Past, Present and Future
Q1. What are Netflix’s sources of competitive advantage?
Netflix commands a huge geographical reach because of a single point access system – the internet website! Hence in today’s tech savvy world, the company can reach anyone with access to an internet connection. Secondly, Netflix offers an unmatched variety of movies since it overcomes the logistical constraints of a physical store and leverages its long tail advantage. More significantly, Netflix being the pioneer in the field of online movie rental has made good measure of being the early mover! It has developed a self-sustaining customer referral system called ‘Cinematch’ which records customer feedback and presents a customer with new movie suggestions. With over a million reviews being obtained each day, the database of feedbacks is linearly increasing which in effect keeps adding consistent value to the system. The chances of a customer obtaining a good quality feedback from a competitor with a minimal database are relatively low. This desists a customer from leaving Netflix in the first place! Moreover, Netflix ensures a consistently good customer service by maintaining an accurate and user friendly website which works as the face of the company! Netflix has achieved distinction in the market by running an efficient distribution network having low turnaround time and by delivering good quality physically inspected DVD’s at the doorstep of the customer!
Q2. Does Netflix have a strong brand? Offer evidence demonstrating Scale advantages are advantages related to size. In what key ways is Netflix “bigger” than the two major competitors who tried to enter the DVD-by-mail market? Netflix has developed a strong brand for itself by ensuring a consistently positive customer experience and this is reflected in its high ranking in customer surveys. By using the powerful tool of the ‘single’ website, instead of the ‘n number’ of physical stores, Netflix has enveloped the movie viewers in its grasp like a spider’s web. Customer experience has been further enhanced by the online availability of an almost infinite variety of movies which is beyond the realistic dreams of a physical store of Blockbuster or Wal-Mart. Even with its ‘string’ of stores spread across America, Blockbuster could not reach every American at his door. On the contrary, Netflix excelled in efficient service. It brought videos to one’s doorstep thereby removing the inconvenience of requiring one to travel to and fro from the video store. Netflix’s large network of distribution centers located strategically adjacent to U.S. postal service centers ensured a two day delivery time to majority of its customers. Moreover, the ease with which one could locate their choice of movie online with the help of the online peer reviewed feedback was not possible at a retail store where a clueless teenage salesman wasn’t equipped enough to guide one to a good choice!  Moreover, the rental costs of approximately 7800 stores of blockbuster did little to help the company offer competitive pricing.
Netflix has achieved economies of scale by continuously increasing its customer base with marginal increases in costs of production. Their vast market reach and dominance has in turn helped Netflix lower DVD rental prices and focus more on customer acquisition. As a result, the Netflix brand has come to be associated with greatest variety, highly efficient service, and low cost! It is a mammoth task in today’s world to achieve dominance in quality, reliability and price, but Netflix has efficiently achieved that!
Q3. What is the long tail? How “long” is the Netflix tail compared to traditional video stores? The long ‘tail’ is the concept used for defining a huge selection of less demanded movies that are not found in traditional video stores. Video stores have a narrow but tall ‘body’, i.e. they keep a huge stock of movies that are in high demand! They maintain a...