netflix in 2012. can it recover from its strategy missteps

netflixin 2012. can it recover from its strategy missteps


Factors that promote rivalry

The cost of changing suppliers in the case of consumers is lowmeaning they can switch brands very easily. This increases rivalry inthe industry thu affecting the competitiveness of Netflix. the costof swihcing brands is low becuase of low differentiation in theproducts/services offered. This also gives consumers high bargauningpower because of they can low differentiation implies they can switchbrand easily. This gives them bargianing power that intensifiesrivalry in pricing.

The threat of new entrants in the industry is high becuase technologyadvancemnt and government policies continue to decrease barriers.Additionally, the threat of leaving the industry remain high due tocontractual agrremnst with buyers and content cuppliers. This meansthat the number of players will remain relatively high and intensifycompetetion.

factors that diminish rivalry

High cost of buying DVDs implies that the market for renting,unlimited streaming and VOD grows thus easing the rivalry in themarket for Netflix.

There is a huge number of suppliers of titles and cotent domestcaillyand from abroad. This vast supply of content reduces the rivalry inthe industry fr Netflix though only to a certain extent given thatsome competotors such as HBO self-manufactire movoe totles andcontent.

#5 Macro-Environmental analysis (PEST) and Competitive Analysis (5Forces) are analytical tools that we use to conduct an externalanalysis with the intention of identifying the opportunities (O) forthe company and potential threats (T) to its` competitiveness.

Identify a minimum of 2 opportunites (O) and a minimum of 4external threats (T) for Netflix.


International markets: A number of developed countries in Europe andelsewhere have recorded increased penetration of highspeed broadbandinternet thereby increasing the potential market for the firm toexploit.

Technology: Rapid development in technology offers Netflix animportunity to improve its product offering. This can entail betterquality sound and images in HD and 3D. Such rapid changes intechnology will imply that consumers can more readily afford HD and3D enabled devices and for Netflix to stream such to compete betterwith traditional movie theaters.


Piracy: Increased threat of piracy through illegal downloads from allover the world eats on the market share of Netflix. Such sites supplytitles and TV programs free of charge. This not only violatesintellectual rights for content developers but also reduces themarket for Netflix.

Competition: Netflix only acts as a distributor of content and withreduced barriers of entry title manufacturers such as HBO have takenup the role of renting out their titles themselves. Increasedinvolvement of such players will cut out Netflix and other playerswho cannot develop their own titles.

Internet reliance: Netflix overlies on high speed internet providersto deliver their product which can impact product quality or itsreach in the market.

Free content. There is growing number of websites that offer freecontent that competes with Netflix

Reluctance by some subscribers to shift to the online streamingoption

Increased costs DVD distribution

Limited internet access or poor internet speeds in some areas

#6 Most companies adopt one of the 5 generic strategies and aligntheir strategic objectives / activities with this strategy to achievecompetitive advantage. What generic strategy most closelyapproximates the competitive approach Netflix is employing? Identifyand discuss the core activities that support this choice of strategy.

Netflix applies overall low cost provider strategy. This is supportedby the claim by the firm`s CEO Hasting that for the firm to breakeven in its international operations, it requires several millionsubscribers. The firm also seeks to serve a wide cross section ofbuyers that include blue ray device users, DVR users, DVD playerusers, game console users (Wii, playstation, Xbox and others). Allthese users are spread across several countries with unique tastesand preferences. It is also noted that Netflix subscribers largelycomprise of three groups: movie buffs who enjoy the wide titlesselection economy shoppers attracted by the low subscription costsand convenience shoppers who enjoy the luxury of DVDs being deliveredby mail or being easily streamed. Netflix thus seeks to meet theneeds of these three diverse groups of subscribers. One is byretaining DVD by mail subscription, two, by maintaining ensuringaccess through a wide range of internet enabled devices, threekeeping an impressive library of titles and four by keeping lowsubscription fees. To ensure high subscription rates, the firmcharges very affordable rates and even uses different pricing indifferent markets such as Mexico in recognition of the livingstandards in those countries. This way, the firm keeps low cost andtargets huge markets to remain competitive.

# 2

Bargaining power of suppliers. Production houses such as SonyPictures, Fox, HBO, Universal, Dreamworks and others are the mainsuppliers or manufacturers of content. As long as these manufacturerswill not seek to vertically integrate, then Netflix and other playerscan breathe and continue to exist. However, these suppliersunderstand the bargaining power they possess in the arrangement withNetflix and others and hence utilize the opportunity to make moremoney. This is evident in the case where one supplier chose toincrease license fees for content from $3 million to $30 million. Insuch a case, Netflix has just three options, bargain for a reducedfee, cancel the contract or pay up. Such high fees however mean thatthe firm can hardly make profits. Where content developers feel thatthey need more control of their products, they can start streamingtheir own content to compete against Netflix. However, such a movemight not be beneficial to such firms because they do not have thesubscription numbers and brand recognition that Netflix and co have.Nonetheless, it does not mean that this is impossible. Hulu, which isa brainchild of several developers has done it and more players arelikely to join this market as they seek to diversify their revenuestreams and&nbsp gain better control of their products. Othermarkets also witness the same where manufacturers distribute and selltheir own products. e.g Apple Inc.




First-to-market advantage/reputation in the distribution of DVDs bymail. This enabled the firm to beat competition from Walmart and&nbspother players.

Tangible assets such as distribution centers with headquarters in LasGatos California, technological assets, organizational premises implythat the firm can deliver it products without any major issues.

Leadership and strategy. As a founder, Hasting understands thestrengths and weaknesses of the firm inside out and has steered thefirm through thick and this. Such experience and leadership qualitiesare irreplaceable.

innovation. The ability of the firm to replace DVD subscription bymail and adapt streaming as better and low cost alternative set a newindustry standard. This is the main core competence of Netflix:ability to reinvent and reengineer its processes to adapt streamingas opposed to DVD by mail.

Organizational capabilities of the firm to put in place the rightskills and structures to employ available resources to develop avaluable output.


Inability to offer newly released films due to price prohibitions

The firm retains DVD by mail service which is costly, declining andhas low returns but has not divested from it.

The firm has a narrow revenue stream which does not cushion the firmagainst fluctuations in customer subscriptions.