Case Study Report: Netflix

Key Issues

Netflix is a famous company that offers Netflix-ready devices hooked up to TV and DVD content through home PCS and traditional DVD rental. A subscription-based model of this organization allows consumers to utilize their services and products through a monthly fee. Another disadvantage of this company refers to the subscription packages and unlimited online content.  At the beginning of their development as a competitive organization, Netflix seemed to be a large world market for renting TV episodes and movies. This case study report intends to analyze issues of Netflix, its peculiarities and provide the recommendations regarding possible solutions to the emerged problems.

This case study brightly demonstrates that all issues of Netflix have a managerial character and are related to the mistakes in the business strategy, product, and pricing aspects. One can distinguish the following problems:

• Winning back the unsatisfied customers.
• Defining new strategy for the DVD-by-mail business.
• Redirecting capital from the international to domestic operations.
• Educating the Latin-American market on streaming video.
• Strengthening partnership with Apple, Inc (Thomson, 2012).

Analysis

Financials

The stock performance of Netflix is consistent, especially during the period from 2000 to 2010. However, since 2011 Netflix have dealt with the growth of stock prices from $55, 5 to $304,79 (Thomson, 2012). However, due to the increase in prices the customers are unsatisfied and not ready to accept new rates. Consequently, stock prices began to decrease again. One can also see the growth in income statement & balance sheet. The revenues have been increased from $1, 36 m in 2008 to $3, 61 m in 2012 (Thomson, 2012). Positive net income proves the successful financial policy. In 2011, the profitability rate decreased from 58.88% to 4.56% (About Netflix, 2015). The main reasons for such reduction are related to the rising costs by suppliers and price growth.

Accounting

The financial crisis was not the most difficult period for Netflix because generating profits was their objective to increase the mail-rental and online streaming movie retail market.  Over the last four years, an average rate of the company has been 20% despite that 2007 and 2008 were not very productive for this organization. Product costs have achieved over 60% of revenue. ROA of this company was 17, 05% in 2009 (About Netflix, 2015). It is a high indicator. A steady revenues increasing of Netflix confirms the positive tendency of financials and accounting of this organization. However, accounting had also the restraining forces, such as inability to control operating costs and manufacturing (Duncan, 2011).

Marketing

Marketing of Netflix orients to provide customers with the necessary products and services as well as the establishment of the relationship with the entertainment providers who are also influential for this company. The marketing strategy of Netflix provides an easy use of technologies as well as identification of the customers’ interests and demands. They also provide the choice between mail services and streaming. Raising brand awareness is ensured through aggressive spending on marketing, advertisement, and public relations. The strength of Netflix is that they expand internationally. This company provides the transition to streaming. Marketing of Netflix presupposes capitalizing of subscribers’ base. Moreover, differentiation is their key strategy for finding the new customers.

Information Technology

Netflix uses information technologies to satisfy consumer demand, collect data about them and use them for their benefits.  One should mention that information systems, such as Business Intelligence or Balanced Scorecard, help to make numerous decisions about the consumers and offer them the suitable products and services. Netflix applies information systems to collect data, for example the personal television preferences. Such data allows Netflix to create an individual approach to every consumer. Information technologies provide a list of the suggested movies and shows according to the individual preferences. Moreover, analysis of data is vital for determining the necessity of investment and implementation of the new products and services.

Operations Management, Ethics & Corporate Social Responsibility

Operation management of Netflix relies upon creating unique software with TV shows and movies. One should mention that their software is unique; therefore, it is competitive and highly estimated.  Creating a design and attractive styling, offering value-added services and product selection are other not less important operations of Netflix. Ethics and corporate social responsibility of Netflix is based on the organizational culture as well as tolerant and respectful attitude to every consumer. Negotiations with other studios and companies, which produce the similar products, ensures brand image, good reputation and image in both domestic and international market (Duncan, 2011).

People and Organizational Culture

Due to the fact that Netflix has a good reputation and strong brand image, there are more people who desire to work for this company. The Netflix approach to the culture and human resources is compelling. The company provides the unlimited vacations for their employees. One should mention that Netflix is the place of freedom and responsibility attracting not only the customers but also the employees. The peculiarities of HR policy in Netflix are the following: freedom of making decisions, ethical principles, tolerance and respect, provision of compensation and bonuses as well as opportunity of promotion. Hiring, rewarding and tolerating are the principles of their organizational culture (Wells, 2009).

Management and Leadership

Management of Netflix is implemented by officers and directors. Reed Hastings is a founder of this company. One should say that leadership and management of Netflix are based on the innovation and implementation of the latest services and products. The leadership of this company is democratic and ethical. Management deals with such directions as talent management, communication strategy, product aspect, partnership and collaboration with other organizations, content aspect, legal and corporate affairs. Organizational management also includes human resource management, dealing with the innovative and creative projects, and strategic management, defining the actions necessary for the critical situations such as strategy misstep. This case study shows that a wrong strategy can become fatal for Netflix. Reed Hastings has implemented a unique management style that presupposes employment of the best human resources (Shields, 2014).

Organizational Structure

Netflix incorporates the functional organizational structure that is segmented according to its function rather than regions or customers. One should say that the structure is centralized because Reed Hastings controls six departments that are run by the individual managers.  Organizational control is related to the organizational structure. Consequently, monitoring and appraising of the staff are anti-controls. One should say that the motto of Netflix is also related to the organizational structure and controls: “Context, not Control.”   It is evident that such as a policy encourages the employees be more responsible and rely on their own forces and possibilities.

Strategic Planning

Strategic planning of Netflix is based on pricing, promotion, distribution and product strategies. The misstep in the strategy can be related to the inefficiency of the planning. First, every step of this company should be predicted and planned. For example, the unplanned and not argumentative growth of prices has provoked the dissatisfaction of customers.  Strategic planning should be based on such techniques as Five Forces and SWOT analysis. Moreover, strategic planning activities should coincide with the customers’ interests. Valuable drivers of the strategy in Netflix include technologies, delivery, geography, customization, and brand reputation.

Five Forces Analysis of Netflix

Five Forces technique consists of the power of buyers, threat of new entry, threat of substitutes, competitive rivalry, and supplier power. Five Forces technique will be relevant to the analysis of Netflix because it distinguishes the driving and retaining forces of the business.

Competitive Rivalry. One should say that competitive rivalry is too high even for such reputable company as Netflix. In order to achieve the competitive rivalry, Netflix should differentiate product offerings and to make the brand stronger. It is evident that the number of competitors is constantly increasing; consequently, Netflix implements the diverse strategy to get the competitive advantage. The rivalry is also intense because new companies, specializing in DVD business, are emerging. The movie rental industry is completely dependent on the newest movies and shows that will be popular among the customers.  It is evident that Netflix should improve its methods of gaining new customers in order to remain competitive. Moreover, low product differentiation can also lead to rivalry (Thomson, 2012).

The Power of Buyers. Customers can also become the driving forces as well as competitive pressure for Netflix. Consumers are crucial for this company; therefore, they take care about their personal needs and interests. The power of buyers for Netflix is medium. The disadvantage of this aspect is related to the undifferentiating of the products for the segments of customers.  Customers are highly sensitive in case of the price changes; therefore, increasing of prices for Netflix products provoked many negative feedbacks.

Supplier Power. It is low to medium. Netflix has many suppliers and different channels of distribution as well as access to the necessary materials. One can say that the company is dependent on supplier’s power since Netflix cannot manufacture movie titles. However, the suppliers can easily do this.

Threat of Substitutes. In the present times, there are many companies specializing in the similar services and products. However, this threat of substitutes is low. It is more comfortable to buy DVD than to stream or rent a movie. The problem is that the buyer demand is low due to the financial crisis. Consequently, purchasing DVDs is low. Moreover, owning a vast collection of DVDs is not practical. Key competitors of Netflix are Amazon Instant Video, Hulu+ and Red Box. Substitute products in movie retail industry are playing video games, surging the web, watching television and physical attending of movie.

Threat of New Entry. The number of the new entrants is high since the market is developing provoking barriers and obstacles for the further growth.  Moreover, the buyer demand is also high. However, new entrants can not become immediately successful because they should first advertise their brand. Netflix has a strong brand image; therefore, novices in the movie industry can not scare them.

From Five Forces Analysis, it becomes evident that the movie retail industry, such as Netflix, deals with many challenges. Shifts in consumer’s desire to buy DVD’s can be harmful to this company. The customers’ interests do not always coincide with Netflix’s strategies. Consequently, the company can loose them. It will be also efficient for Netflix to provide online movie collections since buying physical DVD’s is not popular anymore. Such service will help to save customers’ money and time, and one should not try to keep DVDs in good conditions. Future profitability of Netflix depends on the innovations and change management process. Transferring from stocking copies of DVDs to saving the online collection of the movies will save money for location of the software and mailing, DVD maintenance, postage and multiple large plants. Netflix should provide a quick access to entire network libraries which should be advanced and innovative.

SWOT Analysis of Netflix

Strengths of Netflix	Opportunities
1.    First Movie Advantage. Netflix was the first company that streamed the entertainment products and services. 2.    Using the Direct Mail Renting. Netflix was the first organization offered this service. 3.    Optimizing Content Suggestion. Netflix has their library viewership. 4.    Wide Geographic Coverage. Netflix operates in the international and domestic market. 5.    Revenue Agreement. Collaboration with the content providers allows Netflix to share the profits. 6.    Free Trials. Netflix provides 1 month of free trials. 7.    Netflix-Ready Devices. Collaboration with the device manufacturers reinforces branding efforts and proves that they care about every customer. 8.    Differentiation of Consumer Segments.  9.    The Relationship with the Video Providers. 10.    Comfortable Digital Environment. 11.    Movie Selection Software. Netflix has developed comprehensive and unique movie collection according to customers’ tastes and interests. 12.    Detailed Movie Information (Critic reviews, customer feedbacks).	1.    The Demand for Digital Streaming. 2.    Power of Suppliers. Netflix can find new suppliers that will make the company more competitive and reputable. 3.    Reconstructing of Subscription Packages. Netflix can shift from mail rental to digital streaming as well as become more innovative and competitive. 4.    Increasing Infrastructure Capacity. Using Global Internet Traffic Netflix can increase its capacity. 5.    Growth in Mobile Internet Segment. Netflix can use mobile data traffic to increase the number of users. 6.    Opportunity for International Growth. The USA is the primary market of Netflix. However, the company can win other markets. 7.    Growth of Independent Studios. Netflix can open independent film studios to decrease the bargaining power of the suppliers.
Weaknesses	Threats
1.    Mail rental. It is not the innovative way of doing business and belongs to the declining category. 2.    Bargaining Power of Suppliers. Suppliers can work also for the competitors of Netflix. 3.    Spending Too Much Money. Netflix has the distribution centers and DVD libraries that take their revenues. 4.    Management Missteps. Netflix has made numerous mistakes related to its strategy (high prices, poor communication and public relations with the customers, negative sentiments with their clients). Try our VIP Support Try our VIP Support Benefit from the incredible opportunity at a very reasonable price Order only for $9.99 5.    Lack of Access to Newly Released Films. Netflix does not provide access to the new films. 6.    Content Storage and Delivery. Netflix has to use the same cloud computing services in order to store content with Amazon. Therefore, they have conflicts.	1.    Changing Subscriber Preference. Netflix can undergo changes of subscribers’ preference towards online streaming change. 2.    Rising Competition. Amazon and Yahoo can remove Netflix from the market with their innovations. Hulu with their program can entice customers’ base of Netflix. 3.    FCC Regulation. 4.    Increasing Number of Networks. 5.    Increase in Internet Fraud. Customers can refuse from the online movies to save their personal information and payment data.

The strengths of Netflix prove that this movie retail business is attractive for investment and further development. They take care about their customers and try to adapt their products accordingly. It means that the company should decrease its strengths, reinforce them through the innovations and change management process. The strengths of Netflix reveal that the company has all the opportunities for the further development.

The opportunities of Netflix are endless since the company has a huge asset. The main goal is to improve marketing strategy in order to implement all these opportunities efficiently and receive profits consequently. Moreover, Netflix should collaborate with suppliers, customers and competitors to remain competitive in the market.

The weaknesses of Netflix prove that the company has to improve greatly management and marketing. Moreover, Netflix should improve their cooperation with customers and competitors. The threats of the company show that the organization should reevaluate the profitability and reconstruct their strategy.

The Status of Netflix

In general, Netflix’s performance is positive and satisfactory because the company managed to survive during the financial crisis. However, missteps in the strategy prove that they need further improvements and innovations. Despite the growing competition, Netflix can be supposed to be equal to the strongest rival firms. The main concern for Netflix is that it does not spend its costs productively and efficiently. Product costs can be reduced through the online collection of DVD’s. The revenues of Netflix are constantly increasing. However, 60% of revenues are spent on the organizational operations. It is possible for Netflix to shift entirely to the direct streaming and spend less cost on the distribution centers and studios.

Conclusions

Considering front burner managerial attention, many strategic issues of Netflix can become merits. Winning back the unsatisfied customers can be done through the introduction of creative ideas and quick decisions related to the change management process and innovation. Strategic planning will be the best way to reinforce strengths and overcome weaknesses. The creative human resources are necessary for the implementation of the innovative projects. Netflix is a big retail movie industry; therefore, managerial issues can appear from the external and internal environments.

The internal problems of Netflix refer to the customer and competitor perspectives. Political, legal, environmental, economic, and social issues are also possible. However, Netflix managed to avoid them. Winning back the unsatisfied customers, defining new strategy for the DVD-by-mail business, redirecting capital from the international to domestic operations are the key issues that have led to the missteps in the strategy.

It is worth noting that Netflix has its competitive advantage. However, this company should move further and increase their profits attracting more customers not only from the USA but from other countries. Future development plans of Netflix should be based on the implementation of a new business strategy that will not allow strategic mistakes and missteps. This new business strategy will presuppose improvement of the product and service assortment, increasing the amount of the customers and becoming more competitive among other movie organizations. Future development plans of Netflix should emphasize its attention on increasing performance of the employees as well as efficiency of the strategic management and change management process.

Development plans of Netflix should include long term and short term goals. Implementation of the future development plans for Netflix is necessary for making changes in the customer’s attitudes, technologies, and increasing profits. First movie advantage reinforces the brand awareness of Netflix and proves its rich experience in the market. From the case study, it becomes clear that Netflix needs some additional resources, such as human, technological, financial and physical ones, in order to strengthen its strategy.

Using the direct mail renting and optimizing content suggestion are the steps that are necessary for offering new services and enrichment of movie library. Consequently, marketing objectives of Netflix are related to maintaining strong growth and increasing market penetration. Being an experienced competitor in the market, Netflix knows the ways of attracting the new customers. Geographic strategy should also be improved constantly through finding new locations.

The main aim of Netflix is to widen their target market through the segmentation and differentiation. It has been suggested that marketing strategy should rely on getting new customers in the local and international markets, attracting the community (promotion, advertisement, public relations), and winning all worldwide markets through innovation  and change management process.

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