In the late nineties, successful entrepreneur and CEO Reed Hastings created Netflix, an online video retailer. The concept was designed to offer subscribers an online library of DVDs from which they could rent, for a flat monthly fee, a prescribed number of movies at a time and exchange them at their leisure. Once finished with the DVDs, the customers would return them via the postal service and receive their next batch of selected movies. All this was accomplished with neither late fees nor shipping fees. The primary goal of Netflix was to provide its large and growing subscriber base with a premier, filmed-entertainment service. By the end of 2004, Netflix had 2.6 million subscribers and although it experienced losses in the first few years of operations, it had a 2004 net income of $21 million. For these and other reasons, Netflix was named one of the most successful dot-com ventures to date. Issue
Although the Netflix model proved valuable to its customers and the company was experiencing high profits, there were still numerous questions and concerns that involved the future of Netflix. In 2005, in an attempt to copy the Netflix concept, both Wal-Mart and Blockbuster had moved their DVD rental services online. Considering these were both billion dollar companies, would they have the ability to take over Netflix and its competitive advantage? Netflix’s stock had also lost 78 percent of its value and in 2004 there were talks of a proposed partnership with TiVo that would allow Netflix to upload its movies to its customers via the Internet rather than send them by mail. As it continues to grow and move forward in this fast-paced industry, it has become vital that Netflix quickly addresses these issues and re-evaluates its strategic initiatives in order to account for changes in its aggressive competitors, the market as a whole and the company itself. External Environment
Demographic Segment: 27 percent of Netflix subscribers live in rural areas and therefore do not have access to satellite, cable TV, or video stores. The world’s population is rapidly growing as the millions of baby boomers are fast approaching retirement. There is an extremely large population size in countries such as China, India, and the United States and there exists a diverse ethnic mix in countries such as Canada. Sociocultural Segment: In general, people value speed, convenience, affordable prices, and good customer service. Specifically in this industry, customers value the flat fee model rather than the rental fees and late fees that accompany movie rentals. Customers also place a huge importance on a large selection of movie titles because if they are going to invest in spending the money on a monthly basis, they do not want to be disappointed by not being able to find the movie they are looking for. In other words, consumers need reasons to justify their expenses. Technological Segment: There has been a vast increase in popularity of DVDs at the expense of videocassettes. By the end of 2003, approximately half of all U.S. households owned at least one DVD player. There has also been a decrease of the DVD rental market’s growth and an increase in the online market which has been accomplished through the development of the Internet via which information can be provided easily, quickly, and effectively. The introduction of Video on Demand (VOD) has allowed customers to order movies through their cable services. In addition, Wi-Fi enabled DVD players and game consoles that also function as DVD players are being developed. Specifically at Netflix, there has been the introduction of the software CineMatch which offers customers personalized film recommendations based on previous rental patterns and since linked to inventory, ensures that no out-of-stock films are suggested. Economic Segment: The current economic situation is unstable and people can no longer afford going to the cinema and paying...
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