Netflix Case Study

1438 words (6 pages) Essay

14th Jun 2017 Marketing Reference this

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Netflix, Inc is the world’s largest subscription service company that caters to more than 12 million subscribers. It offers online flat rate DVD and Blu-ray Disc rental-by-mail and video streaming in the United States and Canada (streaming only). Reed Hastings started the company in 1997 locating its head quarters in Los Gatos, California. 1999 marks the commencement of Netflix subscription service. We offer merchandising services and proprietary recommendations that help our subscribers select from our vast digital library of titles. In 2009 we surpassed a collection of 100,000 titles on DVD. We offer our subscribers to watch instant movies and television episodes tuned to their TVs and laptops or get a DVD delivered to their homes in the minimum possible time.

CHALLENGES:

Besides being a market leader of DVD rentals Netflix faces a number of pressures due to an increase in its marketing expense, increase in digital downloading, increasing competition from different media alternatives, increase in the potential postage price, increased number of spending on new acquisitions and low pricing power. On the other hand, continuous technological changes demand Netflix to move into new line of business to maximize their market share and profits. The consumer behavior has changed over the years where consumers are now less willing to buy a physical media (DVD) and trends are shifting from DVD-to-VOD.

SWOT ANALYSIS OF NETFLIX:

Strengths:

  • The market leader of online rentals with 2.6 million subscribers
  • Iconic brand because of high level of customer satisfaction
  • Have very low fixed costs
  • Provide the world’s largest selection of DVDs to its consumers with more than 50,000 titles
  • Personalized merchandising which results in convenience, selection and fast delivery.
  • excellent service, as more than 90% of our customers receive their DVD copies within one day of the order placement
  • Strong websites in terms of reviews, navigation, buying decisions and interaction
  • 37 distribution centers to ensure accuracy and timeliness of fulfillment to customers
  • Partnerships with HP and Sony is a significant internal strength in the company’s ability to increase subscribers
  • Strong ability to partner outside the company with manufacturers including Toshiba and Pioneer and building mutually beneficial relationships with entertainment video providers like Warner Home Video and Columbia Tri-Star.
  • Offers free DVD shipping and postage

Weaknesses:

  • Increasing shipping expenses which cant be controlled
  • Catering only to a limited portion of the market as older demographics still find it hard to understand the relatively new concept
  • Only a small limited number of DVDs can be watched instantly
  • We only cater to DVD market
  • Pornography selection eliminated by U.S. Copyright law
  • The power of suppliers is very strong
  • Volatility in performance
  • Dependence on studios and distributors
  • Delayed availability of new releases
  • Heavy reliance on US mail service

Opportunities:

  • Implement pricing segmentation
  • Digital delivery focusing on online distribution
  • Introduce new other types of rentals such as video game rentals or educational rentals such as books over internet
  • Internationalization by catering to global markets
  • Video game rental has a high potential of growth

Threats:

  • Deterioration in the economy
  • Constant increase in stamp costs
  • increasing competition as other larger retailers such as Wal-Mart launching into similar market space
  • Other competitive online distributors such as iTunes and Napster which also offer their consumer to rent games
  • Studios can always form alliance with bigger players
  • Competition from VHS
  • Loss of reputation
  • Risk of malware
  • Continuous new advancements in technology
  • Fluctuation in growth rates
  • Changes in security laws and regulation

STRATEGY, TESTMARKET & IMPLEMENTATION

Netflix business model has made it a market leader of DVD rental market but the development of technologies complementary to Video on Demand services is an indication that DVDs are now outdated for the distinct future. We views VOD as nothing more than another way to extend our core business model, in fact Netflix have some conceivable advantages in VOD market space.

  • Netflix websites already attract a large number of eye balls
  • Netflix already have a large distribution network
  • Have a competitive advantage of being the market leader of DVD rentals
  • We can tie up with different online players such as MP3

MARKET POSITION AND TARGET MARKET:

Our target market will be composed of three segments:

1) Professional Youngsters

  • Individuals or couples between the ages of 20 – 34
  • Constitute to 26.36% of the population in Los Angeles
  • Earn around $50,000

2) Upper-Medium Income Household

  • Individual in the age range of 35 – 54
  • Constitutes to 27.42% of the population in Los Angeles
  • Per annum income greater than $80,000

3) Baby Boomers

  • Persons ranging from 55 – 64
  • Constitutes to 7.03% of the population in Los Angeles
  • mostly retired

DISTRIBUTION STRATEGY:

Netflix can emerge as reputable providers maintaining its brand identity to differentiate itself from its competitors. Meanwhile, our streaming service will act as a complement to our DVD rentals for several years to come. These new bundle of services combined with Netflix’s reputation of providing user friendly interfaces over the years, will provide distinctive advantage to Netflix from its competitors and an opportunity to evolve as the major player of VOD market in the last days of physical media. Survival and growth opportunities make it essential for us to enter the VOD market.

PROMOTION AND ADVERTISING STRATEGY:

Carry out partnerships with leading electronics retailers to give out free VOD coupon

Sampling:

VOD movie passes for free to regular subscribers

VOD pass for free every month with a bundle signup

Offer a free VOD movie on buying five VOD movies

Events:

Organize bi-monthly VOD sessions for customers to attend

Discounts:

Incentive Programs to frequent consumers

offer price breaks to students or other young professionals

TEST MARKET:

Our test market will be young professionals of USA and Canada who could easily adapt to the relatively new concept of VOD. We will me targeting specifically the mobile users as cellular industry can greatly assist the delivery model for VOD; this would not only attract the consumers but will also seek the attention of advertisers. New mobile networks can ensure Netflix a potential mobile audience for entertainment, videos and other rich media. Netflix all content will be copy protected so that no other can move or share it with other portable devices. Consumers will make their payments with a credit card through Netflix’s account, as they do with the DVD rentals. The content providers will get more than half the amount from each transaction. Specials methods and models would be developed to prevent piracy and copyright. Anti virus software’s shall be installed. There will also be a Netflix pack for free downloading, easy to install and maintain, that would automatically update the consumers on Netflix new offerings.

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FINANCIAL SUMMARY

While using Netflix current DVD subscribers can be informed about our strategic marketing strategies. Of our current DVD subscribers, 50% are considered to be the regular consumers of Netflix. More than 96% of our consumers who tried DVD rentals stayed with the service and are most likely to try on our upcoming VOD service.

VOD subscribers are estimated to grow 15 million by 2011 and 30 million by 2014.VOD is predicted to collect a gross profit of $2.5 billion. Forecasting the current technological trends and keeping in view the strategic marketing plans VOD buy rates should grow by 75% in 2011. Hence, VOD has a huge growth potential for Netflix.

Netflix, Inc is the world’s largest subscription service company that caters to more than 12 million subscribers. It offers online flat rate DVD and Blu-ray Disc rental-by-mail and video streaming in the United States and Canada (streaming only). Reed Hastings started the company in 1997 locating its head quarters in Los Gatos, California. 1999 marks the commencement of Netflix subscription service. We offer merchandising services and proprietary recommendations that help our subscribers select from our vast digital library of titles. In 2009 we surpassed a collection of 100,000 titles on DVD. We offer our subscribers to watch instant movies and television episodes tuned to their TVs and laptops or get a DVD delivered to their homes in the minimum possible time.

CHALLENGES:

Besides being a market leader of DVD rentals Netflix faces a number of pressures due to an increase in its marketing expense, increase in digital downloading, increasing competition from different media alternatives, increase in the potential postage price, increased number of spending on new acquisitions and low pricing power. On the other hand, continuous technological changes demand Netflix to move into new line of business to maximize their market share and profits. The consumer behavior has changed over the years where consumers are now less willing to buy a physical media (DVD) and trends are shifting from DVD-to-VOD.

SWOT ANALYSIS OF NETFLIX:

Strengths:

  • The market leader of online rentals with 2.6 million subscribers
  • Iconic brand because of high level of customer satisfaction
  • Have very low fixed costs
  • Provide the world’s largest selection of DVDs to its consumers with more than 50,000 titles
  • Personalized merchandising which results in convenience, selection and fast delivery.
  • excellent service, as more than 90% of our customers receive their DVD copies within one day of the order placement
  • Strong websites in terms of reviews, navigation, buying decisions and interaction
  • 37 distribution centers to ensure accuracy and timeliness of fulfillment to customers
  • Partnerships with HP and Sony is a significant internal strength in the company’s ability to increase subscribers
  • Strong ability to partner outside the company with manufacturers including Toshiba and Pioneer and building mutually beneficial relationships with entertainment video providers like Warner Home Video and Columbia Tri-Star.
  • Offers free DVD shipping and postage

Weaknesses:

  • Increasing shipping expenses which cant be controlled
  • Catering only to a limited portion of the market as older demographics still find it hard to understand the relatively new concept
  • Only a small limited number of DVDs can be watched instantly
  • We only cater to DVD market
  • Pornography selection eliminated by U.S. Copyright law
  • The power of suppliers is very strong
  • Volatility in performance
  • Dependence on studios and distributors
  • Delayed availability of new releases
  • Heavy reliance on US mail service

Opportunities:

  • Implement pricing segmentation
  • Digital delivery focusing on online distribution
  • Introduce new other types of rentals such as video game rentals or educational rentals such as books over internet
  • Internationalization by catering to global markets
  • Video game rental has a high potential of growth

Threats:

  • Deterioration in the economy
  • Constant increase in stamp costs
  • increasing competition as other larger retailers such as Wal-Mart launching into similar market space
  • Other competitive online distributors such as iTunes and Napster which also offer their consumer to rent games
  • Studios can always form alliance with bigger players
  • Competition from VHS
  • Loss of reputation
  • Risk of malware
  • Continuous new advancements in technology
  • Fluctuation in growth rates
  • Changes in security laws and regulation

STRATEGY, TESTMARKET & IMPLEMENTATION

Netflix business model has made it a market leader of DVD rental market but the development of technologies complementary to Video on Demand services is an indication that DVDs are now outdated for the distinct future. We views VOD as nothing more than another way to extend our core business model, in fact Netflix have some conceivable advantages in VOD market space.

  • Netflix websites already attract a large number of eye balls
  • Netflix already have a large distribution network
  • Have a competitive advantage of being the market leader of DVD rentals
  • We can tie up with different online players such as MP3

MARKET POSITION AND TARGET MARKET:

Our target market will be composed of three segments:

1) Professional Youngsters

  • Individuals or couples between the ages of 20 – 34
  • Constitute to 26.36% of the population in Los Angeles
  • Earn around $50,000

2) Upper-Medium Income Household

  • Individual in the age range of 35 – 54
  • Constitutes to 27.42% of the population in Los Angeles
  • Per annum income greater than $80,000

3) Baby Boomers

  • Persons ranging from 55 – 64
  • Constitutes to 7.03% of the population in Los Angeles
  • mostly retired

DISTRIBUTION STRATEGY:

Netflix can emerge as reputable providers maintaining its brand identity to differentiate itself from its competitors. Meanwhile, our streaming service will act as a complement to our DVD rentals for several years to come. These new bundle of services combined with Netflix’s reputation of providing user friendly interfaces over the years, will provide distinctive advantage to Netflix from its competitors and an opportunity to evolve as the major player of VOD market in the last days of physical media. Survival and growth opportunities make it essential for us to enter the VOD market.

PROMOTION AND ADVERTISING STRATEGY:

Carry out partnerships with leading electronics retailers to give out free VOD coupon

Sampling:

VOD movie passes for free to regular subscribers

VOD pass for free every month with a bundle signup

Offer a free VOD movie on buying five VOD movies

Events:

Organize bi-monthly VOD sessions for customers to attend

Discounts:

Incentive Programs to frequent consumers

offer price breaks to students or other young professionals

TEST MARKET:

Our test market will be young professionals of USA and Canada who could easily adapt to the relatively new concept of VOD. We will me targeting specifically the mobile users as cellular industry can greatly assist the delivery model for VOD; this would not only attract the consumers but will also seek the attention of advertisers. New mobile networks can ensure Netflix a potential mobile audience for entertainment, videos and other rich media. Netflix all content will be copy protected so that no other can move or share it with other portable devices. Consumers will make their payments with a credit card through Netflix’s account, as they do with the DVD rentals. The content providers will get more than half the amount from each transaction. Specials methods and models would be developed to prevent piracy and copyright. Anti virus software’s shall be installed. There will also be a Netflix pack for free downloading, easy to install and maintain, that would automatically update the consumers on Netflix new offerings.

FINANCIAL SUMMARY

While using Netflix current DVD subscribers can be informed about our strategic marketing strategies. Of our current DVD subscribers, 50% are considered to be the regular consumers of Netflix. More than 96% of our consumers who tried DVD rentals stayed with the service and are most likely to try on our upcoming VOD service.

VOD subscribers are estimated to grow 15 million by 2011 and 30 million by 2014.VOD is predicted to collect a gross profit of $2.5 billion. Forecasting the current technological trends and keeping in view the strategic marketing plans VOD buy rates should grow by 75% in 2011. Hence, VOD has a huge growth potential for Netflix.

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