Global strategy of Netflix - Essay Example

Global strategy Contents Introduction 4 Part A full strategic appraisal of Netflix 4 Overview of Netflix 4 PESTEL 4 Porter’s 5 Forces 5 Opportunities and Threats 6 VRIO Framework: Value chain, capabilities resources, competencies 6 Strengths and weaknesses 7 Part 2: The selection of strategic options 7 Company’s level of business success 7 Ways of attaining sustainable success 7 Ansoff Matrix: main options for growth 8 Appraisal of financial health: efficiency and profitability 8 Part 3: Your strategic solutions for the company’s ongoing health 9 Strategic Solutions 9 Rationality and feasibility of recommended solutions 10 Conclusion 10 References 11 Introduction Netflix has attained huge popularity in the market through the offerings of unlimited streamed videos over the internet. This has given rise to a new lifestyle where home viewing of the movies and the TV shows has attained priority over the theatres and its live performances. The online entertainment service industry has seen huge growth of competition with the emergence of new players and the substitute products. The full strategic appraisal for the sustenance of the business performance of Netflix has been given below. The strategic solutions for maintaining the ongoing health of the company has been explained in this piece of work. Part 1: A full strategic appraisal of Netflix Overview of Netflix Netflix is an online service provider for viewing movies and TV shows through the use of internet. The company has been able to grow rapidly in a very short span of time with the increasing use of its service by millions of subscribers all over the world. The company has emerged as the biggest internet based service for the movies and TV shows all over the world (Netflix, 2013, p.1). From January, 2011 to June, 2012 the subscriber base of the company grew from 12 million to 24 million. Netflix needed to adopt suitable strategies in order to sustain its growth rate. PESTEL An evaluation of the environment of Netflix’s business is essential on order to undertake suitable strategies for the growth of internet based entertainment services of Netflix. Netflix’s business required the company to expand to international markets to take advantage of the change in lifestyle and entertainment of the households. The political environment and the state laws were important considerations for Netflix as they had to acquire licenses from the owners of TV shows as well as movie studios for streaming their services through internet. The environment in the industry underwent technological advancement as increasing number of electronic devices like the cables; fibre optics appeared in the stores. This allowed the households to connect the internet to the household TVs for the purpose of viewing. The social changes also showed inclination of the customers towards easy access to the streamed movies and TV shows in the internet rather and reduced the crowd of the theatres (Fitzroy and Herbert, 2007, p.47). Porter’s 5 Forces The internet based entertainment industry witnessed intense rivalry between the several players as they launched their services on unlimited streaming of videos, TV shows and movies to be watched by the customers. Netflix had to adopt business strategies keeping their competitive position in mind. There were new entrants in the industry looking to capture the market. Hulu Plus, Amazon Instant Video are the products of the new entrants that challenged the business of Netflix with similar services. The threat of substitute products was also imminent as Google and Apple started to take initiatives for coordinating with Samsung and other electronic manufacturers to set up Google TV, Apple TV, etc. Due to increase in the number of choices, the customers had the scope to choose among the available options on internet based entertainment service by looking at the cost and service delivery (Reuvid, 2012, p.95). The bargaining power of the customers was high. The suppliers or the movie studios as well as the TV channels could negotiate with players like Netflix looking at the market competition. The bargaining power of the suppliers was moderate. Opportunities and Threats The opportunities of Netflix lay in the potential of the households due to the change in the outlook of the society and the change in lifestyle as a result of economic growth. The numbers of subscribers of Netflix doubled in about one year time from 2011 to 2012. Netflix could view this increasing trend of customers as an opportunity for the business as they could strategically expand in the international markets with high demand for internet based services for viewing movies and TV shows (OaShaughnessy, 1995, p.80). The Threats to the business lay due to the emergence of the big players like Google, Apple, Amazon who competed with Netflix and planned to set up their own brand Google TV, Apple TV to acquire market share. VRIO Framework: Value chain, capabilities resources, competencies In the context of the VRIO framework, Netflix has a strong value chain that is involved in offering streamed videos of latest releases to its customers over the internet. The company has utilised its capabilities and technological resources and leverage its relationship with the local service providers to tap the potential opportunities in the markets of US, UK, etc. Although Netflix has played a pioneering role in this industry, the resources for this business are, however, not limited to few players which could be seen from the rise of competition (Mazzucato and The Open University, 2002, p.56). There is huge cost expenditure for duplicating the threshold and distinctive competencies in several steps of the value chain. Netflix has been quite effective in making good use of its competencies for offering the customer with high quality of streamed videos. Strengths and weaknesses The strengths of Netflix has been the aggressive marketing and advertisement of its internet based entertainment services in order to indicates the several features of its products like the availability of a diverse range of DVDs and the movie selection software. The strengths of Netflix also lay in the strong relationship bonds with the local entertainment service agencies so that the customers could be satisfied with their offerings. The weakness of the company has been due to the new pricing of its products as a strategic move in 2012. The new pricing of the company led to the decline of its customer base rapidly which is due to lack of strategic implementation of the new pricing initiative (Kozami, 2002, p.35). Part 2: The selection of strategic options Company’s level of business success The company’s business success could be understood by the increasing acceptability of the portfolio of the internet based movies and the TV shows among the household customers. This is due to the availability of a wide range of DVD that could be obtained through the subscription mode and the unlimited video streaming facility over the internet. Although the new pricing strategy saw a decline in the revenues and the stock prices, the situation has stabilized after the separation of the subscription part and the free streaming facility offered through the internet (McLoughlin and Aaker, 2010, p.73). Ways of attaining sustainable success The various ways that could be adopted by Netflix in order to attain success in their internet based entertainment service business is through the enhancement of the service portfolio and focussing on the satisfaction level of the customers. The company could look to make good use of their strong relationships with the local service providers in offering a diversified range of videos to the households that could be accessed by the use of internet. Netflix could look to enter into contracts with the electronic gadget manufacturers in order to manufacture compatible electronic devices that could stream the Netflix videos. This would help the company to gain competitive edge over other players in the market (Hutt and Speh, 2012, p.60). Netflix should also not look at further international expansion of its business until it recovers from the global losses that it incurred as a result of the new pricing strategy. Ansoff Matrix: main options for growth Netflix could refer to the Ansoff matrix to derive the main option for growth of the business in order to attain a sustainable business performance. In the existing markets of US and other countries, the company could adopt the market penetration strategy by advertising and selling the product features and acquire new customers in the existing market. The diversification strategy for new product and the new market as proposed in the Ansoff matrix is required to be kept on hold as the company is not looking at international expansion in the recent future. In the exiting markets, the company would need to build a comprehensive portfolio containing a diverse range of videos, TV shows, etc. Netflix could introduce new software for selection of videos that are more user-friendly in order to retain its business performance. Appraisal of financial health: efficiency and profitability The appraisal of financial health of Netflix has been done with the help of assessment of the efficiency and profitability of the company. From the income statement of the company, it could be seen that the rate of growth of revenues of the company have increased has been higher than the growth rate of cost of revenues of the company. This is due to the fact that the revenues per subscriber has risen due to the separation of the entertainment services in the form of DVDs available through mail in case of subscription mode and the unlimited offer on the streaming video through the use of internet medium. Thus the profitability and the profit margin of the company have increased for Netflix in the recent times. The improvement in the business performance has been due to the efficiency of the management towards investment in areas like software development, technological leverage, etc. that has resulted in the increases of revenue earnings. Part 3: Your strategic solutions for the company’s ongoing health Strategic Solutions The strategic solution for sustainability of the company’s ongoing health could be recommended using the strategic analysis conducted for the company’s internet based entertainment service and the industry scenario. Looking at the consequences of the new pricing strategy and the fall in the share prices of the company, Netflix should conduct a market survey on the competitor products and the demands of the customers. The company should design pricing strategies in such a fashion that its addresses the growth requirement of the company as well as restricts the erosion of customer base. Any rise in the prices need to be marketed with the additional offers that address the value for money concept. The DVDs offered in the subscription mode could also be segregated in various price brackets on the basis of market demand. The company could look to provide free software through the online mode that best supports the quality of streamed videos of Netflix. Looking at the long term objectives, international expansion of the company needs to be assessed by taking into account the environment and the market demands and the competitive forces (Coade, 1997, p.48). Rationality and feasibility of recommended solutions The strategic solutions developed from the overall strategic analysis are feasible in the context of Netflix’s business. Due to the global economic and technological advancements, Netflix would be able to acquire the technologies and the resources for the necessary software that are compatible with the videos offered through the internet. The strategic solutions are also expected to provide sustainability to the business of Netflix. By providing the free software to the customers that could be used for quality streaming of videos, the company would be able to create a loyal set of customers (Hill and Jones, 2009, p.28). This would enable Netflix from restricting loss of any market share and attain competitive advantage over the other players in the market. The strategic measures of conducting an analysis before expansion of business in the international markets would help the company to assess the risk of the international markets and adopt global strategy aimed at sustaining the growth rate of the business. Conclusion The business of Netflix has suffered initially due to the pricing strategy that it adopted in 2012. The rise in the prices of its services by 60% and the restrictions on unlimited video streaming over the medium of internet has resulted in the loss of its customer base. The company, however, recovered from its losses with the initiatives of separating the subscription services from the unlimited video streaming services through internet. The strategic solutions for sustaining the ongoing health of the company includes conservative approach towards international business expansion and initiative to bring about free online software in the market that are only compatible with the Netflix videos. References Coade, N. 1997. Managing International Business. Stamford: Cengage Learning. Fitzroy, P. and Herbert, J. M. 2007. Strategic Management: Creating Value in a Turbulent World. New Jersey: John Wiley & Sons. Hill, C. and Jones, G. R. 2009. Strategic Management Theory: An Integrated Approach. Stamford: Cengage Learning. Hutt, M. D. and Speh, T. W. 2012. Business Marketing Management: B2b. Stamford: Cengage Learning. Kozami, A. 2002. Business Policy and Strategic Management,2e. New Delhi: Tata McGraw-Hill Education. Mazzucato, M. and The Open University. 2002. Strategy for Business: A Reader. London: SAGE. McLoughlin, D. and Aaker, D. A. 2010. Strategic Market Management: Global Perspectives. New Jersey: John Wiley & Sons. Netflix. 2013. Watch TV shows and movies anytime anywhere. [Online]. Available at: https://signup.netflix.com/global. [Accessed on 7 December, 2013]. OaShaughnessy, J. 1995. Competitive Marketing: A Strategic Approach. New York: Routledge. Reuvid, J. 2012. Managing Business Risk: A Practical Guide to Protecting Your Business. New York: Kogan Page Publishers. Read More