DVD rental business is coming to the end of its life-cycle. While Netflix made a name for itself by excelling in this domain, the technological landscape and consumer preferences are constantly in a flux.
Netflix’ leadership position in streaming video is somewhat secure for the moment. But rapidly changing technology and competition from niche players pose numerous challenges that require anticipation and proactive implementation.
The major themes w.r.t. the Netflix study are ‘emergent technology’, ‘supply-chain innovation’, ‘precision logistics’, ‘saturated market’, ‘key product strategies’, ‘marketing strategy’, ‘customer relations’, and ‘value creation’. To elaborate on a few, let us consider first the theme of emergent technology. Netflix was a pioneer in supply-chain innovation and distribution. Hence its precision logistics was a pivotal factor in its success so far. The patenting of the preference tracking software in 2003 was another technological milestone. Another theme of the case is changing consumer preferences. Likewise, the theme of competition is informed by the highly saturated and predatory environment of the industry today. Netflix has to contend with such major retail firms as Walmart, Best Buy, Target, Time Warner and Amazon. This is on top of competition from DVD rental specialist Redbox and online-only services offered by Google, Apple, Amazon and Hulu.
A real strength of Netflix over their years has been its versatility. For a company that is neither a specialist in technology nor spun-off from the retail-chain industry, it has had a remarkable run since its inception. A key reason for this success is the adopted business processes. Great care is given even to even minute details, especially those pertaining to customer preferences. Netflix was able to keep abreast of new modes of communication as well as evolving lifestyles of different target consumer groups. It has also gained goodwill for its efficiency in execution and customer service operations. If it continues to keep up this trend the company is poised to remain a top contended within the digital entertainment industry.
The Qwikster fiasco illustrates one of the weaknesses of the company. Netflix failed to gauge customer preferences properly when it decided to spin-off the DVD-rental vertical under brand Qwikster. The communication strategy was also a failure, as it pithily sent a late email explaining the rationale. Not only was this email from CEO Hastings after the fact, but it also aggravated customer grievances on the issue of increased pricing.
The stupendous rise of RedBox over the last decade poses a potent threat to Netflix. The USP of RedBox has been its affordability and convenience. For as cheap as one-dollar, customers can pick up DVDs across 36,000 strong kiosks installed by the company. These kiosks are strategically located in high-traffic zones and have a ubiquitous presence across America. RedBox has also been able to time its new launches to perfection – be it announcing its online streaming services or mobile entertainment options on Android or iPhone. Indeed, RedBox has been so out-of-the-box in its strategies that it managed to grow exponentially at a period when industry-wide DVD sales were in decline. After the collapse of Blockbuster RedBox has assumed the mantle of Netflix’ biggest competitor. But this very threat can be looked at as an opportunity in disguise.