Netflix Case Analysis

Topics: Renting, Rental shop, Netflix / Pages: 6 (1736 words) / Published: May 1st, 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

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