Netflix Case Analysis

Topics: Renting, Rental shop, Netflix Pages: 6 (1736 words) Published: May 1, 2008
Netflix was the first company to create an online DVD movie rental service. The service has created a new ‘movie’ market niche which has secured them a competitive ‘first-mover’ advantage in this new ‘high-tech’ venture. The popularity of the service has sparked the interest of market competitor Blockbuster who may become a growing threat to Netflix should they enter the online movie rental market (Perreault, 2004).

Netflix was founded by Reed Hastings, Netflix was incorporated on August 29, 1997 and began operations on April 14, 1998. Netflix began operations with an online version of a more traditional pay-per-rental model which included financial penalties for late returns (US$4 per rental plus US$2 in postage). It did not introduce the monthly subscription concept until late 1999 (Rosenberg, 2000). Since then it has built its reputation on its policies of having no due dates, late fees, or per-title rental fees.

Netflix was born as a result of a spontaneous reaction to the traditional movie rental model which included costly and annoying late fees. Hastings tapped into a new, emerging market venture which enabled customers to rent DVD’s online for a monthly fee. By subsequently copying a very simple ‘subscription’ based model, Netflix would grow into an entirely new market concept with unrivalled success. According to Cardy, & Selvarajan having a first-mover advantage, Netflix has identified a niche based on customer needs and responded by utilizing the internet to focus on customer convenience and timely delivery of DVD’s across the US. They have since expanded their facilities throughout the United States and have established themselves as industry leaders. Competitors such as Blockbuster and Hollywood video were relatively slow to respond and were initially unaware of the market share Netflix would capture in the upcoming years. This has given Netflix a sustainable competitive advantage.

StrengthsI believe Netflix entered the market for DVD rentals at a time when there were few other competitors in the market, allowing them to create a new ‘movie’ market niche which has secured them a competitive ‘first-mover’ advantage in this new ‘high-tech’ venture, also establishing their brand name and image for providing a unique service. Netflix are first- movers and were the first to offer DVD rental by mail and this allowed them to offer a greater variety of DVDs to customers as compared to their competitors at the time, as DVDs were relatively new to the market (Murphy, 2008). Combined with its excellent business model, Netflix’s first mover advantage has allowed it to maintain a high relative market share in the online DVD rental industry.

According to the test Netflix’s product offering is built around DVDs rather than videotapes. DVDs are chapter to ship and are steadily replacing videos as the medium of choice for viewing movies. From the very beginning of its entry into the market, Netflix Business model of making partnerships with the movie industry, the electronics industry, and retailers has given them a bigger selection than other video stores The average blockbuster store carries roughly 1,500 movies titles. Netflix, which isn’t limited by physical space, carries more than 75,000 titles including hard-to-find movies, foreign films, documentary and independent films that are usually not carried by other distributors such as Blockbuster Video and Wal-Mart (Coursey, 1998). Foreign films, documentary are particularly successful at attracting customer attention for this market, this selection gives Netflix a competitive advantage over other video stores.

According to their website Netflix has strong partnership arrangement with the U.S. postal service, the movie studio, and several retailers to help drive potential customers to their website. Because of that Netflix’s name was spread widely through promotions with complementary products, such as DVD players and movie websites. According to the text...
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