Case Synopsis
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.
Key Themes
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.
SWOT Analysis
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.
Missing Information and Assumptions
The case is rich in detail and recounts the history and evolution of Netflix since its inception. So, thanks to this thoroughness, there is no need to assume or seek missing information.
Statement of the Problem
Netflix’ problem is presented by the fact that today even streaming video is fast becoming passé. The new buzzword is ‘downloadable content’, which people can watch in any device of their choice. Fully digital competitors like Apple, Hulu, Google Play and YouTube are giving Netflix a run for its money. Amazon has tapped into its strong goodwill and has struck deals with complementing business partners. Apart from its Instant Video service, Amazon has also partnered with Roku’s Digital Video player for seamless transfer of content from remote servers to television screens. Indeed the cross-platform feature now covers Kindle Fire, PlayStation and Blu-ray players. While business process innovation has been the chief strength of Netflix over the years, technological innovation is not its forte. This makes the task of taking on fully digital competitors all the more daunting.
Development of Alternatives
There are a few strategy alternatives that Netflix could pursue in its quest for leadership within the industry:
First, a reasonable alternative is to consolidate on the first-mover advantage in core business areas. Here, major competition comes from platforms such as Apple iTunes and Google Play. These technology giants are able to retain their mobile phone customers into the entertainment business. With platforms such as mobile phones and tablets gaining upper-hand over conventional PCs or laptops, Netflix is in a tight corner. For the company to remain relevant in this multi-cornered race it is imperative to focus on technological innovation and striking key strategic partnerships. Partnerships and promotional packages with mobile phone manufacturers is a good strategy. This makes sense when one considers Netflix’ earlier deals with DVD player manufacturers during the heydays of rentals. While companies like Apple and Google specialize in their niche, Netflix has the advantage of being a multi-platform offering. Indeed, this is a great advantage over other competitors who are either restricted by hardware, software or delivery platforms.
Another alternative strategy is to become a marketing centric enterprise. Netflix was able to reach leadership position due to innovative cross-sector promotion partnerships. The most notable being its agreements with DVD hardware manufacturers and studios. Subscription to Netflix was offered free or subsidized with the purchase of DVD players. This grand partnership roped in such hardware giants as Hewlett-Packard, Toshiba, Sony, Pioneer and Apple. Likewise, the tie-ups with America’s leading film studios, including MGM, Warner Home Video and Columbia Tri-star, is now part of the company’s lore.
Thirdly, looking to achieve business consolidation through customer relations is also an alternative strategy. Netflix had historically always linked its prosperity to customer satisfaction. After reaching economies of scale, the company was now stable enough to adopt a subscription-only model. Its beginning package was $19.99 per month for unlimited lending of DVDs. The only condition being that only 3 DVDs could be held by the customer at a time. This was received very positively by customers who are now able to watch more movies for the same expenditure. Customers also appreciated the elimination of late-fee and item handling charges.
Evaluation of Alternatives & Recommendations
From the analysis of the available alternatives, we can see how each one brings value to the enterprise. So instead of choosing one over the others, all three should be adopted in requisite proportions. Netflix, being the only big player capable of delivering on televisions, iPhones, Xboxes, iPads or on the web, should cash in on this versatility. Key technological partnerships with hardware manufacturers are a sound strategy. Equally, the company should focus on developing a technological team for creating software products for its services. Its excellent goodwill with customers will also have to be sustained. Further, a key factor in Netflix’ success is its expeditious execution of orders. Netflix’ prospects in the future depend upon its ability to maintain this reputation.
Implementation, Evaluation and Control.
Netflix, while well positioned to consolidate on its market share in the near future, should also remember its lessons learnt. The Qwikster fiasco offers numerous lessons, the chief one being customer communication. So market research should be thorough and allocated for in annual budgets. In this context, it is fair to say that as long as Netflix is attuned to the pulse of its customers, the business will continue to flourish. While studies and strategies offer the blueprint for future actions, the actual results depend on efficient implementation, regular quality evaluation and sufficient control over processes. If all these requirements are fulfilled, Netflix is poised to become an iconic player in the digital entertainment industry.