Netflix Case Analysis

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EMS Consulting
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Strategic Plan
Three-Year Plan: Staying Competitive in a Dynamic Market

Emilee Anderson, Morgan Hall, Vincent Nelson
GBA 490 – 003
Dr. Ron Dulek
February 28, 2013
Table of Contents
Executive Summary ……………………………………………………………………………. 3

Issues and Recommendations …………………………………………………………………. 3

Industry Overview ……………………………………………………………………………... 5

Company Overview ……………………………………………………………………………. 6

Exhibit 1 – Five Forces Model of Competition ……………………………………………….. 8

Exhibit 2 – Driving Forces …………………………………………………………………… 10

Exhibit 3 – Key Success Factors ……………………………………………………………... 11

Exhibit 4 – Financial Data ……………………………………………………………………. 12

Exhibit 5 – SWOT Analysis ………………………………………………………………….. 14

Sources ………………………………………………………………………………………… 15

Executive Summary
This report analyzes the strategic and financial performance of Netflix in the movie and video stores industry. Through an examination of the video retailing industry’s five forces model, driving forces, key success factors, financial statements, and SWOT analysis, we have been able to clearly articulate Netflix’s position in the competitive market and develop recommendations for the foreseeable future.

The movie and video industry is competitive and currently going through a time a change. The process of going to a brick and mortar movie rental store is outdated and the future is in Internet streaming. Netflix has been at the forefront of this industry for years and has caused many companies economic struggles; however, Netflix must not expect to maintain this position without increasing efforts. To gain advantages against their competitors, Netflix must expand their customer base internationally, develop a customer loyalty program, and adapt a strategy to obtain and offer new release in a timely manner. The ultimate goal of this report is to find key strategic points that Netflix can exploit and expand upon to remain as the world’s leading Internet entertainment subscription service. Issues and Recommendations

A prominent issue for Netflix is that their customer base (at the time this case was written) is limited to North America. There is a huge market outside the United States that Netflix cannot afford to miss. Over 95% of the world population and 80% of the world purchasing power lies outside the US. In the past, foreign infrastructures and limited Internet capabilities limited the expansion of companies like Netflix. However, in recent years, Internet capabilities have developed and increased in quality and reliability—particularly in Europe.

In order to address this issue, we recommend that Netflix expand their customer base internationally. The company should start by expanding slowly but consistently throughout Europe. Netflix could begin the addition by launching in two European countries in the first year. They will continue this expansion steadily throughout the next 3 years. By the end of the 3 years, Netflix will have established a European presence and customer following. These subscriptions will help fund the continuous expansion in different regions of the world. This plan will require a large initial investment. Netflix will need to purchase the licensing content in foreign markets, which can be extremely expensive. Fortunately, by the end of 2009, Netflix reached a company high earning a gross profit of over $591 million. If the trend continues into the next 3 years, Netflix’s profits domestically should continue to increase and thus help fund the growth abroad. Another key issue for Netflix is the increase in cancelled subscriptions. Since 2006 the number of cancellations per year has increased from 3.1 million to 6.4 million. The reason for the rise in cancellations can be attributed to, but is not limited, to the following factors. More competitors in the industry means that Netflix has...
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