Case Study Analysis
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The CEO of Netflix, Reed Hastings had a vision to provide home movie service which would be more enjoyable and satisfying to the customers, as opposed to the traditional rental of home movies. As this idea came in the late nineties, it was something innovative and had great potential. The operational strategy and business model they used had affected the retail video rentals market. In the beginning DVD’s were offered on a fee per use, then in 1999 they implemented monthly subscription services. Their subscribers account for over 44 million up to today.1
Maintaining and ensuring customer loyalty is the key strategy. Netflix was selected as number one online retailer by the FGI research. They achieve this by their vast collection of retables, fast delivery services and the fact they make it incredibly easy to use.
Strategic and Financial Performance
1. Strategic Analysis
Age of consumers- there exist certain governmental limitations for the age appropriateness. Videotape protection act- protects video rental consumers and ensures that no confidential personal information is going to be released. This is a strictly confidential policy among video rental businesses.
Recession- due to economic crisis companies needed to find a way to cut costs. Having movie rentals online can help reduce costs greatly. Costs- movie rentals are done maily online, it reduces the economic cost.
Changes in lifestyle- technology made people lazy. Statistics show that technology demotivates people to leave their houses since they can watch movies, socialize, play games online more then ever. Online streaming trends- people are in constant search of free goods. Looking for cheaper and easy ways to watch the movies they want.
Internet speed- improving over the years and improvement in technology allowed movie rentals online to become incredibly easy to use. Technological improvement- nowdays there exist rental vending machines located all over the town’s places, there is no need to go directly to a movie rental store. In the past this was not possible.
Porter’s Five Forces
Netflix has very high competition, considering that there exsists a large number of movie rental and streaming services on the market. From the time that consumers were buying DVD’s constantly, we came to the time when consumers are streaming movies and TV series on the internet, and they don’t even have to stand up from their chairs, technological capabilities that are evolving have enabled us this opportunity. Competiton is constantly increasing, and the entry barriers to the market are very low. Rivarly among competiton is high, while the consumers switching costs are low, making them switch to another company very easy and at low or no cost. Therefore the possession of unique product differentiation is of uttermost importance to a company. Availability of substitutes for products is very high in number, and those substitutes offer comparable features. When combined with low switching costs, it poses a difficulty for the company. Since buyers of Netflix are definitely internet users, they have availability of information of those substitutes and this goes in favor of their bargaining power which is high. Buyers in the movie rental industry are price sensitive and go for high premium products. Their demand is constantly increasing. The movie rental industry is depending on the number of people which are subscribed to it, and the higher the number, the more competitive prices Netflix is able to offer and observe economies of scale for the distribution of their rentals.
When all of these five forces are put together, a conclusion that can be drawn is that strong forces of competition make it...
References: Shih, Willy C., Stephen P. Kaufman, and David Spinola. "Netflix." Harvard Business School Case 607-138, May 2007. (Revised April 2009.)
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