The Secret of Popularity of Netflix - Case Study Example

? COMPANY ANALYSIS: NETFLIX By number and of Table of Contents 1. Introduction: About the Company 3 1.1. Current Situation 3 1.2. Strategic Managers 4 2. Environmental Analysis 5 2.1. Macro-environmental Trend 5 2.1.1. Demographic Factors 5 2.1.2. Economic Factors 5 2.1.3. Political and Legal Factors 6 2.1.4. Socio – Cultural Factors 6 2.1.5. Technological Factors 6 2.2. Industry Environment 7 2.3. Competitive Environment 7 3. Ethical Position 7 3.1. Ethical Statements 7 3.2. Incident Reports 8 3.3. Analysis against Ethical Continuum 8 4. Structural Analysis 8 4.1. Family Tree – Structure Analysis 8 4.2. Stakeholder Analysis 9 4.3. Others 9 5. Recommendations and Suggested Improvements 10 6. Summary and Conclusion 11 1. Introduction: About the Company Netflix is a famous and established name in the industry of home video entertainment. In the year 1997, Netflix initiated its operations in the particular industry (Netflix). From the very start company has been reporting exceptional growth and development in the United States market. Along with this Netflix has also expanded its business to Canada, and is looking forward to expand it further in different international markets. Apart from this the financial situation of the company is also been improving along with the overall growth and expansion of the organization. Revenues of the company increased by around 29.5% in the year 2010, as Netflix reported $ 1670.3 million revenues in the year 2009 and $ 2162.6 million in 2010. At the same time the company reported a growth of around 38.8% in the net income, as the net income in the year 2009 was $ 115.86 million and it increased to $ 160.85 million in the year 2010 (Netflix, 2009, 2010). 1.1. Current Situation The market of Netflix can be divided into different segments or strategic groups. These groups are: a) Brick and mortar rental sales b) DVD vending kiosks c) Mail delivery services d) Online rentals and sales e) Video on demand services There has been rapid shift in the needs and preferences of the market because of the advancements in the technology. As a result the customers are now giving preference to digital rentals as compared to the physical rentals of the movie DVDs. There has been increasing demand of different movies and entertainment videos through online streaming. This results in providing customers with more interactive and easier home entertainment. Along with this the target market or customers of Netflix can be divided into two different segments, one is needy customers and second is convenience customers. The needy customers are people who still prefer old methods and are not used to new technologies. This segment normally consists of people with old age who are committed to certain entertainment programs. The segment of convenience customers consist of mostly young people, who are addicted to new technologies and want instant access to different movies and programs videos. The main competitors of Netflix in the industry are Blockbuster and Comcast. Blockbuster is leading the market by holding largest share of the market. Netflix has second position in the market and is creating competitive advantage on the basis of providing more convenience to the customers through streaming. At the same time the company is taking advantage of low cost associated with capital and input (Market Research report, 2009). 1.2. Strategic Managers The management and leadership of the company has been able to ensure the consistent growth and development. The leadership and strategic managers have always focused on continuous improvement and innovation. Employees of the organizations have been provided with the required empowerment and focus has always been on increasing the employee satisfaction in order to get maximum result and high productivity from them (Siegler, 2009). This in turn has enabled the organization to achieve its vision and long term strategic goals and targets. 2. Environmental Analysis The overall environment of the company can be divided into two broad segments: internal environment and external environment. In order to come up with strategies for growth and development it is essential to investigate and monitor both external and internal environment of the company. 2.1. Macro-environmental Trend Different macro-environmental factors which directly influence the performance of the company in the industry are demographic factors, economic factors, political and legal factors, socio-cultural factors, and technology factors. 2.1.1. Demographic Factors Age of the consumers or subscribers is an important factor which have direct influence on the decisions of the company. As mentioned before younger people and customers from new generation prefer new technological advancements, on the other hand the old generation prefer the old traditional methods. Apart from this the age distribution also facilitates in deciding about the type of movies. 2.1.2. Economic Factors The impact of economic factors cannot be neglected or ignored in any business. The economic environment has direct influence on the buying behavior of the target customers. Almost every economy of the world is currently recovering from the effects of the economic recession including United States, which has negative impact on almost all businesses. The home entertainment industry is among those limited industries which are reporting growing trends. People are preferring less expensive ways of entertainment and this is supporting the home entertainment industry to grow including Netflix. 2.1.3. Political and Legal Factors Netflix is required to ensure the implementation of all copyrights laws. Along with the company is also subject to different rules and regulations associated with intellectual property rights. The company has also be cautious while giving ratings to the movies. 2.1.4. Socio – Cultural Factors Home entertainment industry has direct influence of different socio – cultural factors. The social and cultural preferences of the customers have been changed in previous years. Recent economic crisis has resulted in forcing people to look for cheaper and more convenient methods of entertainment. This has contributed in the growth and development of the home entertainment industry. Netflix has been able to capture large number of customers because of the fact that company is providing them with more convenient and affordable solution for entertainment. 2.1.5. Technological Factors Netflix and overall home entertainment industry have been facing the direct implications of the changing technologies with passage of time. The target customers are now giving more preference to the online stores and traditional physical stores have been facing the issue of decline in revenue. This has resulted in the increasing trend of establishing online stores for DVDs rentals. 2.2. Industry Environment Overall industry has been showing drastic change in from traditional brick and mortar rental stores to online rental stores. The target customers prefer ordering for DVDs online or watch different videos and programs through live online streaming. Most of the companies in the industry have started to shift to online streaming. 2.3. Competitive Environment Netflix has to face fierce competition from the likes of Blockbuster, Walmart, Best Buy, Amazon, and Redbox etc. Despite of having big names in the industry; Netflix has been able to create its own unique position particularly because of its strong distribution system, supportive pricing strategies and online streaming technology. And at the moment, Netflix has become a threat for competing firms that have been dominating in the industry for years (Market Research report, 2009). 3. Ethical Position 3.1. Ethical Statements Netflix is exposed to different ethical concerns, as it is operating in the industry of renting and providing DVDs and videos of different movies and programs to the consumers. The company has to be careful while providing the DVDs consisting of PG content to underage customers. Company has proper strategy in this regard to avoid any such issue. Along with this the company is answerable to the subscribers for different decisions and have to inform them beforehand about any increase in the price or any hidden charges. Apart from this Netflix has proper and defined code of ethics for the overall operations of the company (Netflix). 3.2. Incident Reports Recently, Netflix faced serious issues as company increased the subscription charges without informing the customers. As a result the CEO of the company had to give public statement in order to clear the position of Netflix in front of the customers and other stakeholders (Silverman & Mattioli, 2011). 3.3. Analysis against Ethical Continuum Netflix has been under different criticism because of different pricing issues. The company has been able to overcome these ethical issues and with passage of time has modified its ethical code of conducts. The company has proper rules and regulations for honest and ethical conduct, conflicts of interest, disclosure, compliance, internal reporting, and accountability. The management of Netflix is continuously changing and amending the code of ethics in order to ensure that it is according to the demands of the industry (Netflix). 4. Structural Analysis 4.1. Family Tree – Structure Analysis Netflix has a functional organizational structure which means that the organizational structure is based on the functions of the organization. Netflix has been operating in several countries but still the company does not follow a geographical organizational structure. The authority to make decisions is in the hands of CEO of Netflix, Reed Hastings. Decisions that are most important and critical for the success and growth of the organization are taken by the CEO (Netflix). The following figure represents the organizational structure of Netflix: 4.2. Stakeholder Analysis Stakeholders of the company mainly include the shareholders, customers, suppliers, distributors and governmental agencies. Suppliers of the company are basically the studios that produce the movies. As these studios have the exclusive right to allow access to others to distribute movies, therefore some of the big movie makers have some kind of bargaining power. On the other hand, customers have little bargaining power because of the fact that Netflix has its unique service that cannot be copied by competing firms. The distribution system of Netflix is one of its strengths and it is because of having a strong distribution system the company is able to deliver DVDs to customers within a day. 4.3. Others Organizational culture of Netflix has played an important role in making Netflix a success. The company has always focused on innovation and employees have been rewarded for being innovative in their approach. Organizational culture is to help other employees so that the overall productivity of the organization is achieved. Company has emphasized on productivity rather than the effort (Siegler, 2009). 5. Recommendations and Suggested Improvements Company has already proven itself as a strong player in the market and with increasing trend of people towards convenient home entertainment; Netflix has the opportunity to expand its services in several countries. Although, Netflix has announced that it would expand its services to UK and Spain in 2012 (Whitehouse, 2011), however, it needs to continue its growth even after expanding its services to UK and Spain. This would help the company in increasing its customer base and improving the profitability of the company. Netflix also needs to increase the number of DVDs it has and it should try to add more DVDs that are high in demand. As customers become dissatisfy if they are not able to find the DVDs they want despite of paying a monthly subscription fee therefore it is important for Netflix to add more movies in its portfolio in order to make customers satisfied. Currently Netflix has an application with which users can order DVDs at their home through their iPhones. However, the demand of iPhones and Smartphone have increased drastically in last 3 years or so therefore Netflix should consider providing online streaming facilities directly to Smartphone. With this, people would be able to watch movies or content anywhere they travel which will help the company in gaining competitive advantage. 6. Summary and Conclusion Netflix has been able to capture a considerable space in the industry of home entertainment. Company has been able to compete well in the highly competitive industry with the presence of strong competitors like Blockbuster, Walmart, Best Buy, Amazon, Redbox etc. The management of Netflix has been able to create a competitive advantage in order to capture larger market share. With the help of well though and well planned strategies and tactics Netflix has been able to grow with passage of time and is now becoming a major threat for other companies in the industry. Netflix has been efficient in term of understanding the changing preferences and demands of target customers and as a result has become popular among them. Reference List Market Research report 2009. ‘Movie Rental Industry Drives Home Entertainment Market’. Available from http://www.marketresearch.com/product/display.asp?productid=2578264 [Accessed October 30, 2011] Netflix 2009. ‘Annual Report 2009’. Available from http://ir.netflix.com/common/dar/dar.cfm?DocumentID=2789&CompanyID=NFLX&zid=d940c23 [Accessed October 30, 2011] Netflix 2010. ‘Annual Report 2010’, Available from http://ir.netflix.com/common/download/download.cfm?companyid=NFLX&fileid=460274&filekey=17454C5B-3088-48C7-957A-B5A83A14CF1B&filename=132054ACL.PDF [Accessed October 30, 2011] Netflix. ‘Code of Ethics’, Available from http://ir.netflix.com/documentdisplay.cfm?DocumentID=73 [Accessed October 30, 2011] Netflix. ‘Company Overview’, Available from https://signup.netflix.com/MediaCenter [Accessed October 30, 2011] Netflix. ‘Management Team’. Available from https://signup.netflix.com/MediaCenter/Management [Accessed October 30, 2011] Siegler, M 2009. ‘Other Companies Should Have to Read This Internal Netflix Presentation’, TechCrunch.com. Available from http://techcrunch.com/2009/08/05/other-companies-should-have-to-read-this-internal-netflix-presentation/ [Accessed October 30, 2011] Silverman, R, & Mattioli, D 2011. ‘Netflix CEO Says He’s Sorry, Sort of’, The Wall Street Journal. Available from http://online.wsj.com/article/SB10001424053111903374004576581030108271302.html [Accessed October 30, 2011] Whitehouse , D 2011. ‘Netflix to Expand in Europe, Starting With Spain, Figaro Says’, Bloomberg. Available from http://www.bloomberg.com/news/2011-06-03/netflix-to-expand-in-europe-starting-with-spain-figaro-says.html [Accessed October 30, 2011] Read More