Netflix Strategic Analysis - Research Paper Example

NETFLIX Strategic Analysis Part Assess the Macro environment Evaluation of macro environment In this paper evaluation of the macro environment of the industry will be done on the basis of PESTEL analysis. Political: The Company faces fewer problems from labor unions as strikes and other political disturbances are less in United States. The organization gets lots of political helps like exemption of taxes and other benefits related with businesses. Different studios of the country manage close relationship with the company. Economic: Economic situation of the nation is somewhat uncertain. Financially the country has been badly affected by the recession. It is still in the phase of recovery. Due to some stimulus packages, the economy is improving but still long way to go. It has great impact on people’s disposable income which is directly related with the prospect of NETFLIX business. If disposable incomes are less people cannot spend money in entertainment purposes. Social: Social environment of the country is advanced. Citizens of the country are very well educated and having advanced mind setup. For that reason consumer want updated content. In every aspect of their life customers want convenience. They often look out for entertainment and take the much needed break from the daily routine. Technological: Technologically the country is world leader. It has significant impact on the company’s business. The country has witnessed frequent up gradation in technology in accordance with the demand for music. This macroeconomic environment is significantly volatile and uncertain as far NETFLIX is concerned. Environmental: Business environmental situation is not an unmixed blessing for the company. Raw materials are expensive and wages of skilled labors are high as compared with that in other countries. Getting dedicated and committed employee is a serious challenge for the company. Legal: The country has very structured legal framework (Afuah, 2014). Different rules and regulations are strict and companies must comply with the frameworks. But still there are different loop holes in legal frame works which may not be a good sign for the company. The company faces less volume of sales and less repeat purchases. Threats or opportunities Macroeconomic factors can be both golden opportunities and serious threats for the organization. It is very important for NETFLIX to operate their business peacefully and so stable political situations have great influences on the business of the organization (Kotler, 2009). In this case the political condition is an opportunity for NETFLIX. The economy of United States is on the recovery period and so it can be expected that the demand for the products of NETFLIX will rise which will open up a handful of opportunities. Social advancement and trendy life styles are significant for the business of the organization. The society of the United States of America is socially advanced. They want to take a break from their busy schedule and look out for entertainment. This macroeconomic factor is also a significant opportunity for the company. Technological scenario is changing day by day. New technologies are coming into the picture. All these new technologies are outdating existing technologies of the organization which is a serious threat for the company. It may resist the organization to create competitive advantages. Technical superiority is utterly important for the company. The environmental factors faced by NETFLIX can pose a threat to the company since resources like labor are costly in the country and consequently the operating cost of the business will be high. Different legal regulations and legal structures have serious threats for the company’s business operation. It is often being noticed that balancing profitability and legal regulations are difficult for the company. Violation of patent law is also a serious threat for NETFLIX. Strict legal framework is a threat to the organization. Relevance Of factor In the above section of the study it is being noticed that technological and legal factors are relevant threats for the organization’s business operation. Technologies in the industry are changing in a fast pace. One technology of the company which is super hit today can become useless tomorrow. It is a great matter of concern for the organization. Introduction of new technology in place of older one needs huge investments from the side of NETFLIX. It requires significant time as well. It reduces competitive advantage of the company. The organization should spend more money for their research and development purposes. It will help them to come up with new ideas like music videos and customized playlist according to the wish of the customers. All these innovations can help the organization to mitigate the serious threats (Lüdicke, 2006). It can create a separate application for internet video streaming. Sports games like succor and basketball games can add uniqueness to the company. It will help the organization to maintain basic core competency in a modern way. It will certainly give an extra competitive edge to NETFLIX. Legal factors can be a reason for headache for the organization. Sometimes in quest of profitability different rules and regulations are being neglected. It is a serious threat for the business (Jenster, Hayes and Smith, 2005). The organization must abide by all rules and regulations related with the industry. It must maintain transparent business operation. It should follow all patent related rules. It may appoint eligible legal team for handling different legal complexities. Part 2 Analyze the Industry Environment Porter five forces model The threat from new entrants into this industry is very high. Entry barriers are low in this industry. Many other movie providers are ready to make entry in the market. The amount of investment is low and so it encourages lots new entrants into the industry. The intensity of rivalry among the established players in the market is very high. All competitors are selling same kind of products almost in same price so customers don’t find any reasons to become brand loyal (Williams, 2011). Bargaining power of buyers is high. There are lots of options in front of buyers; they easily can switch from one brand to another. Buyers are price sensitive. They are well informed about the market scenario (Hill and Jones, 2009). Switching cost is low for them. Bargaining power of supplier is low in this industry. These kinds of products and services are in plenty in the market. Switching costs of different companies from one supplier to another is also hassle free. Threats from substitute products are also high. As the technology is changing many other similar kind of products are coming into the market. If buyers feel those products are attractive then they easily can switch to those substitute products. Rank of Forces The table below shows the rank of the forces on a scale of 1 to 5. The ranking has been done on the basis of the above analysis. Rank 1 force has highest influence on industry profitability and the rank 5 force has lowest impact on industry profitability. Forces Present Rank Future Rank Threat from new entrants 2 2 Threats from Substitute products 4 3 Bargaining power of suppliers 5 5 Bargaining power of buyers 1 1 Intensity of industry rivalry 3 4 It shows that bargaining power of buyers holds the 1st rank for both the occasions. It shows that it has highest influence on industry profitability (Gregoriou and Renneboog, 2007). Threat from new entrants also holds similar position in past and present rank, as far as influence on industry profitability is concerned. Ranking of threats from substitute products has been changing in two situations. Substitute products will influence the industry profitability more in future. Intensity of industry rivalry will have less influence on industry profitability in future. Bargaining power of suppliers will influence the industry similarly both in present and future as the trend will remain almost same. Effects on the firm’s operating environment All these forces have significant effects on firm’s operating environment. Threat from new entrants is high in the industry and so the level of competition will be high (Fitzroy and Herbert, 2007). Operating environment of new entrants can pose serious challenges to firm’s present operating environment. Bargaining power of customer is high which will have significant effects on the company’s pricing policy. The organization has to reduce their operating expenses to reduce their prices. Bargaining power of suppliers is low and it has positive effect on NETFLIX’s operating environment. The company can hold advantageous positions in front of their suppliers. NETFLIX can bargain more with their suppliers. Threat from substitute products is high. It has negative effect on the organization. It means operating environment of the organization must be very proactive, continuous innovation is required to mitigate threats from substitute products. Intensity of rivalry within the organization is high. It has very direct effect on the firm’s operating environment (Chakravarty and Eliashberg, 2005). The company must find other differentiating factors instead of price differentiation. It is impossible for the company to lower the price con regular basis even if the competitors present in the industry take this initiative. Competitor profiles Competitor Name Competitor Profile Competitive advantages Amazon Prime It is a famous American ecommerce company. Number of employees are 117,300. The organization is headquartered in Seattle (McLoughlin and Aaker, 2010). Revenue of the company is US$ 74,452.0 million and the net income of the company is US$ 274.0 million Apart from instant video streaming, Amazon Prime comes with free two-day shipping on different items. The organization is giving significant importance to catalog of titles. HBO Go Head quartered in New York. It is a 4 year old company and has smaller services than other competitors in the industry. The organization is planning to expand its global presence. Their services are streamed in HD. So quality of pictures is very high and very less interruptions from buffering. HULU Plus The company was founded in 2007. It is headquartered in Los Angeles. Revenue of the company is $695.43 million. Hulu Plus is a monthly service. Hulu Plus has large stock of TV shows, original content and movies. New TV shows and movies are added daily basis. References Afuah, A. (2014). Business Model Innovation: Concepts, Analysis, and Cases. New York: Routledge. Chakravarty, A. K. and Eliashberg, J. (2005). Managing Business Interfaces: Marketing and Engineering Issues in the Supply Chain and Internet Domains. Berlin: Springer;. Fitzroy, P. and Herbert, J. M. (2007). Strategic Management: Creating Value in a Turbulent World. John Wiley & Sons; USA. Gregoriou, G. N and Renneboog, L. (2007). International Mergers and Acquisitions Activity Since 1990: Recent Research and Quantitative Analysis. New York: Elsevier. Hill, C. and Jones, G. R. (2009). Strategic Management Theory: An Integrated Approach. New York: Cengage Learning. Jenster, P. V.,  Hayes, H. M. and Smith, D. E.( 2005). Managing Business Marketing & Sales: An International Perspective. Copenhagen: Copenhagen Business School Press DK. Kotler, P. (2009). Marketing Management. New Delhi: Pearson Education India. Lüdicke, M. K. (2006). A Theory of Marketing: Outline of a Social Systems Perspective. New York: Springer. McLoughlin, D. and Aaker, D. A. (2010). Strategic Market Management: Global Perspectives. London: John Wiley & Sons. Williams, C. (2011). Effective Management. London: Cengage Learning. Read More