Company Background
History
Founded in 1997, the Netflix Company has grown and is currently well placed in the movie rental industry of America and the rest of the world. The company operates in the entertainment industry and offers products such as video on demand and media streaming. Besides, the company offers services such as television and film production in addition to film distribution.
Description of Main Competitors
The main competitors of the Netflix Company are the Wal-Mart, Blockbuster Video, Amazon, Redbox, CuriosityStream, and Hulu Plus, among others spread across the globe.
Current Events
In the year 2016, the company expanded to all countries across the globe except in Syria, China, Ukraine, and North Korea because of security concerns and restrictive political regimes. In the same year, the company expanded its interface to accommodate 18 languages.
Current Successes in Media
Netflix has come up with the fastest streaming services that have become a hit among film lovers. The company’s streaming interface is one of the easiest to use and comes with multiple user options. Besides, the expansion of film production has increased the market catchment for the company.
Current Failures in Media
Despite having been in the market for the last 19 years, Netflix cannot effectively balance the price wars with other competitors. Besides, the company has faced several legal suits for possible copyright infringement (Weinstein 28). In addition, the company has faced the challenge of handling controversy in some of its movies and television programs.
Analysis
Core Competence
Tangible and Intangible Resources
The tangible resources of Netflix are sustainable profitability, diversification into different markets, and proactive service delivery orientation. These resources help to create a competitive advantage that the company needs to outperform its rivals. Using this analogy, the main sources of competitive advantage for Netflix come from its intangible assets such as quality customer service, brand reputation, and intellectual property that are used to leverage for better market positioning (Stokes 56). Some of these intangible assets are difficult to replicate, thus unique to Netflix. Furthermore, some of them are intertwined and interdependent. For example, the company’s reputation for excellent customer service has become the ultimate image for Netflix across the globe.
Organizational Capabilities
Netflix’s strategic cost management is based on the principle of the low-cost strategy. This principle involves providing clear and consistent performance objectives, facilitating excellence, and the reduction of the complexity of the organization. Through the first strategy, the company ensures clear and aligned expectations and targets for its film and streaming services (Cheverton 19). Through the facilitation of excellence, Netflix now does not rely on performance improvement that is determined by the paradigm of conducting simple caparisons between the past and current performance.
Competitive Advantage
Internal
The valuable elements of Netflix’s business approach are diverse products, competitive pricing, constant innovation, and a simple business model. With diverse products, Netflix has more than ten products and services it offers to clients. The company offers some of the most competitive pricing for its products, especially under the streaming line. At present, Netflix has invested heavily in its research and development department, which has ensured that the company leads others in the creation of the latest technology-based products (Bowden 62). Lastly, the kiosk model of doing business has expanded the company’s market to almost 99% of countries in the world.
The unique streaming service that can be customized by a client has become the selling point of Netflix. Besides, the integration of an open online platform has given the company an edge in self-advertisement to reach a bigger market. Since the company has renovated the approach towards offering entertainment services, the half-price rental slogan is unique to Netflix. Finally, the ability to constantly reinvent has kept Netflix afloat in a competitive market that is often associated with high technology obsoleteness (Kotler and Keller 86).
The kiosk business model is almost impossible to imitate since it can be customized to the language of the user, unlike other models used by competitors. The existence of more than eighteen language interfaces gives Netflix an edge over other competitors. Besides, the Netflix button in most of the current remote controls allows users to switch off lights when integrated into the light system in smart homes as presented in the picture below:
It is almost impossible to substitute the smart button that can be programmed and customized by a user to control most of the activities in smart homes. Besides, Netflix’s streaming service popularly referred to as the video on demand allows users to stream films in the company’s website to computers, tablets, and other compatible devices at less than a dollar per hour. Lastly, the company provides unlimited streaming to users who have subscribed to monthly or annual Netflix product packages (Bowden 64). This is a competitive pricing strategy that customers might find very difficult to substitute for other products that are restricted.
External
Porter’s Five Forces
Threats of New Entrance
The threat of new entrants in the movie rental business is low because the business requires a large amount of capital investment. Besides, the business requires complex logistics, especially when targeting the global market as is the case with Netflix. In addition, obtaining business permit takes a lot of time and resources due to complexities in different cultures (Kotler and Keller 41). Thus, the cost of running a movie rental business is quite high and discourages potential new entrants because the new company will have to compete with other well established businesses such as iTunes, VOD, Redbox, and Blockbusters, and Netflix.
Bargaining Power of Buyers
The second risk for the Netflix’s business environment is the threat of bargaining power of buyers. There are different perfect substitute products that buyers can access from different companies. Besides, the different companies offer various pricing packages that buyers can choose from. In addition, the buyers are well informed and negative experience or perception from social media has the potential of instigating a massive walkout or product rejection (Stokes 24). The threat of bargaining power of buyers is low because the companies in the entertainment industry exercise same pricing strategy. This enables them to sell their products at different prices to different customers.
Bargaining Power of Suppliers
The third risk is the threat to the bargaining power of suppliers within the entertainment industry. For instance, there are different clusters of suppliers across the globe that has common interest to control the market. Besides, each market has a set of cultural orientations that can only be managed by a supplier from that market. In addition, the cost of managing distribution network might not be sustainable if done by a company as opposed to the suppliers (Almana and Mirza 25). The threat of the bargaining power of suppliers is considered to be extremely high. This reduces competition from the suppliers’ point of view, thus increasing the threat of bargaining power of the suppliers. However, the impact of this threat is very low because the industry has unlimited opportunity for growth.
The Threat of Substitutes
The switching cost between various products is very low on the side of the customer since most packages are below $50. Besides, each day, new and more interesting products are finding their way into the market. Moreover, the factor that drives change in the movie rental business is the constantly changing technology, which might render previous products obsolete. This implies that customers can easily change products and service providers at a low cost (Stokes 15). Therefore, the impact of substitute is very high, especially when a company cannot constantly reinvent itself product development of more interesting products.
Intensity of Rivalry among Competitors
There are recent changes and improvements in video streaming technology. Thus, the competitive forces and the constantly changing technology are unfavorable for the movie rental business and are likely to remain the same way in the coming years because online streaming is expected to further consumer market share. The giant companies in the industry are always scheming new price wars and market penetration. In addition, positive results from series of boardroom meetings on acquisitions and mergers among competitors might reduce market share of Netflix (Bowden 69). The threat from intensity of rivalry is high as its impact since reduced market share results in losses.
SWOT Analysis
Strengths
The majority of Netflix’s competitors rely on local users in the US. This company has an advantage because it has created consumer awareness through its global presence. Besides, the business charges affordable fees for its different products and services. In addition, the company has low overhead costs due to its online business platform.
Weaknesses
The catchment area for Netflix is very wide and cuts across different cultures. Thus it is very difficult to create a product that will appeal to everyone. Besides, competition from established entertainment companies may make it difficult to win clients who have established loyalty to such entities offering the same streaming services.
Threats
The entertainment products and services offered by Netflix are very sensitive to changes in client perception and preferences. For instance, a bad report or an unfortunately incident may alter the perception of its clients. Thus, the business must create a waterproof public relations exercise to survive in the entertainment industry. Besides, reduction of prices by competitor may jeopardize Netflix’s survival in the long run.
Opportunities
With a typical well organized commodity pool consisting of different products and services, Netflix is geared to quickly increase its market share because the beneficial interests can be distributed across the commodity users. Netflix should diversify its products and explore competitive pricing. The company should focus on producing and selling products that have not reached the maturity stage. Some of the products it may consider are VOD and Blue–Ray.
Diversifications: Related and Unrelated
In order to remain afloat, Netflix Company should modify the current kiosk model as part of its product brands in order to retain its customers that would be affected by the 28-days delay period before delivery of new films. Reflectively, the kiosk model may facilitate timely distribution of the films to clients and increase the returns since the aspect of convenience will not be compromised (Stokes 43). Besides, unlike its competitors, the company has better distribution network that might facilitate implementation of the kiosk model.
Works Cited
Almana, Amal, and Ailsa Mirza. “The Impact of Electronic Word of Mouth on Consumers’ Purchasing Decision.” International Journal of computer applications, vol. 82, no. 9, 2013, pp. 23-30.
Bowden, John. “The Process of Customer Engagement: A Conceptual Framework.” Journal of Marketing Theory & Practice, vol. 17, no. 1, 2014, pp. 63-74.
Cheverton, Philip. Key Marketing Skills: Strategies, Tools, and Techniques For Marketing Success. Kogan Page, 2014.
Kotler, Philip, and Kevin Keller. Marketing Management. Pearson Prentice Hall, 2013.
Stokes, Raymond. eMarketing: The Essential Guide to Digital Marketing. Quirk eMarketing Ltd, 2014.
Weinstein, Art. Handbook of Market Segmentation: Strategic Targeting for Business and Technology Firms. Routledge, 2013.