Netflix case study essays

Nevertheless , Netflix happens to be known as a speedily evolving firm that is adapting to the changing market quickly. In mid-year, Netflix announced that it is going to separate the online internet streaming and DVD-by mail services. Following the price experienced risen and customers were unhappy, Hastings came out and clarified that there probably would not be a value increase.

People still need to go to a separate and in another way named web page for the DVD by simply mail choice.

Netflix Case Study

Netflix really wants to create a strategy to build a continually growing subscriber base, consisting of providing the subscribers using a comprehensive collection of DVD headings and building and retaining mutually helpful relationships with entertainment video providers to obtain new content material.

Spending aggressively on marketing to attract subscribers and build common awareness of the Netflix manufacturer and assistance was also a part of the large strategy. Netflix wants to offer subscribers to choose watching internet streaming content or perhaps receiving quickly delivered DVDs by mail, but likewise would rather encourage rapid change of clients to streaming delivery instead of mail delivery.

His vision to get Netflix included becoming the best global entertainment distribution assistance, licensing entertainment content all over the world, creating markets that are attainable to filmmakers, and helping content designers around the world to get a global market. The exterior environment was at a substantial way responsible for the difficulties experienced by simply Netflix, issues that could have been far less dramatic had the company considered a few significant steps in the implementation of its recommended changes.

First, Netflix got no control of the economic conditions in the general environment in which the organization operated. When ever Starz suggested a dramatic increase intended for Netflix to resume its permit with Starz, Netflix got three choices: discontinue going around Starz goods, pay the exorbitant license renewal cost, or enhance prices incurred to customers to cover the increased costs. Paying the Netflix Case Study HISTORY Since releasing online local rental services it happened in , Netflix's effective strategy and business model include helped the corporation to develop into a planet's largest on the net entertainment subscription service and alter the way persons used to rent movies and watch TV shows.

GOAL Netflix really wants to create a strategy to build a continually growing subscriber base, consisting of providing the subscribers using a comprehensive collection of DVD headings and building and retaining mutually helpful relationships with entertainment video providers to obtain new content material.

Referrals: Thompson, A. However, a harmful news article delayed this offering. In cook sold a one-third stake in the company to a group of investors. In conclusion, Cook was forced to turn over future control of the company, and eventually left the company. The five forces model is a tool used to diagnose the competitive pressure of the industry. From these five different areas of the market, this model evaluates the power and significance of each pressure.

The strongest of the five forces comes from rivalry among competing sellers. Firms will use any resource or weapon available to gain a better position in the market. Many marketing experts say that rivalry refers to the jockeying of market share by firms. There are two main types of players in the video rental industry: Traditional renters, such as Blockbuster, who operate physical store locations, and mail-order renters such as Netflix.

Competition for market share is brutal for the traditional renter. As this type of renter, Blockbuster has positioned itself with a profound fixed cost communications venture in retail store locations. Due to this high fixed cost, by spreading the cost over many rentals will be the only way Blockbuster can lower its average cost per item. As in any industry, if competition takes market share away from a company it is possible for the cost to increase. Blockbuster will eventually find itself competitively disadvantaged if this were to happen.

Therefore, Blockbuster fiercely competes to maintain its market share. This can be seen via several recent Blockbuster promotions, most of which were aimed at the competition from Netflix. Tactics such as the Blockbuster game or movie pass, which is limitless game or movie rentals for a flat per month fee, were designed to come from the loss of market share. In order for Blockbuster to remain cost competitive overall, Blockbuster will regain some market share through these passes, even though they do not generate as much revenue as per rental fee.

Mail order firms such as Netflix have a different cost structure in contrast to the traditional renter. These fixed costs in total are far lower than the fixed costs a chain such as Blockbuster acquires. In isolation, the fixed cost per rental element for Netflix is lower, and Netflix can reach a competitive average cost at much lower rental amount. This allows them to offer flat fee rentals, while maintaining a lucrative margin.


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In order to steer clear of rising cost average costs, Netflix may not need market share as desperately as Blockbuster. However, Blockbuster will be placed at a price disadvantage if Netflix recognizes that it can steal enough market share away from them. Thus, this leads to intense competition and firm rivalry as well. Because the industry is stagnant, there are many other factors influencing firm rivalry in the video rental industry.

The only real alternative for growth is to increase market share, since the size of the market is not expanding. This obviously intensifies competition. A rental from Blockbuster is exactly the same as a rental from Hollywood video or Netflix. There are little or no switching costs for consumers to move between firms. This strengthens price competition for consumers to gain market share. Finally, there are strong exit barriers for companies such as Blockbuster.

As a result, Blockbuster will continue to match prices with Netflix or others as it struggles to survive, increasing the competition even more. This would include the relatively large economies of scale required to operate retail locations which did not operate at a cost disadvantage relative to Blockbuster. Another entry barrier was the high brand loyalty enjoyed by Blockbuster, which was the place to go for movie rentals. Lastly, new firms would also face entry barriers in the form of needing to generate sufficient volume in order to gain access to revenue sharing agreements with the studios similar to those which blockbuster had in place.

With the evolution of the internet, all of these factors changed. However, the retail location entry barrier disappeared as technology allowed companies such as Netflix to reach a nationwide audience without a physical appearance. Blockbuster had alienated many of its customers by not keeping enough copies of popular movies in stock, among other reasons mentioned prior.

Therefore, the brand loyalty barrier was overcome mostly by chance.

The barrier of needed to have enough volume to negotiate profit sharing agreements with studios simply became debatable. This meant that Netflix did not have to negotiate revenue sharing like Blockbuster did in the days. As a result, competition has amplified further because there are now few entry barriers in this industry.

Video rentals are bountiful with substitute products. This includes items such as pay-per-view, VOD, and streaming on-line videos. As these are all feasible alternatives, the threat of substitutes plays the role of yet another intensifier in delivering a nearly identical product. An input such as games and DVDS is nearly identical for all suppliers.

As mentioned above, there is a wide availability presence of substitutes and also virtually no ability to price discriminate. These factors erode the supplier power while at the same time intensifying the position of buyers.

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Netflix case study analysis: Essay sample

Therefore, the dominant trend in the future will result in intense competition with falling prices because when all five forces are combined it will be apparent that firms will have a strong desire to compete on price within the video rental industry. It is important to analyze potential profitability with a firm using a SWOT analysis.

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First, Blockbuster will be analyzed internally and externally followed by strategic recommendations. Strengths of a company internally are very important when analyzing growth and potential profitability of a company in a given industry. Blockbuster has roughly 8, stores worldwide.


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Therefore, Blockbuster products have a huge distribution channel relative to all these locations. This in turn puts Blockbuster is a good position for distribution and access to the world. Over 2, store locations are outside stores. This distribution available through Blockbuster also increases their bargaining power with studios.

With the presence of movie stores, there is an added convenience for their mail-order and internet customers. Customers are able to return videos and rent new ones by mail and any store location.

Netflix Case Study Analysis

This requirement results in a valuable database that may be used for tracking who is renting and what they want to see or play. In turn, this allows Blockbuster to custom fit store inventories to the members each store serves. This enables Blockbuster to implement more effective marketing to its customers with such a strong database.

All these locations have helped make the Blockbuster brand identical with movie and game rentals. Therefore, Blockbuster has various strengths including a strong brand loyalty with existing customers and still being the face of movie and game rentals.