individual monthly subscription rates (Sandoval. another major force to deal with. Though for now this is still a new trend. All these add up to great customer satisfaction overall with the company. Translating into customer loyalty and ongoing sales (FundingUniverse. Online the patents for tracking individual customer taste and favorite types of movies. Netflix has several patents on software programs that give them the ability to meet customer demands quickly and accurately.What do you see as the greatest challenge facing Netflix? The greatest challenge at present is improving its VOD and streaming technology. this can be a major drawback to a DVD rental business. Apple is now targeting Netflix with iPhone and iTunes movie downloads. Logging the return of DVDs in less than a day through bar code check in once the item is mailed back to the distribution center. For example. The reminder that lets customers know their monthly subscription fee is being billed. The email delivery service that sends the latest movie selections that match individual customer’s favorites. Patents. postal delivery system. 2009).com.8 Product – Everyone loves movies and Netflix has a library of the most titles in the world over 14. Soon the only DVDs that people will want are those with HD quality as this is the latest technological advancement. V.S. 2009). Once people get more comfortable with digital movie viewing.000. There is a short window that is open to Netflix to get this right. This will become even more important now that HD requirements have limited the viewing quality of DVDs that are not HD quality.
They will get the right to offer on iTunes the latest movie releases only a month after they are released to DVD (Sandoval. c. They have experienced profits for a full year and the first quarter of 2009. Investors like Netflix and claim that they will beat the recession (Kafka.9 several top film studios directly. This is one way to guarantee the latest releases and discounts on licensing. 2009). Recommendations . B.000. 2008). The price of their stock is was beginning to upswing and by summer they were making a profit for the first time. this is most likely one of the wisest moves made.What is the firm's strategic options? Strategic options are to gain more cooperation with movie distributors as they already have a relationship with over 50. Financially.How is Netflix doing financially now? Netflix hit the one million subscriber target in the spring of 2003. In addition they decided to offer stock options to employees. Though Netflix offers revenue sharing in order to gain favor. It is a very strategic move that can be used to keep competitors at bay. This is especially important as this was the era of corporate ethical scandal. This has added more trust to their reputation as a sound corporation that cares about employees. In 2002 they were over 670. The revenue share is up from what was forecasted on $359 million they are earning over $38 cents on each share. Another move that has been a target for Netflix is to gain one million subscribers. Netflix has 10 million subscribers in 2009.
The current economy has caused many homes to discontinue cable. Since the change to all digital television in 2009. entertainment in the home due to expense. This is a peak season to go after this niche market of former cable and satellite customers. a new opportunity for Netflix has arisen. generally the surveys show you remain one for years. . satellite.10 Netflix still has options to expand its growth. This opens the door for Netflix to offer economically priced options. Netflix should continue to take advantage of the economic downturn to gain more customers. Once you become a Netflix subscriber.
cnet.com/8301-10784_3-9850701-7.html FundingUniverse. 2009 from http://www. L.com/20090126/netflix-what-recessionq4-beats-estimates-2009-looks-strong/ Rosencrance.com/Netflix Sandoval. Retrieved July 13. 2009 from http://www.html MotleyFool. Retrieved July 15. A. 2009). 2009 from http://mediamemo. 2009 from http://www.com (2009) Netflix.allthingsd. Netflix what recession Q4 beats estimates and 2009 looking strong. Retrieved July 15. (2008). (2008). 2009 from http://news. P.fundinguniverse. (2009). Retrieved July 14.marketingpilgrim. Retrieved July 13.com. 2009 from http://wiki.com/s/article/9085779/Netflix_tops_customer_satisfaction_survey . G.html Kafka.computerworld. Watchout Netflix itunes aned youtube might offer movies for free. here comes apple. Netflix inc.com/2008/06/watchout-netflix-itunesyoutube-might-offer-movies-for-free. Move over Netflix.com/company-histories/Netflix-Inc-Company-History.11 References Beal.fool. (2008). Netflix tops customer satisfaction survey. company history. Retrieved July 16.
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