The Five Forces Model of Competition Analysis on Netflix - Essay Example

The Five Forces Model of Competition Analysis on Netflix

Forces

Rating

Buyer Bargaining Power

High

Firms in other industries attempting to win buyers over to substitute products

High

Supplier bargaining power

High

The threat of new entrants into the market

High

The strength of the rivalry to attract customers among competing sellers in an industry.

High

I have rated all the five forces as high indicating their strong impact on Netflix’s business operations due to the following reasons:

• Buyer bargaining power is certainly strong in the case of Netflix because buyers demand high-quality products while being price sensitive. They are also well aware of the changing technologies and alternative products. Moreover, it is less costly for buyers to switch and therefore they expect Netflix to continuously increase its services.
• Substitute products have a very strong influence over the organization because firms in other industries are producing substitutes to what Netflix is offering. These products are also comparatively priced to attract more customers.
• The bargaining power of suppliers is strong because there are very few contents and studio providers available in the industry. Furthermore, the suppliers are significantly differentiated and the overall procedure of contracts is long-term and expensive.
• It is now easier for few firms to enter into the market primarily because demand is constantly increasing and there are very low barriers for entrance, for instance, unrestricted regulatory policies, fewer capital requirements, low degrees of customer loyalty and brand preferences, etc. (Peteraf).
• Rivalry among competitors is strong because buyers can easily move to another brand. Moreover, streaming is actually becoming a commodity product.

Based on the above analysis it can be summarized that the movie rental industry is significantly attractive to make huge profits. This is first because customers are increasing rapidly and the new technological developments are encouraging them towards live streaming and DVDs. Although this is a highly competitive market if the organization applies the right strategies then profits can be increased.

Change in the Movie Rental Industry

The overall concept of movie rentals has drastically changed with the development of internet technology. Previously we used to get our movies from physical stores but today millions of people subscribe to websites such as Netflix in order to rent DVDs and watch movies. Netflix has also given significant customer facilities. In the near future customers are expected to switch completely to live streaming and online video libraries while paying a small amount as rent. 

Driving Forces of Change

Following are the driving forces of change (Peteraf):

The long-term growth rate of the Movie Rental Industry: In the last two decades customers using online movie rental services have significantly increased which has actually influenced the long-term growth rate of the entire industry. It is evident that young people specifically from 14-34 years of age are now using live streaming than ever before. This has made the industry more attractive for investors and subsequently, competition has increased. Therefore Netflix is now required to implement new strategies focusing on customer preferences and the use of new technology.

Marketing Innovation: Social media has changed the business concept of marketing since now it is comparatively easier to reach more people with minimum investment. Firms operating in the rental movie industry are increasing their scope of marketing from national to international level while also augmenting profits.

Changing lifestyles: Globalization has impacted the lifestyle of people to a greater extent. It is also eliminating the idea of individual cultures and entertainment preferences. Thus the movie rental companies are offering their services to a wide range of customers due to similar lifestyles.

Future Movie Rental Industry

The future movie rental industry would be completely based upon online streaming. This would be inexpensive and easily available to people all over the world. However, this will increase rivalry among competitors and it would be difficult to make profits. Customers would prefer monthly or yearly subscriptions rather than paying rent for DVDs. Subsequently, companies such as Netflix would need to increase their customer facilitation by providing them better packages and movie options. 

Key Success Factors

Following are the keys to competing successfully in the future movie rental industry (Peteraf):

Expertise in Technology: As discussed previously the future movie rental industry would be actually driven by live streaming and online video libraries, therefore, it is important for organizations such as Netflix to gain a competitive edge in technology.

Branding: Competition in the market is expected to grow constantly due to low barriers to entry and inexpensive setup costs. Firms are needed to implement higher brand-building skills which will also play a significant role in increasing customer loyalty while decreasing their bargaining power.

High Capacity Utilization: Once the competitive edge in technology is acquired then the movie rental companies are required to utilize their capacity to the maximum extent. This will actually be implemented through offering greater services and facilities to the customers.

Strategic Changes made by Netflix

In July 2011, Netflix made a significant strategic change that negatively impacted the overall organization through decreasing its profits and stock prices. Initially, customers were paying $9.99 per month and in return, they had unlimited access to DVDs and online streaming. However, Netflix decided to separate the two services and consequently, customers were required to pay 60% more on subscribing for DVDs and streaming individually. Later it was revealed that DVD rental services will be provided by another website called Qwikster but customers were not ready to pay additional subscription charges for both the services.