Management: Netflix - Assignment Example

Management: Netflix The five forces of competition analysis in the Movie Rental Industry are (Peteraf, 3-7); 1. The bargaining power of the buyer, 2. The bargaining power of the seller, 3. Substitute products from other firms, 4. New entrants, and 5. The competition, to attract customers that differentiate the competing sellers in the industry. Key: X-axis- forces of competition analysis as numbered above Y-axis- ratings; Strong (3); Medium (2); Weak (1) The buyer bargaining power is the weakest competitive force in the movie rental industry. The strength of this competitive force depends on whether the buyers have adequate bargaining leverage to get favorable terms from the suppliers (price concessions). In addition, the price sensitivity of the buyers is imperative in determining their bargaining power. The number of buyers available in the industry must be sufficient to make their bargaining power a significant competitive force in the movie rental industry. The supplier bargaining power is an average-sized competitive force within the movie rental industry. The force is only significant when certain suppliers within the industry can differentiate their products to improve the quality of the industry’s products. However, the supplier bargaining power can influence the industry since not all suppliers possess all the movies available in the movie rental industry. The substitute products from other firms are another average-sized competitive force in the movie rental industry. Its significance is influenced by; Whether there are readily available substitutes from other firms outside the industry, Whether the buyers have a high preference for other options, Whether the costs of switching to the substitutes are affordable. The existing customers within the movie rental industry will evaluate the factors above to decide whether the substitute products can satisfy their needs. Potential new entrants pose a strong competitive force within the movie rental industry. The dynamic nature of markets makes it easy for emerging firms to penetrate the market to fill any identified gaps within the industry. Existing firms do not have any control over the changing markets. New entrants increase the competitive forces within the industry. Similar firms in the industry compete on the basis of ‘business rivalry’ among themselves. The strength to attract customers among multiple sellers in the industry is the strongest competitive force. Customers are satisfied by the product that satisfy their needs, and maximizes their utility. Movie libraries compete to attract customers with the aim of maximizing revenue. The firm with the largest customer base becomes the most preferred firm among the existing and prospective customers. Summary of the Five forces Model From the five forces analysis; It is evident that the customers and sellers have a high bargaining power. Both the buyers and sellers place a high influence in the industry to improve the operations of the market. Emerging firms and firms in other industries are constantly trying to enter into the movie rental industry or trying to win buyers over to substitute products respectively. The competition to attract customers between Netflix and its competitors is a clear indication that the movie rental industry is profitable. The Movie Rental Industry Changing There are numerous changes about where and how movie rentals can be sourced. Movie rentals can be obtained from cable, fiber-optic, and satellite television providers. Consumers can connect their television sets to the internet to stream movies from online providers. Consumers are at liberty to obtain movie DVDs by; Viewing movies on cable channels, Watch movies through a pay-per-view system, Buy movies from online retailers; for example Amazon.com, Rent movies from online movie rentals (such as Netflix) or local retail stores (such as Blockbuster Express), and Watch movies through user interface applications installed on the Smartphone. Driving Forces for Change Emerging internet applications and capabilities The internet has proven to be limitless within the movie rental industry. Advancements in technology have forced Netflix, Hulu Plus, and Amazon Prime Instant Video to resolve to online streaming as opposed to the traditional pay-per-view rentals. The gradual transition from pay-per-view and Video on Demand (VOD) rentals to unlimited internet streaming is a driving force in the movie rental industry. New firms and existing firms entering and exiting the market respectively The dynamic nature of the movie rental industry is attributable to the competitive intensity inherent in that industry. Rivalry among firms in the same industry drive changes within the industry. For example, Blockbuster, in an attempt to survive, launched numerous strategies which were all in vain. DISH Network emerged and took over Blockbuster’s operations. Movie Gallery also exited the industry after declaring that it was bankrupt. Such examples indicate how entry and exit of firms from the market is a significant driving force of change. Enhancing customer preferences for differentiated commodities Changes in lifestyle and attitudes among consumers are a significant aspect of the changing consumer preferences for differentiated products (Peteraf, 3-19). Consumers aim at satisfying their needs and maximizing their utility. Firms will continuously improve their operations to meet the emerging consumer needs. If the customers’ preferences are not met, they seek alternatives in other firms. For example, Local Brick-and-Mortar stores were on the brink of closure when a significant portion of their customers sought to rent movies at Redbox or to utilize the unlimited internet streaming services. The shift was in search of better products from other firms within the industry. The Future for Movie Rental Industry The streaming option is set to take over the movie rental industry. The unlimited streaming services have proved to be convenient and cheaper in the long-run. Advancements in technology will propel a shift from the physical transaction to the online transaction of movie rentals. Online streaming will lead to the problem of piracy; customers will turn to the illegal software used to share files. Increased piracy levels will reduce the level of competition among firms. Low competitive forces within the industry will result in reduced sales; hence low profits. Key Success Factors Expertise in a particular technology The movie industry is gradually shifting from The DVD-by-Mail approach to the Streaming Option. The firms would need to mitigate issues concerning piracy. They will need to establish software that would block the illegal file-sharing software. Firms will be successful if they are can adopt the necessary technology to attain high capacity utilization (Peteraf, 3-23). Convenient retail location It is evident that physical movie rental stores are no longer efficient (Peteraf, 3-23). Customers are turning to online platforms to buy or rent movies. Business analysts argue that a business’s location is imperative for efficient operations. Movie rental firms will need to adopt online platforms as new retail locations to improve their operations and achieve success. A network of wholesalers Product differentiation is attributable to a strong network of wholesale distributors (Peteraf, 3-23). Movie retailers cannot be independent of the wholesalers. The wholesale distributors contain sufficient knowledge about the trends and preferences within the movie rental industry. Movie vendors ought to maintain an integrated network with the wholesale distributors to achieve success. Netflix Strategic Change Netflix adopted a series of changes to separate the unlimited DVDs received by customers from the unlimited streaming. It implemented a 60% increase for all consumers paying $9.99 per month. The consumers were limited to either receiving unlimited DVDs (at $7.99) every month or watching unlimited movies online (at $7.99). Those who wished to have access to both the DVD option and the unlimited streaming option had to pay $15.98. The customers were angry with the strategy adopted by Netflix. The company’s stock price deteriorated to $210-$220 per share. The drop in stock price was attributable to an outflow of customers and the exit of Starz; which removed its content from its library of offerings. Reference Peteraf, Gamble, T.. Essentials Of Strategic Management. 3rd ed. New York: McGraw- Hill/Irwin, 2013. Print. (Chapter 3) Read More