Business Foundation Management - Assignment Example

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The analysis will examine the driving forces that were behind the decision that Netflix Inc. did. The company deals with home video entertainment whereby it includes video…
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Business Foundation Management The organisation that will be discussed in relation to its organisational decision is the Netflix Inc. The analysis will examine the driving forces that were behind the decision that Netflix Inc. did. The company deals with home video entertainment whereby it includes video rental and retail. In 2011, Netflix Inc. announced that it had made changes to its pricing structure of the consumers. While initially, the investors and stakeholders seemed to love the decision of changing the consumer pricing structure, consumers had the debatable right of being less than thrilled. It jacked up it prices by 60% because of the deal they made with Hollywood (Sandoval 1). The deal was that Netflix was to pay a specific amount of money for every user per month for any user who had the right of connecting to the Hollywood content. This was regardless of whether they Netflix consumers viewed that content or not. Therefore, Netflix could not afford the luxury of paying for the digital content for individuals who were not watching it. The organisation argued that it was not cost of living increase and nor was it inflation.
Regardless of the fact the analysts argued that the new hike in prices by Netflix was because of the new studio contracts, Netflix maintained the contracts had nothing to do with it. It also maintained that neither was it the high costs of doing business had caused it to hike the prices. In the Netflix’s blog, they say that when they launched their $7.99 unlimited streaming plan, whereby DVDs by mail were treated as a two dollar adds on to their unlimited streaming plan (Sandoval 1). In that previous year, the management had not anticipated offering DVD-only plans. Thereafter, they realised that there was still a very large continuing demand for DVDS. This was from both their existing member and the non-members. They continue to argue that, given the long life they thought that DVDs by mail were going to have, treating DVDs a two dollar add on their unlimited streaming plan was neither making great financial sense not satisfies the individuals who just want DVDs. Netflix management argued that creating an unlimited DVDs by mail plan whereby it did not include streaming at their normal prices, which were very low, $7.99, it did not make any sense (Sandoval 1). In addition, they stated that it would not ensure a long life for their DVDS by mail offering.
The most argument that comes regarding this decision was that the price hike was mostly to force the millions of Netflix’s members and non-members to go for streaming only. It is because streaming was a more profitable business for the Netflix. However, regardless of the company’s hike in prices, only 1 out of 25 consumers cancelled their subscriptions. Their decision to raise the price and still maintain its customers was because Netflix provides a product they value and that customers are not just strictly motivated by price (Sandoval 1). In conclusion, the main reason for Netflix to make this decision of hiking the prices was to ensure its long-term prosperity. Moreover, this forced the separation of Netflix, in order for the digital business model to exist on its own clear and free. The idea of Netflixs finding itself paying the digital fee for all its members, that is both the ones that watched and not watched looked worse financially. It means that it implied severe company gross margin erosion than the change in consuming price structure.
Work Cited
Greg Sandoval. Netflixs lost year: The inside story of the price-hike train wreck. CNET Online Holdings Inc; 2012, Web. 12th December 2014. Read More
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