Converting Netlfix’s Weaknesses Into Strengths

Subject: Company Analysis
Pages: 3
Words: 965
Reading time:
4 min
Study level: Bachelor
Strengths Weaknesses
  • Brand loyalty. Customers recognize the brand among the competing streaming services and stick to using Netflix daily;
  • Own production company. Besides leasing the rights to stream various shows and motion pictures, Netflix allocates nearly 35% of its costs to the production of original Netflix content;
  • Leadership in the number of viewers and subscribers worldwide. According to Saurel (2019) and Penamatsa (2018), Netflix managed to reach more than 150 million global viewers;
  • Internationalism. Netflix is now streaming in 190 countries (“Where is Netflix available?” n.d.)
  • Adaptability. Netflix is extremely customer-oriented, modifying content and subscription fees in each operating state.
  • Lack of subscription options. Currently, Netflix does not offer any special offers to its customers besides three basic fee types;
  • High operational costs. The company spends billions of dollars on paying for product licensing;
  • Heavy reliance on connection quality. Netflix users associate the issues with the internet speed with the quality of Netflix streaming;
  • Licensing issues. Netflix users tend to complain that they cannot access some shows because their licenses has terminated;
  • Low appraisal of original content. Despite the success of original Netflix TV shows, the majority of Netflix motion pictures receive low critic scores.
Opportunities Threats
  • New pricing offers. Netflix can create new pricing strategies such as a discount on an annual subscription, plans for limited access to content, student discounts;
  • Movies for rent. Considering the issues with high licensing costs, some movies and TV shows can be presented for an additional fee that would still be the lowest in the market;
  • Increasing the licensing coverage. Since one of the issues with Netflix content is its unavailability depending on the country, Netflix may consider extrapolating the licensing costs to increase access;
  • Alliance with local broadcasting services to stream local shows.
  • Competition. Both established (HBO, Disney+, Amazon) and emerging (Hulu) streaming services provide an extended video library;
  • Piracy. Stealing original content and leaking it online is hard to track, presenting a potential financial loss for the company;
  • Government regulations. Some countries present demands that are both functionally and financially challenging for the service (Onyusheva & Baker, 2021);
  • Financial risks. Exchange rates and regulation of prices can affect service revenue.
  • User’s violation of terms of use. Many Netflix users share their accounts with several people outside their homes, reducing the revenue significantly.

The business’s strengths and opportunities

Although Netflix has many functional strengths, its primary advantage is the extent of brand loyalty. According to Martins and Riyanto (2020), users are mostly satisfied with the services provided by Netflix, with the majority of users being comprised of Millennials or Generation Y representatives. Bearing this information in mind, Netflix can use its recognition and content variety to target new customer groups, including students and older age groups, be presenting discounts. Moreover, brand loyalty is likely to increase if Netflix presents loyal customers with a discount if they are willing to be billed annually instead of monthly.

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Furthermore, the adaptability of the service already makes it willing to cooperate with local creators to broadcast popular TV shows, as licensing can be cheaper if the show is streamed locally. For this reason, Netflix can use this user orientation to broadcast more local shows and movies to engage with the audience, as local creators and film companies will reach more viewers, while Netflix will ensure adaptability and customer loyalty.

Converting the business’s weaknesses into strengths

The financial losses the company has are the most relevant to Netflix because the opportunity to license more products will result in more viewers and a competitive advantage. For this reason, using the opportunity to present some premiere movies for additional rent or purchase can be a beneficial step to ensure higher revenue. Undeniably, the costs should be lower than in the market, as many people already consider Netflix relatively expensive streaming. Another way to save on operational costs is to spend less on the original motion picture production. Currently, Netflix embraces a strategy of mass content production, creating low-budget movies with brand deals to generate profit, but many of these movies receive extremely low scores on IMDb and Rotten Tomatoes. For example, one of the recent romantic comedies, He’s All That, received a 31% rate on Rotten Tomatoes and a 4.1/10 score on IMDb (“He’s all that,” 2021a; “He’s all that,” 2021b). Hence, producing fewer shows and movies while allocating more costs to enduring the license for popular shows can increase customer satisfaction and profitability.

The actions the business needs to take to advance its goals

Considering the competition in the market, Netflix should take the following steps:

  • Increase the promotion of the most successful original shows in order to compete with such platforms as HBO that focuses on quality original TV series;
  • Reconsider the subscription plans, including limited offers and loyalty discounts;
  • Reallocate a part of the operational costs to enduring long-time licenses for popular shows. For example, such popular shows as Modern Family or How I Met Your Mother tend to disappear from the platform until the license is renewed;
  • Introduce new terms of use and privacy that would explicitly prohibit the use of one account simultaneously from different locations to make sure that all the users pay the subscription fee.

Interrelationships among distinct functional areas of the organization

Currently, the functional organization of Netflix provides little autonomy to the regional divisions of the company, as they are to report to separate functional groups and the CEO. However, the majority of the issues, such as licensing, cooperation with local broadcasting services, content promotion, and subscription offers, are susceptible to the location. Since the top management of the company has little knowledge of the regional peculiarities, it is highly recommended that the company embrace new functional areas of regional management to shift the focus from the North American segment to the rest of the Netflix-covered areas.

References

Onyusheva, I., & Baker, A. S. (2021). Netflix: A case study on international business strategy development. The EUrASEANs: Journal on Global Socio-Economic Dynamics, 6(31), 40-52.

Where is Netflix available? (n.d.). Netflix Help Center. Web.

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Martins, M. A. J., & Riyanto, S. (2020). The effect of user experience on customer satisfaction on Netflix streaming services in Indonesia. International Journal of Innovative Science and Research Technology, 5(7), 573-577.

He’s all that. (2021a). IMDb. Web.

He’s all that. (2021b). Rotten Tomatoes. Web.

Penamatsa, V. (2018). Netflix, Inc.: A strategic analysis. Northeastern University. Web.

Saurel, S. (2019). The Netflix golden age is over. Medium. Web.