Netflix: A Case Analysis

Topics: Renting, Rental shop, Vending machine Pages: 12 (2578 words) Published: May 7, 2014

An Overview of Netflix
Netflix offers a variety of product services to its customers. The company offers traditional DVD rental by mail, instant streaming of DVD content through home PCS, and streaming on Netflix-ready devices that could be hooked up to one’s TV. Netflix has a subscription based model, which allows customers to utilize their products/services through a per month fee rather than a pay as you go rate. Although the company offers eight different subscription packages, it derives its largest revenues from its $8.99, $13.99, and $16.99 subscription plans that include unlimited DVDs per month, 1-3 titles out at one time, plus unlimited streaming of online content. The Netflix Strategy

Netflix’s strategy so far has been to focus on not just one or two aspects of their customer base, but to focus themselves in a number of directions in order to build upon and capitalize on a growing subscriber base. Their main strategy has been to build and maintain the most comprehensive selection of DVD titles in the industry, and they have done so by creating mutually beneficial relationships with a number of entertainment video providers. Their second main strategy has been focused on product differentiation- not only how customers receive content and consume it, but also how customers choose what to watch. Netflix’s number one competitive advantage is their unique software that takes what a customer has seen or rated, and based upon that information builds a list of suggested titles similar to ones they have just watched. While other companies like Blockbuster had begun to leak into the rent-by-mail niche category that Netflix had started, no other company had customer profiling software quite like Netflix. U.S. Movie, TV, & Video Game Rental Market (2006-2009)

Consumer Movie Rental Market Revenue ($ million)

2006
2007
2008
2009
In-store Rentals
$7,030
$6,215
$5,674
$5,118
Vending Machine Rentals
79
198
486
917
By Mail Rentals
1,291
1,797
1,949
2,114
VOD (cable, digital, & subscription)
993
1,077
1,365
1,684

Between 2006 and 2009, the film rental market underwent a major shift. The in-store rental market declined by nearly $2 million, while vending machine rentals increased tenfold and by-mail rentals nearly doubled. However, VOD services through cable, digital, and subscription also saw major increases. All of these changes meant companies like Blockbuster and Movie Gallery had to either reorganize and make a complete business model shift- or face bankruptcy. Meanwhile, the increases in by-mail rentals and VOD subscription, two services that Netflix offered, meant that the number of Netflix subscribers more than doubled in that same time frame. Purchase decisions from customers were focused on convenient access, price, variety of DVD offerings, ease of return/return fees. Therefore, the key success factors within the U.S. DVD rental industry were quickly becoming: 1) A variety of distribution channels (mail, online streaming, streaming to TV, vending machine, etc) 2) Superior video libraries (including new releases, classics, hard to find) 3) Little to no fees associated with renting or returning DVDs 4) Ease of use (in terms of returning)

5) A strong network of entertainment video providers, i.e. suppliers Customers like variety; a video rental store that only stocks the newest releases will not appeal to all markets. Increasingly, customers are becoming more nostalgic in their movie preferences, searching for titles long past premiere. Customers have also become increasingly busy, often not having the time to go to a store to pick out a movie or remembering to return their rentals on time. We live in a world of instant gratification, where being able to click a few buttons and watch the latest Jennifer Aniston rom-com or an old cult classic like Rocky Horror is extremely important. Customers also do not like fees. More and more companies today are offering free...
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