Netflix Case Study 5 Essay Example

Netflix Case Study 5 Essay Example Netflix Case Study 5 Essay Netflix Case Study 5 Essay Netflix is a subscription based video rental company and has become the frontrunner in the video rental industry since it was founded in 1997 and the launching their online segment in 1999. The industry as a whole has only a few competitors with a handful dominating the market (Netflix, Red Box, Cable TV Video on Demand and Pay-Per-View). By 2010 Netflix had evolved into the world’s largest subscription service for DVD rentals by mail and streaming both movies and TV episodes over the internet; its subscription base had grown to 15 million. By the second quarter of 2010 revenues totaled 519. 8 million which represents a 27 percent year-over-year growth from the second quarter of 2009. Further analysis showed the company’s net income had increased by 94. 2 million from 2004 to 2009 which represents an annual growth rate of almost 40 percent. Netflix profits were soaring at a time when the â€Å"more traditional† video industry was struggling and suffering severe losses. How was it that Netflix was experiencing record breaking profits and growth when competitors like Blockbuster were crashing? In its infancy Netflix developed a competitive advantage by being one of the first in the video rental industry to realize that technology was changing, the world was changing and with that the wants and needs of the people were changing. To address these changes they created a convenient, low cost, flat rate product that allowed people to rent an unlimited amount of movies from the comfort of their own home. With competitors quickly following suit Netflix had to foster innovative ways to preserve and expand their subscription base and to maintain their competitive advantage. It was always the goal of Netflix founder and CEO, Mike Hastings to outcompete the competition with a later goal to become the world’s best internet movie service; that said it is discernible that he had a strategy to sustain their competitive advantage. Aside from the low cost flat rate subscription plan the Netflix strategy is to provide an excellent customer experience/value. Netflix leverages this experience/value by providing a comprehensive library of videos with convenient and easy to use software selection; Netflix later utilizes these to further strengthen their competitive advantage by building on them. Netflix is cognizant of the fact that if a customer perceives the selection to be poor or too small they may opt to try the competition or leave the market entirely. In an added effort to provide a good experience/value and retain their customers Netflix attempts to predict what types of videos their customers prefer to watch. They do this by referring to the massive amount of customer data that is generated by their library and software, and orders that are placed. Each time a customer places an order the information is stored, complied and compared to other customer’s accounts that viewed the same or similar movies; recommendations for future viewings are then made based on the comparisons. This facilitates customer retention, by showing they have a large selection of videos that is to the customer’s liking at a low cost (great experience at a low cost = great value). Their strategy goes well beyond the retention of current customers Netflix has an aggressive marketing and advertising program in place using the internet, radio, direct mail, and third party promotions to acquire new customers. Strategies include, but are not limited to free trials and placing ads in locations when internet searches are done on the competition. The Netflix strategy has been both successful and lucrative; they have distinctively positioned themselves by providing subscription services that other providers do not, they have a vast library, many video/movie agreements, large data base for recommendations and software, which would be costly for a competitor or new entrant to duplicate. Netflix still sees the mail order DVD market as feasible for the near future, but realizes that advances in technology will drive industry change and will eventually drive down the demand for this segment of the company. One recommendation that I would make is for Netflix to continue the strategy for transitioning from the mail order segment to the internet/video on demand segment. They should still continue the mail segment for markets that don’t rely on the internet, but should focus on other ways to make the experience/value better than the competition to help offset shrinking advantage of the mail delivery method. This could be accomplished by, offering video game rentals, health or educational options or lowering subscription costs. Another option or recommendation to lowering subscriptions and retaining customers would be to offer incentives for customers that sign up for longer terms. Signing up for three to six months at time would deter the number of cancellations and still not burden customers with a long term contract of one/plus years. The last recommendation would be to continue developing relationships with technology leaders such as Microsoft, Sony, and Apple (as well as others). It is a technology driven market and they need to be certain they have agreements in place and are always current with new technology. As technology continues to advance toward video on demand and the desire for instant delivery so will the trials in the marketplace, and they will need to be ready. Overall the Netflix strategy has been incredibly successful, and I believe as long as they continue to give their customers a great experience/value, stay current with technology they will continue to be an industry leader.