Opportunities and Threats of the Netflix Company - Case Study Example

? Analysis of the Netflix Company al Affiliation Table of Contents Introduction 3 PART 1: EXTERNAL ANALYSIS 3 1.1 Macro-Environmental Analysis 3 1.2 INDUSTRY ANALYSIS: Porter’s Five Forces 4 1.3 Opportunities and Threats 5 PART 2: INTERNAL ANALYSIS 6 2.1 Analysis of Resources and Competencies 6 2.2 Strengths and Weaknesses 8 PART 3: NETFLIX ISSUES AND CHALLENGES 8 PART 4: NETFLIX’S BUSINESS STRATEGY AND STRATEGIC GROWTH OPTIONS 9 4.1 Netflix Generic Strategy 9 4.2 Strategic Options 9 4.3 Required Resources 10 5. Conclusion 11 6. References 12 7. Appendices 14 Introduction Netflix Inc. presents as a leading global subscription service organization that serves over 12 million subscribers (Netflix, Inc. SWOT Analysis 2013, p. 3). The company provides online flat rate Blu-ray Disc and DVD video streaming and rental-by-mail in Canada (streaming only) and United States. The company was established in 1997 by Reed Hastings. Its headquarters are located in Los Gatos, California. The organization offers proprietary recommendations and merchandising services that aid the subscribers to choose from the extensive digital title library. The company’s mission is becoming an early novel technology adapter that will satisfy consumers’ exact wants. The vision of the organization is to endeavors to be the best international entertainment distribution service. It also wants to; generate accessible markets particularly, to filmmakers; license entertainment content globally; and assist content creators globally to find an international audience. Currently, to achieve its vision, Netflix Inc. applies an extensive differentiation strategy. The differentiation was established through reducing the general prices of renting DVDs, improving customer satisfaction, providing all-inclusive customer service and constantly innovating throughout the years (Research and Markets 2012, n.p) . PART 1: EXTERNAL ANALYSIS The purpose of this section is to analyse the external environment of the company. This includes the macro environment, the industry analysis, and SWOT analysis. 1.1 Macro-Environmental Analysis Like other organizations in the industry of movie rentals, Netflix is cause to experience technological, social, economic, and political macro-environmental factors. Political and Legal factors – with regard to these facets, the company could be influenced through altering laws relating to copyrights of some content types, for instance television and movie shows that Netflix depends on to offer the clients (Krengel et al. 2010, p. 23). Economic factors – To sustain a competitive advantage, Netflix is compelled to price aggressively against competitors. The Company maneuvers in an industry that depends principally on the consumer’s disposable income. If economic increase were to dwindle, while there was a negative influence of the consumers’ purchasing power, the organizations in the industry would experience the negative impacts of the reduced purchasing power first. Social factors – The Company depends on the movie popularity among the target market segments. The consumption becomes less popular among the older demographic as the average population age continues to become older. This leads to negative influence of the business. Business could be negatively influenced if the online movie consumption became un-preferred among large population segments. Technological factors – Technologically, since Netflix is an internet-based company, it must compete with the continuously evolving internet, since the industry progresses toward online consumptions (May 2010, p. 21). 1.2 INDUSTRY ANALYSIS: Porter’s Five Forces Rivalry among Organisations Direct rivals threaten the task environment of Netflix. Exclusive content contracts present as a threat to the company’s task environment. This presents as a constriction for the Netflix access to particular content (Thompson & Martin 2010, p. 92). Entry of Novel Competitors Entry of novel of competitors is feasible owing to the economical industry entry barriers associated with content streaming because of the huge streaming content amount that could turn out to be accessible to latent distributors. Substitute of Services of Products Since Digital cable is currently required for the majority of consumer homes, substitution for Netflix may emerge from services for instance, “On Demand” provided by Comcast Cable. It is significant for the company to stay abreast of the consistently transforming technology to maintain their success (Thompson & Martin 2010, p. 92). Customer Bargaining Power A high customer bargaining power is seen since they can merely choose to spend on alternative services and products. This is attributed to the fact that the company operates on an entertainment industry. Supplier Bargaining Power There is an extremely high bargaining power of the suppliers because the company is wholly reliant on studios to derive the content they require to deliver to customers (Thompson & Martin 2010, p. 93). 1.3 Opportunities and Threats Opportunities The company provided original service to consumers in its establishment through pricing and convenience (Datamonitor: Netflix Inc. 2010, p. 4). Streaming content introduction is a principal opportunity for Netflix Inc. Threats Currently a key threat for organizations in the rental industry for mail order DVDs is postage risk. There are low threats to entry concerning streaming content access, owing to the huge streaming content amount that is accessible to potential distributors, rendering the industry highly volatile with high rivalry (Datamonitor: Netflix Inc. 2010, p. 4). PART 2: INTERNAL ANALYSIS This segment will present an analysis of the competencies and resources of Netflix, together with its strengths and weakness. In addition, this discussion facilitates a comprehension of the preparedness of Netflix in the industry competition. 2.1 Analysis of Resources and Competencies Mission: To become the global provider of tailored in-home entertainment that consumers can access at individual convenience. Vision: The Company centers on becoming an early novel technology adapter that will satisfy consumers’ exact wants. Supply Chain Management: The Company provides a home delivery of DVDs by mail rather than retail locations (Ireland., Hoskisson & Hitt 2012, p. 91). It has established a contract with key DVD studios on up-front prices. This assures lower cost of acquisition for soaring demand releases. Operations: Netflix is founded on online ordering of movies and a rapid delivery structure. Consumers also possess the choice of online movie watching. Netflix also operates distribution shops from which there can be shipping and repackaging of DVDs and movies for redistribution. Distribution: Netflix relies on the United States Postal Services particularly, for the DVDs distribution. To augment the quality of delivery while decreasing delivery time, the company opened distribution shops in several towns (Hellriegel. Jackson & Slocum 2008, p. 236). Sales and Marketing: When the company was established, it aimed at users of DVD players as the main customers. The company had a recommendation framework, which assisted the clients to select the movies they preferred. The cancellation for membership was easy enabling consumers to cancer their online memberships. This augmented the high customer return rate. Service: The Company depended on customer feedback and surveys to augment the consumer satisfaction. Additionally, the cancellation was hassle free. Research & Development: Netflix centered on its expansion to augment customer satisfaction. The company engineers built up a recommendation system of a propriety algorithmic that assisted consumers to select movies effortlessly. Competitive Advantage The company has attained a competitive advantage due to its method of operations. Additionally, it provides video delivery, a service that attracts several consumers who enjoy movie renting without visiting the store (Hitt, Ireland & Hoskisson, No Year, p. 15). The company’s recommendation structure, which proposes movie identities to the customers, offers it a competitive advantage matching it with Blockbuster as well as additional competitors, which employ staff with limited movie knowledge. Netflix also benefits from having a video variety because the competitors have to tackle the challenge of shelving space. For example, Blockbuster provides a restricted video number since they do not possess adequate shelves to store all videos. 2.2 Strengths and Weaknesses Strengths The company enjoys the following strengths Dynamic company image and brand name Lead market share particularly of online rentals Biggest online library that contains DVD titles for rental purposes (Netflix Inc: SWOT Analysis 2013, p. 5). Cheap monthly plans Weaknesses The company has a presence in merely the segment of DVDs The studios are in a position of dictating some severe pricing power conditions to the company, restricting when different movies can be available and the duration. Netflix faces challenges in offering sufficient copies of fresh, popular movies (Netflix Inc: SWOT Analysis 2013, p. 5). PART 3: NETFLIX ISSUES AND CHALLENGES Rivalry strength presents as a vital issue for the organization particularly in the VOD segment. As some potential novel entrants want to penetrate the market, this gap can be possibly flooded through the consequent competition (Caroll, Menenberg & Kwok 2009, p. 13). There is a likelihood of price wars owing to the big figure of fresh entrants. These entrants are focused on offering a free service to the consumers, which acts as a dissuasion from Netflix services (Gallaugher 2008, p. 6). Alternatively, Blockbuster may present a considerable threat since they plan to conduct different acquisitions to expand their business for a better standing. Another key challenge experienced by the company is the timing and intensity of their penetration into the business of online streaming. The organization requires to deliberate between incorporating the option of streaming online videos into their hub offering or centering only on developing a stand-alone site (Hitt, Ireland & Hoskisson, No Year, p. 22). PART 4: NETFLIX’S BUSINESS STRATEGY AND STRATEGIC GROWTH OPTIONS 4.1 Netflix Generic Strategy Currently, Netflix employs a broad differentiation strategy. The business of online DVD renting presently appeals to a big market segment (Nelson & Quick 2012, p. 75). This differentiation was established through reducing the general rental DVD costs, improving consumer satisfaction, providing comprehensive customer service as well as continually innovating all through the years. Accepting the feature of video on demand (VOD) to compare the consumer attitude shifts as fast tracked on-the-go routines develops into the norm, will offer Netflix with yet an additional opportunity to build buyer value. The combination of a Netflix’s VOD feature strategy is largely founded on the organization key factors of success (Mithas & Lucas 2010, p. 3). To offer faster delivery, improved convenience and meeting of wants of a price for movie loving conscious consumer, the company must provide capabilities for movie streaming. 4.2 Strategic Options While the broad differentiation strategy presents as favorable, the company needs to diversify the strategy further through employing technological innovation strategy (Krengel et al. 2010, p. 34). Through using the ansoff’s matrix, the technology approach and innovation lies at the core of the company’s capability to realize an inducing customer experience as well as its capability to maintain a competitive advantage. Technological innovation can guarantee better product development, which would result into a market development for the company. From the identified strengths and opportunities, the TOWS matrix can be applied to ensure that the company applies its strengths to exploit the opportunities. Additionally the strengths can also be employed to avoid the described potential threats (Teece 2010, p. 11). On the other hand, the weaknesses strategies can help to surmount over weaknesses through capitalizing on the opportunities. The same strategies can minimize the weaknesses while evading threats. 4.3 Required Resources The chosen strategy embraces innovation of technology, with regard to the industry in which the company operates. The resources needed to enhance the existing strategy while embracing technological innovation include: Human – The input of the human resources is required in terms of research and development of better technological input that guarantees Netflix Inc. a better standing in the entertainment industry. This would aid in reducing the level of competition faced by the rivals (Krengel et al. 2010, p. 34). Financial – to oversee a research and development program that is solely focused on the technological innovation, the company would need to channel financial resources to the program. This would enable the program to run smoothly devoid of any hiccups. Physical – These resources involve the required technological equipment to oversee the success of the program, to ensure that the company gets the desired results. 5. Conclusion In conclusion, Netflix Inc. presents as a foremost global subscription service organization serving a customer base of above 12 million subscribers. The organization operates in the entertainment industry. The products and services offered are online movie rentals of Blu-ray Disc and DVD video streaming as well as rental by mail in Canada and US. The company is headquartered in Los Gatos, California. Its foothold in the macro-environmental analysis is influenced mostly by the social and technological factors. The analysis of the porter’s five forces highlights high entry of rivals, high substitute of products and services, high customer and supplier bargaining power. The organization has a variety of different resources and capabilities that have helped to enhance its competitive advantage. The best capability is its operations. Other resources include R&D, service, sales and marketing, distribution, operations, supply chain management, vision, and mission. The company employs a broad differentiation strategy. Since the online DVD renting business serves a big segment, an improvement can be carried out through incorporating the technology innovation strategy. This would be supported by the Ansoff’s matrix and the TOWS strategy. These would enable the company to capitalize on technological innovation as strengths that would oversee product differentiation the market, therefore, creating a better standing for the company. 6. References Caroll, H, Menenberg, A, & Kwok, I 2009, ‘Strategic Report for Netflix Inc. Oasis Consulting, pp. 1-27 'Datamonitor: Netflix, Inc' 2010, Netflix Inc. SWOT Analysis, pp. 1-9 Gallaugher, JM 2008, ‘Netflix Case Study: David Becomes Goliath’ pp. 1-16 Available at http://www.google.co.ke/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&ved=0CFMQFjAF&url=http%3A%2F%2Fwww.gallaugher.com%2FNetflix%2520Case.pdf&ei=yYqkUu-QEKW9ygPk9YKIAw&usg=AFQjCNEH3ya6ZFezDJ5jcYFeMCc__EpeMA&bvm=bv.57752919,d.bGQ Hellriegel, D., Jackson, S. E., & Slocum, J. W. (2008). Managing: a competency-based approach. Mason, OH, Thomson South-Western. Pp. 236 Hitt, MA, Ireland, D & Hoskisson, RE. (No Year), Strategic Management: Competitiveness and Globalization, Cengage Learning, pp. 15 Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2012). Understanding business strategy: concepts plus. Mason, OH., South-Western Cengage Learning. Pp. 91 Krengel, A, Dudex, A, Momboisse, R, Paik, T, & Martin, T 2010, ‘Netflix: A Company Analysis’, Santa Clara University, Pp. 1-89 May, G. L. (2010). Strategic planning fundamentals for small business. New York, Business Expert Press, pp. 21 Mithas, S, & Lucas, HC 2010, ‘What is your Business Strategy?’ The IEEE Computer Society, pp. 1-3 Nelson, D. L., & Quick, J. C. (2012). Organizational behavior: science, the real world, and you. Mason, Ohio, South-Western. Pp.75 'Netflix, Inc. SWOT Analysis' 2013, Netflix Inc. SWOT Analysis, pp. 1-8 Research and Markets 2012, 'Research and Markets: Netflix, Inc. - Strategy and SWOT Report - Detailed information on Netflix, Inc. required for Business and Competitor Intelligence Needs', Business Wire (English), 2, Regional Business News Teece, DJ 2010, ‘Business Models, Business Strategy and Innovation’ Long Range Planning, Volume, 43, pp. 172-194 Thompson, J. L., & Martin, F. (2010). Strategic management. Andover, Cengage Learning. Pp. 92 7. Appendices APPENDIX 1: ANSOFF’S MATRIX APPENDIX 2: SWOT/TOWS MODEL APPENDIX 3: Porter’s Five-Force Analysis Read More