Netflix is an online company with corporate headquarters in Los Gatos, California. Netflix was founded by Hastings who is also the CEO of the company. Netflix’s key business is online rental services in the software industry. Netflix’s software business services span various software products and services. Among these are DVD movies and several other software products. Despite disappointing results on its performance at the beginning, the innovative entrepreneur continued to modify the company while identifying and exploiting new opportunities that presented themselves. That was when the company designed and developed a website that saw it host millions of subscribers making it rake in huge profits.
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Netflix was founded at a time when the video industry was largely populated by small retail outlets which were characterized by long product delivery time. The market was dominated by the giant Blockbuster Inc. Blockbuster had no real marketing strategy and customer royalty was based on impulsive buying. It had huge amount of sales with almost 100 percent success when Netflix joined the market.
Upon its entry into the market in 1997, Netflix realized that the market that was dominated by the brick-and-mortar marketing methods. The method of this company was at the time of the beginning of internet retailing. Online selling was gaining a new opportunity to a traditional way. This compelled Netflix’s to have its own website in 1998 that specialized in the use of cross platform technologies in service delivery. At this time, different pricing models were tested to increase sales volume.
Netflix was also adept at countering new entrants and developments in the market. One of this was the development of a video provision services on line.
Porter’s Generic Strategy
According to Porter, successful business organizations incorporate one or more of the generic strategy options to propel it to success. These strategies are cost leadership, focus, and group differentiation. A critical analysis and evaluation of the cases study reveals that Netflix had to various extents incorporated these strategies in its business pursuits with each generic strategy contributing to the success or failure of the company in its pursuits. Netflix emphasized on the differentiation strategy with the other strategies playing a minor role in the firms.
The differentiation strategy is where a company concentrates its efforts in developing a single product then invests in identifying and incorporating unique attributes that meet customer needs (Porter, 1974). Porter said that by adding value to a product and creating uniqueness in product to attract customers, customers are likely to purchase the product at a higher price. That was the case with Netflix. Netflix move into the market targeted the renting of videos online. That strategy could be achieved by the use of recently developed and upcoming internet marketing technology which other companies had not incorporated in their business. The case study reveals that Netflix’s newly launched website integrated a search engine that enabled each customer to search and access products of one’s choice. Netflix’s management showed such talent and ingenuity in marketing their products by employing already available and established supply chain infrastructure and technology. One of the infrastructure tools included the US’s postal services. Netflix has use differentiation strategy to create the competition advantage in order to gain the market share.
Porter’s Five Forces
Netflix entered a market that Porter affirms is driven by five forces. These include the bargaining buyer of suppliers, threat of new entrants, bargaining power of buyers, threat of substitute products, and rivalry among existing competitor.
Bargaining power of buyer (Low)
At Netflix, the bargaining power of buyer is low; they have created the new trend of renting DVD market. For example, Netflix has corporate with some of the video game companies such as Wii, PS3 and XBOX 360 and also on Ipad, Iphone. They provide the internet movies that you just need to have one of the products to use it and watch it on TV. There are few competitors that use online rental system. This make buyer do not have too much choose from their competitors. In the Netflix case, Buyer does not have too much power at this time.
Bargaining power of supplier (High)
The bargaining power of supplier is high in the Netflix case. There are few of the movies Makers Company in the world. The cost of the movies makers company is extremely high to make a movie. The only way that Netflix can have new movie in their rental service is buying from those movies makers company. The bargaining power of supplier is high, because of the lack of choice.
Threat of new entrants (Low)
The threat of new entrants is low, because of Netflix is leading the rental DVD Company into the new generation again. At beginning, Netflix has created the new way to rent a DVD by mail in DVD and ran very successful. Now Netflix is providing the online watch that make the people want to use it. Netflix has created the very good brand image to their customers and use the new technology to increase their market share to their customers. It is hard to have new competitors into this area, because of Netflix has always offer the trend of the rental DVD Company.
Threat of substitute products (High)
The threat of substitute products is high, because there are several ways that you can get a movie such as buying from retailer, illegal download from internet, buying from online, borrowing from friends and rent it from your cable company.
Rival among Existing Competitor (High)
Rivalry among existing competitor is high, because of a lot of competitors to against Netflix such as Cable Company, Blockbuster, Amazon.com, Wal-Mart and illegal download from internet. Some of Cable companies start to provide the VOD on their service. Some of the people do not like to wait until the DVD deviled. They always like the easy way to rent it by using their Cable Controller that is easy, fast and reasonable price. Illegal download becomes the major problem for Netflix. People can easy to get it from the internet without paying any money on it. Although, Netflix has many competitors want to take their customers, it still provides the best service to their customers.
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Value Chain model
According to the porter, value chain is an organization creates value by performing a series of activities. In the Netflix case, first, Netflix has created the close relationship with USPS that reduces the shipping time between deliver and return. Second, Netflix has the data mining system to force the demand. Third, Netflix also has the distribution center in different area around the united state. Distribution center can reduce the time of collecting the return of DVD from their customers and the time of shipping out of DVD. Fourth, they provide different new technology that you can watch the movies through internet that makes people more interested in it. Finally, Netflix has focus on customer relationship management. They tried to satisfied with each of the customers and provide the best to them. Netflix has created the values by operating their company.
Implementation of Information Technology in Netflix
To stay afloat in the already large market and maintain the customer base, Netflix will have to implement an IT infrastructure that could offer reliable support for its business transactions (Smith, & Short, 2001).
The data mining application could be integrated in the organizations’ information system to assists in decision making. Netflix is a highly customer focused organization. Data mining could help enhance communication, help the company compare its prices with other companies evaluate customer satisfaction, evaluate supplier relationships, enhance staff skills, and provide an overview of company progress and performance.
Decision Support System
Decision support system could be included into the company to help improve decision making from the company’s data warehouse, provide real time sales compressions, and model decision making context (Shermis, Stemmer, Berger, & Anderson, 1991). The outputs from this system could significantly depend on the inputs from the company’s data warehouse and the decisions made could reflect the actual potion of the company. For example, the management can look at the data from the system and the system will show up the popular movies and unpopular movies in order to help management to control the demand of movies.
Customer Relationships Management
Customer relationships management should be built-in as it helps the management to maintain its old and new customers, meet customer needs, and establish a good working relationship with other companies and customers. Netflix provides the well customers service in order to satisfy their customers. At first, they provide one month free trail to let new customers to try and enjoy their rental system. Second, you can cancel anytime and get the full refund if you do not satisfy the service. Finally, they really care about their customers that they has created a lot of system that can help customers to find the movies such as recommendation system. Customer relationships management is an important thing that Netflix has been very care about and successful it.
Supply Chain Management
A supply chain management system if well incorporated into this company could help create competitive advantage for the firm by enabling it to optimize all factors relevant to customer satisfaction and company benefits. In the Netflix case, they provide the distribution centers to customers in order to increase the shipping time and corporate with USPS to increase the deliver and return time by using the specially envelope. This system could help the company identify key factors central to its success and enable management optimize all aspects of controls in its marketing strategies and supply and acquisition logistics (Smith, & Short, 2001).
Based on the above discussion, Netflix should continuously adapt to changing technological dynamism and new market opportunities in reaching various markets. Netflix’s management should hire experts on cross culture management to ensure a cross culture component is incorporated in its pursuits. This could be the case since newer opportunities lie outside Netflix’s current market that is characterized by a fairly uniform culture. In addition to that, the firm should incorporate user friendly software products that are cross platform and compatible with other software products to enhance usability. To maintain a large market share, the company should always incorporate faire business practices in its pursuits. In addition to that, Netflix should endeavor to develop software that can bar piracies on its products in addition to patenting its products. The company should invest in software technologies that block any could be illegal downloading of files or unauthorized access or copying of its products. That could block illegal usage of its video products since it denies the company legitimate profits that could accrue from those sales. The company should continuously evaluate the role played by information technology in propelling it to its position, the ever changing trends in the industry I terms of provision of services and other related services. It should continuously revise its plans to make them current and relevant to the identified changes and endeavor to incorporate new technologies in its pursuits.
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