Netflix Case Analysis

Introduction

Situation Sypnosis

Netflix was established in 1999 by CEO Reed Hastings, making it possible for consumers to rent videos without having to leave their home. Instead of having the consumers come to them, they set up distribution centers in different cities and mailed customers their DVD selections. Initially, Netflix started out by charging its customers a rental fee for each DVD that they rented along with attributable late fees, much like the business model of Blockbuster. However, Netflix realized that it needed to differentiate itself from other video retailers. So instead, they offered their DVDs on a flat monthly subscription rate, removing late fees.

Company’s Current Strategy

Netflix uses the business-level strategy of focused differentiation to defend its position against competitors. Netflix does not compete on price, but instead competes by offering a unique service to a group of segments in the industry – its target market being those who watch a high volume of movies and want better value, selection, and convenience. The goal of Netflix is to provide a premier, filmed-entertainment subscription service to a large and growing subscriber base.

Problem Statement

Despite Netflix’s rapidly growing customer base, which amounted to 78% share of the market for online rentals in 2004, lower customer churn and increasing revenues, Netflix’s stock price performance has not been excellent. Although competitors have not been able to surpass Netflix, the low stock performance may invite a hostile takeover bid from one of the competitors. Furthermore, recent techonological advancements have led to new types of industry competition such as Video on Demand (VOD) and streaming videos with Movielink. In order to survive in the video rental industry, Netflix must review its current strategy and be ready to implement an improved one.

External Analysis

Industry Analysis

In 2003, the movie rental industry had exceeded $24 billion including sales...