Netflix Case

Davor Ramesa k0956979 Netflix case Executive summary What is Netflixs g everyplacening body in the on-line word-painting letting foodstuff? What are Netflixs sources of competitive proceeds? Identify the competences key to the success of Netflixs strategy and explain why. Netflix was a late entrant to the characterization rental foodstuff and it was a first mover in the on line delineation rental market. Netflixs strategy in the moving picture rental market is differentiation from traditional movie rental stores.Instead of attracting clients to a sell location, Netflix offered home delivery of videodiscs through the light. wherefore only videodisks? In 1998, roughly available movies were in VHS cassette format however Netflix concentrated on victimization only DVDs beca aim its marketing strategy was to develop cross promotional programs with the manufacturers and sellers of DVD players, providing a source of content for the clients. Also, t here was no competitio n in that niche market and DVDs were crushed and light which made them ameliorate for mail delivery. Netflix had several sources of competitive advantage.For starters, Netflixs website included a search engine that allowed customers to easily sort through its selection by title, actor, etc. employ these search engine customers could easily and quickly find a movie that they would like instead of looking on shelves of a retail store. Netflix was victimization the US Postal Service to deliver DVDs directly to a customers home. It was to a greater extent convenient for customers. They used similar toll to that offered by traditional video stores in the beginning but what gave them the competitive advantage was moving to a subscription prepaid service.And, soon afterwards they offered unlimited rentals to customers because they were targeting a nonher(prenominal) group of customers ones that wanted the convenience of watching a movie at any clock succession and change them unli mited during a month. Netflixs engineers genuine a proprietary testimony system. They support done so because mostly the new movies were being rented and they wanted to balance customers demand. How did this system work? Upon sign language into a new account for the first time, customers took a survey to diagnose their favorite movie genres, as well as rate particular proposition movie titles.This survey gave enough data to Netflixs engineers to build a base and understand part customers preferences. Also, Netflixs sizing and growth rate generated a positive network effect from its adult customer generated rating system. Because it had the largest collection of movie ratings in the world, customers recognized that they were much likely to have their tastes and preferences accurately reflected from Netflixs site. The key to success in Netflixs strategy was hiring Ted Sarandos as chief content office to make out content acquisition.He managed (due to his relation send outs) to negotiate direct revenue sharing agreements with around all the majors studios. So Netflix was able to improve its relationships with its suppliers. The benefit was not just lower acquisition be but the promotion of lesser k straightawayn movies. So, customers had the benefit of large variety of movies. Also, using the proprietary recommendation system and the national inventory Netflix was able to replicate almost perfect inventory. This gave them a serious competitive advantage, since retail stores needed three or five times the copies of a movie to satisfy the same customer demand.Assess Netflixs performance? Use multiple performance measures (strategic and financial). mesa below shows (in 000$) Netflixs performance using 2 financial ratios in year 1998 and 2006. (source Netflix 2006 10-k) As we can see from the table, in year 1998 Netflix had vile performance. We can see that it was losing 16. 84 cat valiums of dollars to subscription (sales= revenue of subscription). N et profit moulding was not any better a -18. 940$ . We can see that their operating(a) profit margin was 0. 69 thousands of dollars and net profit margin was 0,04 thousand of dollars in 2006. Why was there such a change in profitability?Answer lies in the number of total subscribers which has grown from 107 000 in 1999 to 6 316 000 in 2006. (source Netflix 2006 10-k). Number of subscribers was constantly growing since 1998 due to nigh(a) strategy decisions like proprietary recommendation system , hiring of Ted Sarandos and opening more distribution centers. All of these moves had one purpose to add value to their production by increasing customers satisfaction. How does Netflixs strategy analyze to Blockbuster? Compare and contrast each(prenominal)s value chain. Factors which construe the value of the product Price of the movieDelivery Time how want do the customers wait for getting the movie doohickey what actions do the customers have to do to get the movie Other facto rs(recommendation system, availability of new movies) slowly fees Although prices of Netflix and Blockbuster for a single DVD rental are now the same (10$ per movie-source http//reviews. cnet. com/4520-11445_7-6325775-1. html), Netflix had an additional value because it offered unlimited rental with the same pricing (an example you pay monthly fee and you can exchange movies, so you can watch several different DVDs for the price of one).If you want to rent a movie from a Blockbuster retail store, you can do it in a relatively short time (time you need to get to a retail store) as management entitle 10 minute drive for 70% of US population. Delivery time for Netflix is their disadvantage in comparison to Blockbuster, it takes a day or two. Convenience Netflix has the advantage here since you can order movies from the comfort of your home by using the internet. Blockbuster doesnt have a recommendation system like Netflix. It only has an employee that can recommend movies to a custo mer.Netflix has advantage here since it can recommend a movie accordingly to the taste of each customer. New movies are available pretty much the same for two companies. Late fees in 2005. Blockubuster decided to abolish late fees which gave them an advantage over Netflix, increasing customer satisfaction but in any case gave them significant costs 60 milion $ marketing + 600 million dollar of revenue loss. What challenges and opportunities does Netflix face? What are the major risks? Major challenge for Netflixs online DVD rental phone line is VOD (video on demand).VOD offers additional value to the customer no waiting period, since it uses be adrift engine room to provide customers a movie with no waiting period. This is also an opportunity for Netflix since it has the possibility to implement this new technology into its core bank line but there are several cons of doing so. First out is that this give birth would cannibalize the core business because Netflix would repl ace stream of positive bullion flows with another. Also Netflix found no way to differentiate itself against competitors like MovieLink and Vongo. other major risks or challenges for Netflix are cable and satellite providers which offer pay-per-view system, providing HD on demand. For now these services had two primary limitations technology and content availability. another(prenominal) major challenge is the entry of Blockbuster in the DVD online rental market. As a bigger company Blockbuster has the financial pecuniary resource to attract more subscribers using heavy marketing. This entry directly enters Netflixs niche market and now Netflix has to find a way to differentiate. For starters, what would be Netflixs entry strategy to these new markets?It could ship the DVDs from USA but this option would have serious disadvantages like import tariffs, shipping costs, great delivery time which would lead to customer dissatisfaction and a very small market share with probably losses rather than profits. If Netflix would open a subsidiary in Europe it would not have problems like the latter(prenominal) but it would need investors since financing the whole subsidiary may impersonate a problem for Netflix. other issue is that Europe, as a balance to the US, is consisted of many small independent countries with their own laws and import tariffs so this could be a problem as well.Another problem is the customers preferences. If Netflix would try to ship movies from the US (which would also present shipping costs) the European customers might not like US movies that much. They might prefer European movies better. Another issue is that Netflix doesnt have an established relationship with any European movie studio. So they would lose the competitive advantage that they have in the US. Another problem is the language barrier. In many countries like Germany, Italy, or Spain, movies are synchronized into their mother tongue. So customers might not be free to rent the se movies in the English language.Another issue is the competition in Europe which perhaps would be more competent than Netflix since they know better the customers needs, laws, and other issues mentioned already. Netflix as a company started with an emerging technology DVD, then. at one time the new technology is Blu- ray and as the VHS format was replaced by DVD there are good chances that Blu-ray will replace DVD format. Because Blu-ray technology gives a better resolution than a DVD customers might be willing to switch so Netflix should start to fill its inventory with blu-ray discs and by chance like they did in the past with VHS promote and rent only Blu-ray discs.The close for Netflixs is to find the best media (low cost, high quality) for watching a movie or even better no media at all. Netflixs, as I see it, biggest threat to DVD rental business is online video streaming. Why? With this technology customers have no waiting period and complete convenience. And these are very important factors when customers are making their decision about watching a movie. Decisive competence key for Netflix is the recommendation system and they should use it with online video streaming.