Netflix Analysis

Netflix Case Analysis

In this technological era there is an involvement of computers and IT in almost every field of life. Any system is considered incomplete if it is not available online. Film industry also faces this technological boom period. It is now a popular business of online rental movies. Netflix is an American company providing online streaming of a huge number of latest movies and even TV drama episodes also.  The firm is doing a successful business. They are serving a strong customer base in UK and USA. The research studies have proved the tremendous growth and sales of the Netflix Company during the year 2013.

Porter’s five force analysis is the basic tool to analyze any industry or market segment. These five forces are threat of new entrant, bargaining power of suppliers and buyers, availability of substitutes and the existing rivalry. These are the basic five forces which any firm should know about in order to compete in an industry. If we talk about the movie rental industry specifically then this has gone under overhauling since past decade. Now the customers have a variety of options available to rent a movie of their own. The online ability is no more difficult for them.

Analyzing the movie rental industry under the five force model of Michael Porter, the following facts have been revealed;

Ø  The bargaining power of buyers is extremely high because of availability of many other options.

Ø  The bargaining power of suppliers is also very high because these businesses have few options to buy their movies. They can only purchase this movie directly from the production house. For this reason they have limited suppliers and thus the suppliers are dominant in this relationship.

Ø  The third force which is the availability of substitutes is relatively moderate because every movie is one and unique in its nature therefore no one can replace it thus we can say that substitutes are not that much readily available here.

Ø  Considering the fourth force of new entrants, we would like to say that there is less hreat of new entrants because people know that customers are likely to watch movies through online streaming and the business of rental movies is not that much successful now. Therefore no new entrant would like to come here.

Ø  Rivalry among existing market players is very high and they always try to adopt new ways to attract customers towards them.

Due to rapid changes in the customer buying behaviors, different industries are changing their strategies so that they can compete with a faster pace and also fulfill the market demand. For a general discussion there can be many driving forces behind these industry shifts e.g. globalization, economic fluctuations, consumer buying behavior, involvement of technology, resource availability and the five forces mentioned by Michael Porter in his studies. All of these factors are actually act as a driving force to change any industry. If we specifically talk about movie rental industry then the possible driving forces might be the consumer buying behavior and availability of many other options instead of renting the movies.

Analyzing the market of the movie rentals, in my opinion the future is not as brighter for the movie rental industry. There might be many reasons behind this opinion but the most apparent is the involvement of technology or we can say the internet. Now mostly people prefer to online order a movie and pay through credit cards instead to order and then wait for a DVD. The online availability seems to be accessible to the people. But still the live streaming option is alive for movie rental industry. They can revive themselves by going online through live streaming services.

Key success factors or commonly called as KSF are those essential features or attributors which a company must possesses in order to compete in the market or industry. Almost every firm has to face competition in the market because the companies try to adopt new technological ways as soon as possible. Therefore for being considered as a competitor a firm should have some additional factors which add points to its success. And the achievements of the company are basically the key success factors for the company. The examples of key success factors may include no. of customers per year, relations with customers and supplies, loyalty of customers, financial results, marketing strategies and product positioning. Same is the case with movie rental industry.

For the survival in the movie rental industry the Netflix Company and other competitors have achieved certain mile stones which includes;

·         Netflix became the first DVD seller with 900 titles.

·         Netflix had almost 1 million subscribers during 2003

·         According to 2012 facts and figures Netflix and Redbox had Return on Equity of 34%

·         Netflix had sales growth of 46% while Redbox’s was 33%

·         Return on Assets for Netflix was 10% whereas for Redbox it was 8%.

Up to mid of year 2011, there was huge growth for the Netflix Company. It seems that it will earn record breaking revenues this year. But suddenly after July 2011, the management at Netflix Company made certain strategic changes in their marketing and sales plans. They thought that these changes will boost up their sales and thus company will get extra benefit. According to them they have a strong potential customer base which is loyal too. And these customers will accept all the changes made by the management. But it didn’t work. They had to face an opposite situation which was not expected at all. The stock price fell down at an extreme. The company’s reputation was also on stake. The strategic changes that stoke the strong pillars of Netflix Company are given below;

Ø  Initially all the subscribers were enjoying an economic plan of unlimited DVD’s and unlimited live streaming at a minimal cost of $9.99 per month. The only condition was the return of DVD’s within a specific time period.

Ø  The Netflix management at once changed the whole pricing plan.

Ø  They separated the DVD plan from the live streaming plan.

Ø  According to new plan the DVD’s subscribers would only receive DVDs for the whole month by paying $7.99.

Ø  While the live streaming subscribers would get this service for the whole month by paying $7.99.

Ø  And if anyone wants to get both packages unlimited for the whole month then he may have to pay accumulative $15.98 for subscription.

All the existing plans are now entirely changed which shocked the existing subscribers. These changes badly affect the sales of Netflix. People started to get rid of their subscriptions. Thus their customer base was also affected.