Business Brief: The Changing Landscape
Netflix an online distributor of rented DVDs through mails has pioneered a progressive change the movie rental industry. Netflix is a winner when it comes to using technology advances, changing a business model from renting DVDs to streaming TV shows, videos, and movies anywhere, anytime. With changing times, every business needs to undergo transformation. In a world where tablets and smartphones have quickly replacing many gadgets and accessories DVDs had to go. But it was the long and standing vision of Netflix that let it happen. It was one of the biggest market moves in the entertainment industry. The company anticipated the problems they could face in future from the competition or from a generation that relies on mobiles and tablets. And no sooner found solutions to preempt the possibility of failure. In an era where technologically everything is accessible over handheld devices this change was welcome by everyone and most importantly the younger generation. Though many competitors like Blockbuster, Amazon, Redbox, Huluplus followed but Netflix was a clear winner. A financial update from the supplier’s financial result suggest that Netflix has revenues of $3.2 million revenues in 2011 an increase of 48 percent from 2010 and a net income of $226K an increase of 41 percent from the previous year.
Netflix Strategy: Perform or Perish
Netflix offers various products like rented DVD, content via PCs, and video streaming via Netflix enabled devices like tablets and mobiles. In addition to that Netfilx has a subscription based model where customers can choose to pay as they use.
Netflix opted many different strategies to be successful in transforming their business
- Keeping the install base intact: For people who still want the DVDs via mails, the option was kept open as before
- Expanding the reach: Netflix partnered with entertainment video providers to give the audience more choices
- Grow new install base: With tablet and smartphone market booming and masking the TV and DVDs, Netflix offered its customers various options.
What Netflix did Differently
A very important differentiator is the use of analytics software. Using the software Netflix could identify unique searches done by a particular customer and suggest other options according to his/ her choice. This strategy differentiated Netflix’s business and soared their profits. By the time competition would catch Netflix was much ahead in the game.
In addition to this Netflix had a very reasonable price tag to its offerings.
Five Forces in context to Netflix :
Competitive rivalry within the industry: Almost everyone in this industry has different ways of doing the same business. The completion was mainly in the way the suppliers covered the characteristics of the retail movie industry for example the choice of distribution partners, breadth of product portfolio, price range, coverage, and the hassle free access. This threat was high for Netflix.
Threat of new entrants: Many people just follow a trend. And as there are new ideas in a business like going from hard DVD to streaming, from a fixed pricing to subscription based many suppliers entered the market and did just one of those few things very well. The threshold to enter the new market was fairly low thus the threat to Netflix was high.
Threat of substitutes: This challenge was fairly low for Netflix. DVD soon started becoming obsolete and was substituted by online streaming.
Bargaining power of suppliers: This is not such a big threat for Netflix. Suppliers always go behind profits which at that point in time only Netflix could provide. Netflix’s streaming mode helped the supplier in the industry to get more avenues of doing business.
Bargaining power of customers: This was not at all a threat for Netflix. The cost of shifting from a DVD mode to a streaming mode was fairly low so everyone was ready for the change if they had the devices equipped for that.
Conclusion
The movie retail industry was undergoing a big change that changed the course of doing business by the likes in the industry. The model was financially viable from many standpoints – no carrying cost of DVDs, less maintenance cost, less postage and handling charges. This was just replaced by Netflix’s willingness to change, attitude to take risk, invest in technological advances and lead the trend.
