Netflix Company’s Business Model and Strategy

How strong are the competitive forces in the movie rental marketplace? Do a five-forces analysis

There is a lot of competition in the movie rentals industry. Blockbuster Online has a video-on-demand service that satisfies the interests of many customers. More firms are likely to enter the industry in the future which will increase the number of substitutes in the market. This may make it more difficult for the firm to acquire a larger market share in the future. Consumer habits are constantly changing and this requires the firm to change its strategic focus. Young consumers prefer watching content through mobile devices and they are likely to sign up for electronic movie rental services.

Suppliers may sign exclusive agreements with some of Netflix’s competitors and this may deny it access to premium content. However, this is likely to reduce suppliers’ earnings. This may make some suppliers provide products to more movie rental firm. There is also a threat of substitutes in the market in the form of illegal downloads, file sharing, and piracy. This may shrink profit margins in the industry due to a reduction in the volumes of sales made. However, some customers may be discouraged from purchasing such substitutes due to their poor quality.

What forces are driving change in the movie rental industry? Are the combined impacts of these driving forces likely to be favorable or unfavorable in terms of their effects on competitive intensity and future industry profitability?

Technological changes are driving competition in the movie rentals industry. Rental firms that offer products in form of DVDs face a lot of competition from online movie rental firms that offer video-on-demand services. Brand identity and product differentiation are other competitive factors rental firms need to take note of. Customers are likely to have more loyalty for brands that offer high-quality services compared to those that offer substandard services. As profit margins in the domestic market shrink, movie rental firms are likely to turn to consumers in lucrative global markets. This may favor firms that have developed effective market strategies that respond to take note of different consumer needs and expectations.

The combined impacts of these forces will be favorable because they will increase the quality of products offered by different firms in the industry. Netflix will be able to build relationships with suppliers, technology firms, and other stakeholders in the industry to improve its performance. In the future, there will be more segmentation in the industry with firms specializing in specific niches that offer them long-term rewards. This will expand the consumer base which will make the industry larger and more dynamic.

What does your strategic group map of this industry look like? How attractively is Netfl ix positioned on the map? Why?

Netflix has an attractive position in the industry because it already has a loyal customer base. It has more market knowledge about consumer behavior, their lifestyles, and specific consumer groups that are interested in various types of content. The firm has high customer satisfaction levels and this gives it more leverage over other firms that may try to capture part of its market share. Technological changes threaten the firm’s competitive position in the market and it needs to improve its market strategies to ensure they keep up with modern consumption trends.

The firm also needs to increase its financial resources to help it improve the quality of its services in the industry. This will make it perform better internationally. The firm needs to look for more sources of revenue from abroad to reduce its dependence on the domestic market. Netflix needs to form strong networks with electronic firms to ensure the content it offers is compatible with technology formats that are used by many consumers in the market. This will help the firm adapt to changes in the industry that are beneficial to its long-term financial stability.

What key factors will determine a company’s success in the movie rental industry in the next 3-5 years?

A firm that has established strong relationships with its customers will be able to perform well in the market. Netflix needs to take note of rapid changes in technology and consumer behavior to increase its market share. It needs to establish exclusive agreements with suppliers to ensure it gets premium high-quality content to be sold to consumers who are willing to pay high prices. Partnerships with firms that produce high-quality entertainment content will give Netflix more influence in the industry, which will boost its revenues in the long run. The firm also needs to extend its services to markets that have high internet penetration rates to increase its sales volumes. This will help it take advantage of new demand in global markets because the local market will get saturated in the next three years after new entrants have set up their operations.

What is Netfl ix’s strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Netfl ix is taking? What type of competitive advantage is Netfl ix trying to achieve?

A broad differentiation strategy allows Netflix to expand the reach of its services to a variety of markets. The firm intends to improve its business model by offering a wide variety of products to different customers. It intends to take advantage of new technologies in the market to capture new customer demand to increase its sales volumes in the market. The strategy to expand into domestic as well as global markets will help the firm identify new market opportunities.

Netflix seeks to diversify its services by segmenting its rental services into online and DVD mailing services. The firm also sells premium content on-demand to specific customers willing to pay high rates. The firm’s diversified business model gives it an advantage in the industry because it protects it against risks associated with focusing on narrow niche segments. Netflix’s strategy will help it build strong partnerships with electronic manufacturers and content providers. This will enable the firm to provide high-quality content to consumers willing to pay high rates. This will give it a higher competitive advantage in the industry which will help the firm increase its profit margins.

What does a SWOT analysis of Netfl ix reveal about the overall attractiveness of its situation?

A SWOT analysis reveals the following about Netflix’s situation in the industry.

Strengths

The firm’s users have good experiences whenever they use the firm’s products.

The firm has a strong knowledge base and brand identity that makes it competitive.

It has been operating successfully in the industry for a long.

Weaknesses

It has inadequate financial resources compared to its competitors.

The firm reacts slowly to changes in the industry.

Netflix is highly dependent on suppliers.

Opportunities

Expansion in domestic and international markets.

Alliances with content providers and electronic manufacturers.

Differentiation of products and services to give it a higher competitive edge.

The growth of e-commerce and improved internet penetration rates globally.

Threats

Increase in piracy.

Entry by new firms into the industry.

Future market saturation.

Changes in technology.

This SWOT analysis shows that Netflix needs to look beyond its current markets to improve its long-term financial performance. The firm needs to develop partnerships with manufacturers of electronic consumer goods to help it grow its revenues.

Strengths:
Good customer experiences
Strong knowledge base and brand identity
Long experience in the industry
Weaknesses:
Inadequate financial resources
Slow reaction to changes
High dependence on suppliers
Opportunities:
Growth in domestic and foreign markets.
Strategic alliances with external firms
Product and service differentiation
Threats:
Increase in piracy.
Entry by new firms.
Market saturation
Changes in technology

Figure 1 showing a SWOT analysis of Netflix’s industry situation.