Netflixs Business Model and Strategy in Renting Movies - Assignment Example

? Netflix Q How Strong Are The Competitive Forces In The Movie Rental Marketplace? Do Five-Forces Analysis to Support Your Answer In the modern day business scenario, companies are dealing with immense competition irrespective of the nature of industry that they perform various operational functions. In this similar context, the movie rental industry is also seen to be perfectly competitive. In order to gather a precise understanding regarding the nature of competitiveness in the movie rental marketplace, the five-forces analysis has been conducted in the following (Thompson, n.d.). Bargaining Power of the Buyers The movie rental industry is highly dependent on the buyers similar to that of other industry. Buyers purchase DVD’s or access internet to watch movies of their preferred choices. Contextually, they need to pay for the movies that they desire to watch and in turn, they seek utmost quality for the same. Additionally, having several players offering similar product, buyers are enabled with number of choices to choose from. This raises buyers’ bargaining power (Thompson, n.d.). Bargaining Power of the Suppliers In this industry sector, suppliers have the authority to choose a single dealer through whom they can enhance their bargaining power. However, in order to maximize profit and market share, suppliers are inclined to sell their products to every company, thereby limiting their bargaining power to medium (Thompson, n.d.). Rivalry The cost of entering into this kind of industry is quite reasonable owing to which the competition among the companies are quite high. A few of the competitors in this particular industry l include Blockbuster, internet movies and TV content providers among the prime ones (Thompson, n.d.). Threat of Substitute Products In general, there are no such threats of substitute for this kind of product owing to the reason that movies and TV programs have similar content irrespective of whoever is presented to the viewers. However, piracy and illegal file sharing can be a threat for the products (Thompson, n.d.). Threat of New Entrants Owing to low entry cost, more and more competitors can enter into this kind of business. However, certain big players like Blockbuster and Netflix seems to dominate this industry (Thompson, n.d.). Q. 2. What Forces Is Driving Change In The Movie Rental Industry And Is The Combined Impacts Of These Driving Forces Likely To Be Favorable Or Unfavorable In Term Of Their Effects On Competitive Intensity And Future Industry Profitability? The movie rental industry is driven by certain crucial forces such as advancement of technology, convenience of buyers and cost factors among others. With the advent of technologies like internet, watching movies has become more online than watching in TV through acquiring a hard copy of CD’s or DVD’s. Furthermore, technologies such as smartphone and computer enhance the viewing experiences of the people as they watch movies anytime and anywhere. In addition, it has also been viewed that people feel more convenient and comfortable in watching movies in internet through live streaming rather than buying a CD or DVD of the same from any video library. This not only saves their time but also minimizes cost. These forces are likely to be unfavorable for companies as they would need to shift their focus from renting DVDs or CDs to providing services online. However, this aspect might be profitable for them in the future in terms of attracting huge figure of customers (Thompson, n.d.). Q.3. What Key Factors Will Determine A Company’s Success in the Industry in the Next 3-5 Years? In order to gain success in this particular industry, companies will require moving in parallel with the changing trends, demands and needs of the customers. Companies in the coming years will need to enhance their market coverage through widespread advertising to gain success in this particular industry. Moreover, they should also need to adopt and execute proper strategies in order to ensure maximum ease of the customers. Companies offering their products online should need to implement effective software so that customers can download or stream movies easily. These key factors or approaches would eventually determine the success of the companies in the respective industry in the next 3-5 years (Thompson, n.d.). Q. 4. What Is Netflix’s Strategy? Which Of The Five Generic Competitive Strategies Discussed In Chapter 5 Most Closely Fit The Competitive Approach That Netflix Is Taking? What Type Of Competitive Advantage Is Netflix Trying To Achieve? Netflix is operating as amid the leading players in the movie rental industry. This reputation of the company is strongly aligned with the effective strategies that it implements while performing various operational functions. One of the vital strategies of the company in the current scenario includes its investment in widespread marketing. The marketing campaign of the company clearly depicts its desire to get a wider market coverage which not only enhance its customer base but also positively impact its profitability. Additionally, the company also provides immense choices to the customers about choosing between live streaming movies or instant DVD delivery by post. Apart from this aspect, the company also emphasizes more providing convenient services to the customers through installing advanced and unique software (Thompson, n.d.). There are basically five forms of strategies that companies usually undertake to attain their respective business targets. These strategies include cost leadership strategy, differentiation strategy, focus strategy, best cost provider strategy and low cost provider strategy. However, out of the five mentioned strategies, it can be affirmed that the strategic approach of Netflix is best inclined with the generic strategy of differentiation. Owing to differentiation strategy, companies emphasize more on providing quality services to the customers with a set of particular cost. The strategy also instructs companies to conduct effective marketing strategies. These factors of the strategy strongly align with the strategic approaches of Netflix in its operation. Through implementing various factors of the strategy, Netflix is intending to achieve a strong presence in the markets where it operates. The company offer movies at US$ 8.99 per month which is quite cheaper as compared to its competitors. Hence, it is quite evident that the company intends to ensure maximum convenience for the customers through its strategies (Thompson, n.d.). Q. 5. What Does A SWOT Analysis Of Netflix Reveal About The Overall Attractiveness Of Its Situation? SWOT Analysis of Netflix Strengths. The strengths of the company will include its brand reputation, effective marketing strategies, attractive pricing tactics, ability of providing wider range of services and strong technological competency among others (Thompson, n.d.). Weaknesses. The weaknesses of Netflix will comprise its high replacement cost from DVD damage and increased level of technology related costs (Thompson, n.d.). Opportunities. The opportunities of Netflix will encompass expansion of customer base in the industry, growth of internet users and enlargement of the entertainment industry among others (Thompson, n.d.). Threats. The threats for Netflix would entail the increasing competitiveness of the market with ever increasing players, periodical technology changes and piracy of DVDs and CDs among others (Thompson, n.d.). The above SWOT analysis of the company reveals certain specific factors of its present state. The company is seen to be in a good state of its operation in the present day scenario, but certain improvement is highly demanded. The company has strengthened its position in terms of variety and availability of the products but needs to polish its service efficiency especially in terms of products delivery to the customers. These aspects might be able to ensure overall efficiency of the company by a significant level. Q. 6. What Is Your Appraisal of Netflix’s Operating and Financial Performance Based on the Data In The Case? What Positives and Negatives Do You See In Netflix’s Performance? As per the value presented in Exhibit 1, the revenue figures of the company regarding VOD subscription, TV digital rentals, digital download sales and video game rentals portrayed increasing trends over the last four years. However, figures related to in-store rentals of movies and physical sales of DVD were not impressive in the last four years. Most of this figures show declining trend which further raise questions over the overall efficiency of the company’s operation (Thompson, n.d.). The figures in Exhibit 2 depict the subscriber data of the company for 6 years in between the period of 2000-2009. It can be viewed from the exhibit that number of subscribers of the company has grown considerably over the years. There were certain cancellations of subscription of customers in between the period but the overall numbers suggest a mounting trend in the figure of subscribers (Thompson, n.d.). The figures in Exhibit 3 depicts about the total operating revenue of the company in the past few years which showed certain increased figures on a continuous basis. Along with that, the gross profit of the company also depicted mammoth increase in the recent years. However, it would be vital to mention that the net profit figures of the company failed to impress as they have been observed to be fluctuating and instable (Thompson, n.d.). Overall, it can be stated that the company has shown both positive and negative trends in the past decade. Among the positive facets, increasing number of subscribers along with amplify in the number of online streaming sales revenue is a vital prospect. However, the net income of the company failed to show a big leap in the preceding decade owing to its increasing operating expenses (Thompson, n.d.). Q. 7. What Suggestions Can You Present To Strengthen Netflix’s Strategy? From the overall analysis, it is quite apparent that the company i.e. Netflix has strengths along with weaknesses that impose extensive impact upon its operational activities. Contextually, certain recommendations will be presented for the company so that it would be able to enhance positive facets and reduce the negative ones. In this regard, it can be suggested that the company should emphasize escalating the figure of its subscribers so that it could be able to move ahead of its rising operating costs. This can be done through enhancing customer’s loyalty. Apart from this, Netflix can also tie up with other companies so that new entertainment contents could be provided to the customers. Furthermore, it has been noted that most of the operating costs of the company are associated with physical DVD rental. Contextually, it will be recommended that the company should minimize its operating costs through focusing upon developing internet or online services (Thompson, n.d.). Reference Thompson, A. A. (n.d.). Netflix’s business model and strategy in renting movies and TV episodes. The University of Alabama, 277-294. Read More