The Completion of a Strategic Management Course - Essay Example

Part A (Total 20 marks) Question is compulsory. This question relates to Case Study 2 "Netflix" (pp. C33 - C41 of the textbook). Question Reed Hastings (the CEO of online movie rental pioneer Netflix) has been facing a challenge of sustaining its growth and competitive position. To respond to this challenge, Reed has created a new position "Strategy Adviser" which will report directly to him. To be eligible for this position the applicant should have completed or be close to the completion of a Strategic Management Course. Knowing that you are at the completion stage of this course, Reed has invited you to apply for this position. Through your research, you have found a written case study about "Netflix" which is useful to craft your application and impress the selection panel. Based on the information provided in this case, you are required to prepare and submit a report outlining the following in your application: a) Key economic characteristics of the online movie rental business (4 marks): 1. The Key Economic And Business Characteristics Of the online movie rental business are discussed as follows: a) Market size and growth of the industry: Statistics of the revenue generated by various online movie rental organizations prove that the evolution of the industry has moved extremely high since the time DVDs were introduced in 1997 and phasing out of VHS. Most organizations in the business of DVD/rental of DVD's have witnessed predominant growth - eg. Netflix 74%, DVD sales 34%, apart from companies such as Blockbuster video, Wal-Mart, Movie Gallery, Walt Disney's movies on demand, have reported a highly positive trend of revenue, which confirms that the market size of the movie entertainment is rapidly growing, and expected to grow further at an international market level, however with positive technology advancements. It is predicted by Analysts that the market of online movie/video game rental is expected to grow more than $30 billion by 2006. 2) Scope of competitive rivalry: Below mentioned is the scope of competitive rivalry. a) The geographical areas of online movie rental companies are with a spread world wide, either with direct outlets, franchises, sales of DVDs, DVD recorders, or download from the internet, thereby resulting in global competition. b) Number of rivals: The rental of movies are available are through: Online rentals. Physical retail stores and stand alone outlets. Physical retail store rental outlets. Websites PC downloads Piracy of DVDs Sales of DVD recorders. c) Size of Competitors and services: The introduction of consumer electronic product being sales of the Digital Video disc, where movies are available through wide range of channels, following are the various size of competitors: i. Netflix one of the world's largest online movie rental service provider, founded in 1997 and successfully achieved a base of 1 million subscriber over a span of 3 years being half the time span achieved by AOL which is another online service provider. Netflix offers a choice of 15000 movies to its customers, with leading 15 distribution outlets, where DVDs reach more than 90 percent of its subscribers with generally one business-day delivery. It also offers personalized movie recommendations to its members, and also allows members to share and recommend movies to one another. It has reported a business growth of 74%. ii. Blockbuster video - an organization in business of video cassettes, DVD and video games, with most of its revenue from United States, with their innovative program of "pay-per-view" co-branded with DIRECTV. Blockbuster reported $5.5 billion in 2002 and grown to 8500 franchised stores. They offered 44 movie selection a day to subscribers. iii. Wal-Mart - One of the largest retailer, reported an income of $244.5 billion, established itself largely in the United States with 3200 facilities and 1100 facilities abroad, with 7 distribution centres. iv. Movie Gallery: An organization that had grown after acquiring "Mom-and-pop" video stores and with further expansions has 1678 stpres in 42 States and five Canadian provinces. They have not set up the "online" rental service, but however have plans to start. Movie Gallery reported take-in of $276 million with more than 950 stores. v. Walt Disney's movies on Demand: They introduced a new technology called "MovieBeam" where a digital quality movie could be received on hard drives with the help of a Samsung product. vi. Movielink's downloadable movies - With growing technology and usage of internet, downloadable movies are now available. vii. DVD Recorders -Introduction of DVD recorders, making it convenient for customers to download their preferred movie. viii. Piracy in the movie industry - Pirated versions of DVDs available at low cost is also categorized as rivalry. d) Stage of industry lifecycle: The stage of the online rental of movies are slowly declining and expected to further decline, due to the growing technology, where movies would be available with direct download from internet to PC systems, TV. Direct viewing online via computer, where the need to "rent" DVDs will decline. e) Other business characteristics have been: i. Customer Oriented focus such as: Speedy delivery of DVDs Recommendation system Variety of options. "Out-of-shelf" availability of the product ii. Competitive prices: Packaged offers Free delivery service iii. Business Strategies: Marketing campaigns Customer feedback introduced. Awareness of what competition offers. Buy-out / Franchisee. b) Netflix's business model vis-a-vis its key competitors (4 marks) Following are the business model vis--vis its key competitors i. Vision and goals (projected over the next 4 years):Netflix set it's vision and goals as follows: Sustain what has been accomplished by Netflix this far. Meet the changing requirement of customers - as Reed Hastings said "Change to way people access and view movies they love". Acquire 5 million subscribers in the US OR 5% of the U.S. TV households ii. Customer focus: Netflix ensured following business model on customer focus: Attract and develop a large customer network. Make available enough options for customers to choose from Well managed rental system Easy customer access to various options. Recommendation system of customers, so that other customers had an easy choice. Decentralization of the distribution system, to ensure that the product reaches the customer from the nearest location. iii. Innovative and new Technology: Netflix has been one of the organization to be ahead of technology, where following was introduced: Institutionalising of software systems for their customer services Developing systems that sense and cluster customers of similarities. Capturing as much qualitative information about customers - which has been the tool to their success. Recommendations systems, thereby attracting more customer channels iv. Cost: Cost of the product in line with the market trends offering products at the most competitive price. Attractive offers and promotions v. Convenience: Making it convenient for customers to make a choice from the basket of options offered and confirm a wish list. vi. Business Strategies: Insisting on uniformity of operations with distribution centres and branches. Marketing campaigns creating their brand awareness and USP (unique selling points). Obtaining customer feedback. Awareness of what competition offer. Keeping pace with technological changes Diversified into software products, where licensing fee could be charged. Strategy of the 5 core business driving factors: People Products Place Price Promotion c) Analysis of Netflix's competitive strengths, weaknesses, external opportunities and threats. (8 marks) Following is the competitive strengths, weaknesses, oppurtuniteis and threats of Netflix. i) Strength: Following are some of the strength of Netflix: The largest subscribers base of over 1 million. Achievement of largest subscriber base in 3 years, when compared with competitors. One of the dot-com success story organizations - resulting in brand image. Services offered with innovative technology, software and systems used. Attractive offers and pricing including free shipment of the product. Large library with 15000 options to choose from. Larges database of used Volume of customers they cater to. Brand name. Customer recommendation and referencing systems introduced. Cluster of customer prediction systems Good information gathering tool of the customer, helping cluster customers of similarities, making recommendations of movies easier. Sophisticated distribution system with distribution centres. New initiatives. Full view on competition operations. Keeping in line with technology changes. Diversified into software business ii) Weakness: Following are some of the weaknesses of Netflix:- Expenses on selling, general and administrative expenses increasing as per the "Netflix's income statements, 1999-2002". Presence only in DVD rentals and not other products such as vide games, etc. iii) Opportunities: Following are some of the opportunities: Setting up distribution centers into other markets. Potential of higher sales. Gear up for the new technology advancements. Acquisition of other companies. New Franchisee at non-existing locations. Falling global trade barriers in attractive markets. Increasing international demand Increase in home entertainment services iv) Threats: Using Porter's five forces model 1) Industry Competitors: A strong rivalry parameter Increased competition of large and small organizations. Reduction of price in product resulting in cut-throat competition. Low switching costs of consumers Introduction of substitute products - such as pirated versions of DVDs Marketing campaign conducted by competitors. Rivalry initiatives by competitors. Threat of competitors inventing new technologies. Negative publicity by competitors Threat of competitors acquiring relationship or association with current vendors of the organization. Economy situation of the country/countries where the organization has it's presence. 2) Potential Entrants / Threat of new entrants: Franchisees/employees resulting to be competitors. Small players setting base. Potential new franchisee by competitors. Competitor expansion through acquisitions of other restaurants. Threat of pirated versions. Threat of new technology phasing-out the rental of DVDs, instead offering free downloads from internet. Unattractive market with slowing growth. Threat of alternate products available instead of rentals 3) Power of Customers: Changing needs of customers to technology advancements. Reduction in price of selling product. Customer focus on value of product. Customers bargaining power for purchase at lowest possible price. Changing life style of customers and demands, resulting in phasing-out products. Political & legislation impacts due to change in political scenarios 4) Bargaining Power of Suppliers / franchisees / staff: Dispute with distribution centres/associate companies. Employee turnover. 5) Threat of substitutes / substitute products: Threat of partnerships/franchise. Launch of new technological products - DVD recorders, internet. Product innovation by competitors. Replicating of innovation of Netflix, by competitors. Threat of having substitute products'. Threat of having imitated products' at a very lower cost meeting the similar purpose - though with lower quality Threat of direct access of moves to customers. d) Recommendations on what Netflix should do to maintain its growth and competitive position (4 marks) In order for Netflix to maintain its growth and competitive position, it should work on the following: 1) Strongly work towards to set goals and objectives of the organization, cascading the same to all levels of the organization. 2) Customer: a) Make available more number of options to customers. b) Work towards bring the waiting time to "Zero" c) Institutionalise customer bonus programs for every customer recommended customer by way of points, discounts. d) Institutionalise customers testimony such "Voice your views". 3) People: a) Institutionalise reward and recognition programs: i) For achievements on attracting customers. ii) Speedy service iii) Creative & innovative ideas of employees that contribute to business achievements. iv) Continuous training to resources 4) Business strategies: a) Evaluate each centre's performance by conducting a SWOT and in case of non-performing or under-performing centres: i) Institutionalise change management ii) Closure of operations. b) Reduce on the selling, general, administrative (SGA) costs. c) Associate with movie production companies, and create a network that would help to improve business and extend the scope of Netflix's online movies. d) Negotiate with existing Associates, Vendors. e) Increase number of distribution centres. f) Keep abreast on information about competitors g) Campaign and advertise - eg. Get customers directly to speak of their experiences in the media. 6) New or foreign markets: a) There is a lot of scope for expansion into international markets, as Analysts predict that the movie entertainment business is to grow with $30 billions, Netflix to start more expansion plans by way of offering Franchise or setting-up direct outlets. 7) Diversification: a) Diversify in the software business and increase its market share value. b) Diversify also into online rental of "games" CDs, which service also the younger generation, who will get to know better on Netflix's services. 8) Technology: a) Meet the new changing trends of the technology. b) Evolve to a new concept providing services of online download. 9) Quality, inspection focus: a) Introduce quality inspection cycles. b) Participate in "Quality" surveyed programs and obtain certifications, thereby creating better visibility and assurance towards customers. Read More