Movie Rental Industry Netflix and Blockbuster Case Analysis Lydia Floyd Strategic Management MGT422 February 28, 2013 Introduction Netflix competitive strategy In order for Netflix to understand were the business lies as it relates to the competition it is important to seek the correct strategy in order to be and stay competitive. The five competitive strategies are * Low- Cost * Broad Differentiation * Best-Cost * Focused niche based on low cost * Focused niche based on differentiation Since each strategy requires totally a different approached my recommendations will be based on focused niche based on differentiation.
Netflix originally offered DVD’s on a fee per DVD basis and eventually branched off into the monthly subscription service business. The company at one point was forecasted to have over 11. 3 million subscribers by 2009 and 8 million VOD (Video on Demand) customers by 2013. (See Exhibit 1) This exhibit basically shows how the number of video streaming choices has increased over the past several years. So the company is moving in the right direction as far as broaden their differentiation strategy.
The next exhibit shows how Netflix compares to the its main competition and how the company’s net profit margin exceeds a competitor like Blockbuster. The attached SWOT analysis for Netflix mentions some very important points that are associated with a focused differentiation strategy. The company is staying committed to how to service the niche better than the competition and speaks to the areas that appeal to specific customers such as offering services that allow subscribers to go back to pilot episodes of a television series.
This analysis will allow the company to identify areas to concentrate on strategically and to make a final diagnosis to where the company stands overall. Strengths * Increasing competition per member viewing is on the * Customers’ opting out is the lowest it has ever been. * Clearest brand identity “Watch TV shows & movies anytime, anywhere” * Netflix has surpassed the competitions in improving personalization of customer choices because of large membership base * Price $7. 99 per month * Exclusive Content: Of Netflix’s top ten TV shows, six are only on Netflix, and not available with competitors. Netflix’s DVD subscription service is extremely profitable, with contribution margins around 50%. * Services allow customers to go all the way back to the beginning of the first season for TV shows Weaknesses * DVD subscriptions are down 8. 47 million subscribers in Q3, 2012 compared to 13. 81 million subscribers 1 year ago. * Brand suffered when the company changed the pricing * It could take three years for a full brand recovery in order to see noticeable difference to profit margins * Streaming subscription contribution margins are much Opportunities International expansion (global) * Original productions offer a way for the company to connect with customer emotions. Company will be offering 4 TV series this year that will only be on Netflix * Lack of use of debit and credit cards – Latin America. * Internet TV. Threats * As Hastings pointed out, “With big markets comes competition” – There is a clear transition from linear TV to Internet TV and competitors want in on the profits. * Contracts with Disney, Sony, and Universal * Hulu, offers its customers TV shows immediately after they are aired for the first time. Hulu, Amazon, and HBO competitors making more investments in streaming options * United Kingdom is a very competitive “The sought after competitive advantage over other movie rental competitors was to deliver compelling customer value and customer satisfaction by eliminating the hassle involved in choosing rent and returning movies. Grow forward the company has 2 primary strategic objective 1 to continue to grow a large DVD subscription business and to expand rapidly to internet based delivery of content as that market segment developed. (Case page c-102) The company’s revenue has continued to grow substantially over that last couple of years. The next exhibits show the financial position from the end of 2006 to end of 2008 going from 996,660 to 1,364,661 with the net income margin being at 6. 1% by 2008 which shows the company profitability as it relates to expenses and liabilities. The next two slides just give a visual for where Netflix compares to blockbuster as it relates to sales thru 2010
Reference Page Thompson , A. University of Alabama 2008 Case 5 Competition in the Movie Rental Industry in 2008: Neflix and Blockbuster battle for market leadership http://beta. fool. com/danielsparks/2012/10/31/netflix-swot-analysis/15522/ http://www. slideshare. net/only1kiku/techindnetflix Gamble, John E. , Strickland, A. J. , & Thompson, Arthur A. , 2010 Crafting and Executing Strategy McGraw Hill/ Irwin New York New York http://finance. yahoo. com/q? s=NFLX&ql=1