What Is Netflixs Strategy - Admission/Application Essay Example

What is Netflix’s strategy? What type of competitive advantage is Netflix trying to achieve? The strategy that Netflix uses is to provide a monthly subscription through which the subscriber has access to unlimited streamed video that includes movies and television, along with other video content. The initial form of usage for Netflix was to provide DVD’s through the mail with rapid distribution and turn around but the focus is now in a low subscription price with streaming instant availability of a large body of content. The DVD distribution is still available, but due to other companies that are the same kind of service, the focus of advertising is now on streaming content and the low price. The subscriber can upgrade their account to receive more than one DVD per shipment, but this has become a far secondary point on the website that is accessible only if one goes searching to see if this is a possibility. It is the convenience of streaming that is the strongest competitive advantage presented by the company. The competitive advantage that Netflix is trying to achieve is in providing content instantly rather than having to leave the house to get a DVD or use another form that may have a waiting time involved. The low price of the base subscription is also used to provide a competition with other services, such as iTunes, which costs a great deal more per purchase than would the Netflix subscription price at 7.99. per month. The potential to stream through the Wii system, PS3 and Xbox instead of only through the computer is also an advantage. What Netflix is trying to connect with through their subscription system is the consumer need to have convenience and low cost so that they compete against other services that require more action by the consumer in getting the product that they want, more money per product usage, and the higher state of risk when renting DVDs at either store or through vending boxes such as Redbox which is eliminated when the consumer uses a low cost monthly services such as Netflix to get the video content that they are interested in seeing. 2. How strong are the competitive forces in the movie rental marketplace? Do a five-forces analysis to support your answer. There is strong competition that Netflix must deal with through their business strategy. The following is an analysis through Porter’s five forces of the industry, revealing the many ways that consumers can get content and where Netflix stands within the competition. Threat of New Competition: Innovation in the digital content market is appearing all the time. Hulu is one of the new products that have entered and gained popularity in the market. This entrant has forced Netflix into a new configuration. As well, On Demand through cable companies is a new innovation in the last few years which threatens the Netflix business model and forced it into changes. Threat of Substitute Products: Netflix is at threat through services like Hulu and iTunes which present similar content through different approaches. iTunes costs more per rental of digital content, but availability of content is sooner than Netflix can release it. In addition, ownership of digital content is possible through iTunes. Hulu is a similar product with only digital download available. Hulu’s focus is on television content, but their price is the same per month for Hulu Plus Bargaining Power of Customers: With all the options, consumers have already pushed Netflix to change their business strategy in order to compete. Bargaining Power of Suppliers: Netflix is restricted by not being able to provide instant access to newer content, restrictions placed by suppliers. Intensity of Competitive Rivalry: Because of the high interest in seeing new content as quickly as possible, the risk of a competitor coming up with an innovation that threatens the current business strategy is high. Where Netflix was once the innovator, now others are the threat. 3. What does a SWOT analysis of Netflix reveal about the overall attractiveness of its situation? A SWOT analysis of the company analyses the strengths, weaknesses, opportunities, and threats that the company currently faces. This analysis places the company into its position in the market place and provides for substantive meaning for how the company can find a better place from which to compete. Strengths: Netflix provides a large body of content through which the consumer can look up old favorites as well as more current offerings in order to engage in film entertainment. The price is low and for those who watch a great deal of older content, the streaming video is highly useful. Weaknesses: Netflix mostly does not provide newly released videos as streaming content. The innovations of the company have been replaced by newer concepts with Netflix having to change business strategies to keep up. Opportunities: Netflix has the opportunity to look at iTunes models of instant movie rentals which are downloaded into the computer and are cutting edge in relationship to release and accessibility. In addition, the connections that are already made should be strengthened through showing new and innovative accessibility so that new content can be more easily used. Threats: Netflix is under a great deal of threat. Because it is no longer using its original business model and its secondary innovation, that of streaming content, is being surpassed by its competitors, it is at risk for being drummed out of business through the perception of being out of date and with inferior capacities. Analysis of the SWOT shows that the company is in danger of being obsolete and since it is now on its second innovation and being surpassed by other innovations, current needs suggest that updates in technological capacities are in dire need. 4. How does Netflix’s competitive strength compare against that of Blockbuster? Does Netflix have a sustainable competitive advantage over Blockbuster in the movie rental business? Why or why not? Netflix is currently in a much stronger position than Blockbuster. Blockbuster still has retail outlets as well as an online system that is similar to that which Netflix originally gained its position in the market. Unlimited rentals are available to Blockbuster members online, with rental programs starting at one at a time for 9.99 per month, which is a higher rate than Netflix and does not include instant streaming content. One of the advantages listed is that new content is available to renters earlier than that of Netflix, which may mean being able to see some things as early as 28 days earlier than Netflix has them available. This is the only advantage that seems to exist over that of Netflix, other than a physical store site which has more disadvantages than advantages. The disadvantages of the retail store are that it carries a large overhead with a decentralized distribution methodology. Some consumers may like the ability to walk into the store to get newer content, but renting new content through iTunes is a quicker and more convenient option. Those with inferior equipment may find the store more convenient, but most people have upgraded their equipment to the point of using their computer and the internet for a great deal of content. Blockbuster does not really have a great deal of threat against Netflix because the consumer has a great many more advantages through the monthly price paid to Netflix which is not available to the Blockbuster consumer at a higher price. Blockbuster only provides one advantage which is newer content more quickly distributed than Netflix has the capacity to perform. Netflix has sustained, making Blockbuster almost obsolete. 5. What recommendations would you make to Netflix CEO Reed Hastings? Despite its advantages over companies like Blockbuster and even Redbox which provides vended films at convenience and discount stores, the business strategy is quickly falling behind that of other services online which have higher capacities and more convenient uses that provide for newer content. Newer movie availability is the biggest complaint against the Netflix business model. With newer content available immediately through rentals on iTunes at about 3.99 per rental, Netflix is more useful to those who watch large amounts of content and are content to watch content that they have seen before or that is a bit older. In addition to the competition of iTunes, cable companies advertise that their On Demand options are providing new releases more quickly than Netflix, naming the company specifically and having On Demand content for free that Netflix includes in its paid monthly subscription price. Of course, cable company access is necessary, but it sounds like it is free because most people have cable whether they would use a service like Netflix or not. The advice that must be heeded is to expand content to include rental services similar to iTunes so that content is available as soon as it is released. The costs of this rental could easily be above the costs of the monthly service, but if it is only 1.00 less than that of iTunes, people will be more than happy to subscribe and have all the benefits plus the immediate access to new content if it seems they are getting more for their money. Without having this type of technology available to the consumer, a great portion will not utilize the Netflix model in favor of having wider choices even at a higher cost. The consumer that prefers new over a wide older content access is not going to be interested in Netflix. Finding a new business strategy that is outside of all current models would be the best choice, but at least providing new releases at the time of release, or even sooner would provide the competitive edge the company currently needs. 6. What recommendations would you make to Blockbuster CEO James Keyes? Currently, Blockbuster stores have a specific set of consumers who have yet to have used the easier models of video content access that are available on the Internet. Although Blockbuster has an Internet presence, its costs are higher and it does not provide streamed content. Blockbuster also has a public relations problem based on its past business strategies. People associate Blockbuster with high prices, high fines if the product is not returned on time, and the inconvenience of having to get there in a finite time. In addition, their strategies to get back DVDs has been to charge those high fines, call consumers and threaten to report them as thieves if the content is not returned, and charging high prices if the DVDs are not returned. The combative relationship between Blockbuster and its consumers over the return of DVDs is precisely why Netflix created a system where DVDS were not returned on a time table and the only ‘penalty’ was that one could not take another unless the first was returned and the monthly subscription created a revenue stream that was perceived as more friendly than the DVD rental store model, particularly Blockbuster. Because of all these feelings of animosity between Blockbuster and the public, the CEO should completely overhaul the brand, possibly renaming the company in order to present the public with an integrated system that included all of the advantages of the rental store, the monthly subscription, and the internet presence. Taking cues from iTunes on film rental, creating a system that provides new content immediately would serve consumers above that of Netflix at its current state. In addition, allowing in store rentals to continue, with innovations in that type of content access would provide for a comprehensive set of products for the consumer. In addition, an innovation that is new and unique would revitalize the brand, providing for something allowing for a new image over its currently antiquated and tarnished brand. Read More