Netflix 's Business Model and Strategy in Renting Movies and TV Episodes - Case Study Example

Despite having constant revenues and profits, the company hit a major turnaround in 2010 that resulted in a constant decline of the company. This paper will therefore analyse Netflix case by focusing on the problems that resulted in the decline of Netflix business. The essay will also analyse alternative solutions and their application Netflix’s case. Problems That Led to the Company’s Decline The main problem that caused the decline of Netflix resulted from mismanagement of the steady growth process that the company was undergoing.

By the last quarter of the 2010 trading period, Netflix’s annual revenues had reached $156 million (Arthur, 2010). This made the company’s shares to reach $170.83 that was the highest price in the company’s history. Between 2001 and 2010, the company recorded high profits but did not demonstrate any solid investment. It is possible that the company ploughed back its profits for short-term investment projects such as building its customer base. The company failed to make long-term investments that would ensure its sustainability.

Lack of appropriate strategies also made the company to lack perception on future changes in technology that would greatly affect the industry. The company failed to adopt new technology particularly the use of technology and the internet. Traditional renting of DVDs was replaced by online purchase of movies and TV episodes. During the trading period of 2009, the company experienced a sharp decline in revenues from renting of blockbusters and DVDs. Netflix suffered heavy losses from its purchase of association right from Hollywood Entertainment Company.

In 2005, the company spend over $800 million to purchase Hollywood rights leading to its bankruptcy. Of the $800 million, Netflix recovered only $ 600 million, which did not even cover for its initial investments. The availability of alternatives methods where people can access movies or video game also affected Netflix annual revenues making the company to incur heavy losses. Analysis Lack of a supportive business environment is the main factor that led to the decline of Netflix. Movies and video games were the only products that the company offered.

Using the 4Ps analysis, Netflix’s main products were the movies and video games that were mainly targeted for the entertainment industry. The company was only involved with the marketing of the product with little or no modification on the original product. Netflix marketed its products in the form of DVDs. The company offered its products through rental service whereby customers would rent a DVD for a period ranging from one month. The price of the product depended on the duration and the package required by the customer.

Netflix mailed most of movie DVDs to its customers on rental basis. Promotion is a significant aspect in marketing. However, the company seems to have failed in its advertisement strategies since it did not exploit the potentials of internet-based advertisements. The porter’s five forces are alternative marketing tools that can be used to analyse the company’s problem (Bade, & Michael, 2001). Blockbuster, Red box, and Netflix were the only competitors in the industry. This indicates that the industry had a finite number of competitors and hence minimum threat of new entrants.

The competitors dealt with similar products that had