Renting and Netflix

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  • Published : February 14, 2011
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Netflix subscribers are within a one day ship point, which means most customers will receive the movies within one day of ordering. Their deep movie selection, personalized recommendations, and quick delivery have made Netflix the top-ranked Internet company in customer satisfaction, which has driven rapid growth in subscribers, revenue and earnings in 2008. The companies first year of operation resulted in a loss; expenses were far greater than revenue and it was clearly time for change. Following the first year’s dismal financial results, with their knowledge of the video rental business and it shortcomings Netflix decided to change its business model. The traditional video rental business was based on the customer selecting videos to rent, for a predetermined period of time, and paying a set rental fee for each of the videos rented. This model inherently created late fees because customers either forgot to return the videos or they became too busy and didn’t have time to return them. Late fees are an additional revenue stream for the rental companies but it was a point of aggravation for the customers. In this article, Netflix’s business strategy is to achieve a sustainable competitive advantage over competitors such as Blockbuster and other movie rental companies. Netflix uses a broad differentiation strategy which maintains a presence in both segments of the market. Their competitive advantage is gained by distinguishing their product with an excellent design, high awareness, and easy accessibility. In an industry that vastly changing, Netflix must continually revise their design and range of movies and TV programs offered to their customers. This is necessary due to continuous technology changes and new development as well as other competitors entering the marketplace, and the altered customer’s preference. Netflix was able to utilize technology, more specifically the internet, to allow customers to browse thousands of DVDs and video games online, or...
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