Organisational Overview and Environmental Scan of Netflix - Case Study Example

REPORT ON THE MARKETING AUDIT OF NETFLIX Student’s name Course title Instructor’s name Date of submission Executive summary The success of companies such as Netflix lies in definition and implementation of a number of strategies that ensure success despite the competitive global markets. The strategies aim at putting the company in a prime position to enjoy unprecedented growth and increase the market share while earning high returns over a given financial period. Among the strategies that firms employ, the marketing strategy serves a significant role in ensuring success in both the short-term and long-term of operations. A marketing audit looks at various aspects of the marketing strategies employed by successful organizations such as Netflix. This paper will attempt to undertake a succinct marketing analysis of Netflix by focusing on various aspects about the company. Specifically, this paper will focus on the organisational overview, environmental scan, customer, competitor and stakeholder analysis, and give recommendations for success in the industry. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Organisational Overview 4 Environmental Scan 5 PESTEL Analysis 6 Political factors 6 Economic factors 6 Social factors 7 Technological factors 8 Porter’s Five Forces Analysis for Netflix 8 Internal Rivalry 8 Substitute products and services 9 Entry of new competitors 9 Bargaining power of consumers 9 Bargaining power of suppliers 10 SWOT Analysis for Netflix 10 Netflix’s strengths 10 Netflix’s weaknesses 11 Netflix’s opportunities 11 Netflix’s threats 11 Customer, Competitor and Stakeholder analysis 12 Target Market Analysis 12 Customer Analysis 12 Competitor Analysis 12 Stakeholder Analysis 13 Conclusions and recommendations for preliminary marketing strategy 13 References 13 Introduction Technological innovations and advancements have revolutionized lives of human beings on a global scale. In addition, technological revolution has caused a shift in the way that businesses operate in the present global marketplace. Companies such as Netflix have modelled their businesses in response to the technological revolution the poses numerous threats and opportunities to business enterprises. Netflix has enjoyed tremendous success over the years providing internet television network services to millions of viewers worldwide. Organisational Overview The company started from humble beginnings in 1997 under the visionary stewardship of Reed Hastings, currently serves as the company’s Chief Executive Officer (CEO), and Marc Randolph by primarily focusing on renting of movies over the internet (Pr.netflix.com, 2015). A look at the company’s online portal fails to reveal a well-defined mission statement for the company. However, the company’ CEO expresses a clear mission for the company: “We promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact” (Profile, 2015). The company’s vision encompasses its objective to develop in the best global brand in the entertainment industry involved in licensing, marketing and assisting content creators to reach global markets. Over time, the company has taken significant strides in its growth agenda and offers a number of product and services offerings. The company still maintains its DVD-by-mail subscription service that it runs in the United States of America (USA). The DVD-by-mail service works hand-in-hand with the Blu-ray discs services that it runs by delivering the products to the subscribers’ homes. In addition, the company boasts of its internet subscription service for movies and TV shows as the leading service provider in the sector. The company has entered into a number of partnerships over the years in order to cement its overall growth strategy focusing on successive innovations. For instance, in 2009 Netflix entered into partnerships with several consumer electronics companies to allow subscribers to stream on PS3, televisions with internet connection capabilities and several internet connected devices (Pr.netflix.com, 2015). In the past five years, the company has managed to diversify its operation and expand into new markets such as Netherland, Austria, France, the United Kingdom, Latin America, Germany, and the Caribbean among others. The company also enjoys a market in Australia, having launched its operations in the country in earlier in the year (Abc.net.au, 2015). Environmental Scan The section will give insights into the company’s internal strengths and weaknesses as well as the external opportunities and strengths. The usage of PEST, Porter’s five forces, and SWOT tools of analysis will be crucial to developing a suitable analysis in this section that gives an environmental overview of Netflix. PESTEL Analysis Netflix faces a number of effects thanks to various political, economic, social and technological factors in the movie rental and internet streaming industry. Any changes in these factors might cause substantial effects on the smooth operation of Netflix in the present business environment (Sadq, 2015). Political factors The movie rentals and online video streaming industry may be influenced by uncertain and changing copyright laws. The company relies on the content developed by various creators and the copyright laws may be strict and require strict adherence. In addition, as the company expands, it is faced by various laws that are irregular from country (Sadq, 2015). Compliance with laws set out in various national and regional jurisdictions would be critical for the successful roll-out and continued operation in existing and new markets. The company may face immense pressure to meet the stipulations of these laws, thus, affecting their service offerings. In addition, licensing, patents and international policies may bring in new perspectives that affect Netflix’s operations (Sadq, 2015). Economic factors The company needs to make use pricing strategies in order to ensure that it maintains the competitive advantage over present and potential rivals in the market (Hitt, Ireland & Hoskisson, 2013). The market that Netflix operates in depends on the disposable income of consumers and clients make purchases mainly based on level of income that they have after paying tax and settling crucial bills. The products and services that Netflix provides serve as entertainment thus they may not give top priority in making budgetary decisions. In addition, a slow economic growth rates and periods of recession would lead to a decline in purchasing power of Netflix’s clients thus impacting the firm’s business. Furthermore, the economic factors include the costs of hiring third party companies to host content for Netflix and the costs associated with obtaining operational licenses (Sadq, 2015). The company also requires large capital in order to finance its growth and expansion activities. Any fluctuations in international currencies may hamper both its growth agenda and its operational activities. The economic factors highlight the trade-off between costs that the company must incur vis-à-vis the economic benefits that they receive. Social factors Netflix depends on the attractiveness of movies distributes and television shows its hosts on its online platforms among various market segments it serves (Sheehy & Foster, 2014). As the population gradually advances into old age, the consumption of entertainment products and services diminishes. In addition, social norms and cultures may influence the amount of consumption of the company’s products by various market segments in the society (Sadq, 2015). For example, ethical and religious factors relating to the internet may hamper or disallow usage of Netflix. As time goes by, the growth and continued usage of Netflix’s products depends on the popularity amongst members of the society. Any negative publicity would dent the popularity leading to a decline in consumption. Technological factors The nature of Netflix internet-based business models relies heavily on the technological development. Therefore, the company is forced to adapt to changes in technology and constant updates are necessary in order to ensure that it stays at par with the present technological instruments available in the market (Sheehy & Foster, 2014). The online video streaming market has few barriers to entry translating to constant challenge from new competitors with the latest technological features. The changing technological landscape with regards to internet rates forces companies such as Netflix to continually modernize their operations in order to maintain some competitive edge. For example, integration of HD and 3D video content allows customers to get superior quality streaming (Sadq, 2015). Porter’s Five Forces Analysis for Netflix The Porter’s model gives a perspective into the competitive environment in which any business such as Netflix operates. The model highlight the competitive strengths that Netflix needs to take advantage of and the weaknesses that require gradual improvement. Internal Rivalry The company faces significant competitive actions from rivals in the online video streaming market. The existing competitors include Blockbuster and Amazon thus forcing the company to incur high advertisement costs. The massive advertisement is tailored to ensure that the company markets itself effectively to wade of impact of competition. Sadq (2015) notes that the company spent over $200 million in advertisement expenditure in 2008 leaving it with only about 14% of sales revenue it accumulated. Substitute products and services The switching costs that customers face in the industry are generally low, thus, they can leave at any time of their choice. The dynamic nature of the market means that different and more attractive models of pricing may change the landscape and hand competitors a better chance of success. In addition, cable and satellite companies have developed “on demand” services ensure that their product offerings become lucrative as substitutes to Netflix’s products (Keating, 2012). In addition, some suppliers, such as HBO, tend to offer their contents through alternative distribution channels. The fact that customers have the freedom to subscribe to multiple content providers allowing for easy substitution. Entry of new competitors The company faces constraints in the process of purchasing distribution rights. The company attempts to enter new markets that have established brands thus hampering their desire to achieve a worldwide production serving various customers in different localities (Sheehy & Foster, 2014). However, the established brands such as HBO and BskyB face relatively lower barriers in the market. In addition, consumers may desire to maintain some loyalty for the existing brands that they trust (Keating, 2012). New entrants such as Facebook attempt to take advantage of the large number of users to roll out video streaming services. Bargaining power of consumers As mentioned under the economic factor under the PEST section above, consumers determine the growth of the industry Netflix operates. Periods of economic boom or downturns have varying effects on the level of disposable income available to consumers (Hitt, Ireland & Hoskisson, 2013). Therefore, consumers hold a power on the amount of income that they would be willing to spend on entertainment services provided by Netflix. They are free to channel their income to other uses. Bargaining power of suppliers The nature of Netflix business is such that they rely on the creators of video content (Sheehy & Foster, 2014). The company does not create its own content other than the support service that it offers to various developers. Failure to deliver the content would cripple Netflix’s business. As a result, the suppliers wield a lot of power and they manipulate the company during contract negotiations for rights over the video contents (Amematekpo et. al, 2011). Furthermore, there is a limited number of suppliers with high quality content and there is no alternative to high quality that is necessary for success in the market. Companies such as HBO would prefer to use their channels of distribution rather than sell their rights to Netflix. SWOT Analysis for Netflix Netflix’s strengths The company enjoys the competitive advantage of being a first-mover in the online video streaming industry (Madrigal, 2014). Thus, the company has managed to build a strong brand name over the years and the established brand helps it to market itself to various consumers in the market. Moreover, the company has managed to consolidate a huge customer base and it takes advantage of its market share to generate more revenue for its expansion initiatives (Keating, 2012). The company also enjoys economies of scale allowing it to expand its customer base while maintaining low operation expenditures. The company provides value added services thus increasing the overall worth of the business. Furthermore, Netflix boasts of a large library of video content along with a team of skilled and experienced staff. Netflix’s weaknesses The company has a smaller financial resource base in comparison to other firms such as Blockbuster (Rothaermel, 2012). The company does not offer instant delivery services forcing customers to wait for one to two days. The company has not managed to expand its services to reach more global markets thus hindering its ability to diversify operations. The company depends on technological change and postal services may also cause unnecessary delays in the delivery of DVDs (Keating, 2012). Furthermore, the company does not offer a strong brand loyalty program that can hold customers back. Netflix’s opportunities Current trends indicate that youths are watching less TV in preference for online streaming of video content (MarketingCharts, 2015). As a result, the company has an opportunity for growth by targeting this group of consumers. Increased online streaming in using smartphones and other digital devices. The increased mobile screen serves as an advantage allowing mobile phones users to undertake significant video streaming activities (Digiday, 2014). Digital distribution of video content allows the company to be able to reach more consumers while ensuring high quality. Netflix’s threats The high level of competition in the industry poses significant challenge to the company’s growth agenda (Lussier, 2012). The competitors may come up with new technological innovations in the industry hence affecting Netflix. Technological changes and overall dynamic nature of the video industry, reflecting changeability in the market requiring constant readjustments (Keillor, 2007). The well-established competitors may subject the company to various assaults in a bid to gain bigger market shares. Customer, Competitor and Stakeholder analysis Target Market Analysis The company mainly targets specific parts of the market where it sees opportunity to drive significant sales (Keating, 2012). The company targets specific customer groups. Netflix also targets customers in the market with a focus on the basis of the costs associated with a given product or service. Customer Analysis The company employs a number of mechanisms that ensure that it retains its customer base. Netflix uses retention strategies as a way of connecting with the consumers and availing its diverse product offerings. The company strives to bring movies and various products to the customer (Madrigal, 2014). Netflix mainly targets families with its DVD rentals and also targets the younger segments of the population with the online video streaming capabilities. Competitor Analysis The company identifies the list of its competitors to include Blockbuster, Best Buy, Wal-Mart, Apple, Amazon, Redbox, and Hulu among many others (Lussier, 2012). The rivals offer various products and services covering the general home entertainment industry that has been growing over the years. Netflix maintains its mail-delivery business model along with the online rental model that it offers to online users through subscriptions. The various companies offer stiff competition to Netflix. Stakeholder Analysis The company maintains a functional organizational structure. Such a structure allows the organization to strategically operate with a focus on its core functional departments as opposed to using customer segments as a measure. The CEO oversees the central management of the firms operation to guide the wide base of employees (Thompson & Martin, 2010). The shareholders of the company hold key stakes in the company’s board and they play an oversight role. The suppliers of the company include Warner Bros and HBO, and various partnerships and trade agreements allows the company to get vital contents to provide to its huge customer base. Conclusions and recommendations for preliminary marketing strategy In light of the above discussions, Netflix boasts of a stellar position in the market with potential for growth. The utilization of key strategies would help the company to grow (Thompson & Martin, 2010). The company needs to strive to offer more original contents on its platform. Therefore, the company needs to form strategic partnerships with companies such as BSkyB in the UK in order to offer more benefits to consumers. In addition, the company needs to try hard to gain rights over new content. The utilization of alternative video streaming business models would be beneficial along with offering video games rentals as a new market segment to explore. 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