netflix competitive strategy

This audience is highly diverse, and from France to India and the US, Netflix has to worry about the taste of people from all regions and cultures. How Competitive Forces Shape Strategy. Its market share is at 87% as of 2019, down from 90% in 2014. Its business model is different from Netflix. While Michael Porter’s vision used to help managers understand their competitive landscape in the 1980s and 1990s, nowadays companies can build their strategies in a much more complex way. However the technology and online streaming industries have flourished despite the downward drift in the global economy. The resources and capabilities of a company are its drivers of competitive advantage. He graduated with a Hons. The company offers a differentiated user experience. As of the fourth quarter of 2019, Amazon Prime Video had about 150 million subscribers—a number that's … Achieving growth in the online streaming industry is not easy because the players invest large sums in marketing. Considering this policy, producers use the fifth competitive force: the bargaining power of suppliers. Until now, the company has invested most of its revenues and profits on producing original content. According to Netflix: “In addition to choosing which titles to include in the rows on your Netflix homepage, our system also ranks each title within the row, and then ranks the rows themselves, using algorithms and complex systems to provide a personalized experience. 1563. Netflix was among the very first DVD and movie rental companies to take advantage of the internet era. One such deal is the multiple years licensing it has with HBO. Among the concepts Porter offers, there is one that deserves special attention:  five competitive forces in a particular industry: Other key concepts of the author include choosing a strategy and stick to it: • A cost reduction strategy, in which a firm achieves dominance over its competitors and gains greater returns thanks to a policy of a reduced production and sales costs without affecting quality. Environmental factors have also acquired a critical role for businesses around the world in nearly all industries. Heritage, S. (2019). Netflix is an entirely digital business and while physical businesses were hurt the most by the pandemic and lockdowns including the cinemas that remained closed worldwide, Netflix emerged as the most attractive option for people missing their dose of entertainment in the meantime. Apart from the US & Canada, Netflix has also found impressive success in other regions, including Europe, Asia Pacific, and the Middle East. Even if Netflix is moderately profitable right now, its profitability is expected to rise faster in the future. Still, the costs will be much lower, and the platform will have strengthened its profitability by combining higher subscriber income with lower operating expenses. Overall, compliance is essential for businesses like Netflix, since noncompliance can often result in hefty fines. Innovation also affects user engagement and continuous innovation is essential so users do not grow disengaged. Vox. Overall, the company has been able to gain higher loyalty from its employees while also ensuring that they find faster career growth and success. Referring to Cases 27 and 28 in your textbook, Netflix, Inc. and Netflix, and using the three circles analysis, describe Netflix’s competitive strategy. Cost Leadership. In order to do this, it applies three competitive strategies mentioned in the book. While a vast array of quality content is at the core of the Netflix experience, it’s the design of the platform and its other features that distinguish the experience from others. This fusion may be one of the paths for the future of the media industry, and managers and future managers need to look closely at it. Its premium content can be accessed by paying around $1.5 extra. As it was expected, the Competitive Strategy received both praise and criticism. In a media communication sector, a monopoly would also bring the additional risk of losing the desirable diversity of ideas and points of view. It has more than 13,900 titles overall. The company has a heavy debt load and if in the future its subscription growth rate falls, the company would need to diversify its business in order to service its debt. Keywords : Competitive strategy, Netflix, Niche Market, Business Model, Competition, Blockbuster, Price Wars, Amazon, DVDs by mail. From $953.7 million in 2017, its R&D expenses climbed to $1.55 billion in 2019 which reflects the increasing competition in the industry. Its popularity overseas has grown driven by several factors including the quality of its content, differentiated and superior viewing experience, and an improved user interface. Netflix is mainly a digital business with low to zero net environmental impact. In the second quarter of 2020, its net number of memberships has reached 193 million and could be past 200 by the third quarter. While good quality content is essential to attract a large audience, the entire user experience matters. These are the largest suppliers providing their services to Netflix, and their importance grows for Netflix because of the quality of their content or technological services. Political factors have acquired a central role for businesses operating internationally. Its recommendation system is the best of all the streaming content providers and has helped the company grow its user retention. Apart from that, Netflix creates most of its own technology and content, which reduces its dependence on the suppliers and controls their bargaining power. First of all, Netflix’s sheer size as the leading online streaming provider in the world makes it one of the biggest buyers of its suppliers’ services. Original Content. Content costs are fixed costs, and an enormous audience size guarantees enormous returns. Right now, advertising forms a substantial part of its annual revenue. The company makes its content available around the globe using cloud technology. For example, all users do not access all kinds of content on the platform during a month. Moreover, while the regulatory environment is currently evolving in most regions around the world, tax systems also vary from country to country. Apart from e-commerce, people turned to digital channels for entertainment as well. However, Netflix is investing in strengthening its competitive moat and investing where it matters the most. Even if its debt is large, with the current growth rate, there is reason to expect that it will not remain a worry in the future. Such plans will grow the company’s subscriber base among the lower middle class in the emerging markets. A critical component of the business strategy of Netflix is its marketing strategy and its specific marketing activities. The focus of the brand has remained on driving user engagement higher through increased focus on technological innovation. Organizations that failed to cope with this dual mission tend to face growing difficulties in remaining profitable in the coming years. Apart from the direct competitors like Prime, Hulu and Disney Hotstar, there are several more indirect competitors. It caters to the tastes and choices of diverse customer segments from all the regions in the world. It drives higher user engagement and stronger retention rates compared to rivals. Like a company having signed leases, Netflix is still responsible for those payments. HI6006 Competitive Strategy Assignment | Netflix. Netflix rose fast to become the largest online streaming platform in the world. Most of these suppliers are movie brands and technology providers like AWS. A larger number of people worldwide now access digital services including Netflix through their smartphones compared to some years ago. You can watch as much as you want, whenever you want without a single commercial – all for one low monthly price. However, that has helped it draw people from all over the world to its platform in larger numbers. There are several laws addressing data privacy, and some of them are sector-specific, addressing data collection practices in various sectors of the industry. Among streaming services, Netflix, which in 2018 became the world’s most market valued entertainment company estimated at $ 153 billion, has several competitive advantages listed by Porter. Another major factor that favors Netflix is the higher user engagement and retention rate. There's always something new to discover and new TV shows and movies are added every week! The latter ones, however, realized how profitable the industry was and entered the market as well. Netflix remains loyal to its relatively low-cost policy offering thousands of movies and series produced by itself or by many other companies. There are few rivals in the market streaming globally. Netflix attracts new subscribers in larger numbers compared to the other providers of online streaming content. This is achieved through omnichannel delivery of digital communication, clever partnerships with major companies, compelling original content, and attention-grabbing outdoor advertising, as detailed below: The VRIO framework helps managers when they are analyzing their company’s resources and capabilities. course code. Its debt to equity ratio has improved since 2015. Overall, while Netflix continues to experience a fast surge in popularity and higher engagement rates than rivals, its focus on innovation continues to grow stronger. Many movie producers refuse to renew their contracts with other companies to allow them to show their popular series, but even if they do, they charge high prices for that. To put this another way, when you look at your Netflix homepage, our systems have ranked titles in a way that is designed to present the best possible ordering of titles that you may enjoy.”, “We take feedback from every visit to the Netflix service and continually re-train our algorithms with those signals to improve the accuracy of their prediction of what you’re most likely to watch. However, the existing players like Netflix, Disney Hotstar and Amazon Prime are aggressive about maintaining their leadership and the competitive edge they have gained will be difficult for any new player to achieve. Apart from these, there are more players like HBO and Apple that have also released their online streaming services. In fiscal 2019, the company spent around $2.65 billion on marketing, of which around $1.88 billion were spent on advertising. Netflix has still maintained its leadership position successfully. Growing regulatory pressures also pose a threat to the sales and profitability of Netflix. Added on - 18 Feb 2020. Governments around the world are exercising tighter control over how firms operate locally in their markets. The Free Press. Its revenue will follow an annual growth rate or CAGR of 10.7%, leading to a market volume of $85.7 billion by 2025. The product mix of Netflix is also a critical source of competitive advantage for the online streaming platform. Despite the rising competition in the online streaming industry, this trend should continue in the longer term. Apart from creating its own content, Netflix also licenses content from others. To anticipate the necessary strategic adjustments, a firm must consider the likelihood that the industry will be affected by evolutionary processes such as new entrants, innovations, and changes in consumer segments (Porter, 1980). The bargaining power of buyers becomes high in cases where there are multiple substitutes available in the market. Apart from that, its focus is also on maximizing employee satisfaction through training, performance management, and a better work life balance. According to emarketer, its market share stood at 87% in 2019, and over the coming years, it might reduce as competition from other players has increased. Till now, the company has been reinvesting most of its revenue and profits in its content which has been adding to its operating expenses. The bargaining power of the buyers is also low because of their smaller size. The higher focus on innovation gives it an extra competitive edge. However, to drive user retention and engagement level high, the company has to focus on continuous innovation to have the best-in-class experience. The company has proved excellent in terms of marketing an innovative and customer oriented image. The platform provides films and television programs for both purchasing and rent along with venturing into other content deals to maintain its competitive edge. When the core competency arising from a combination of resources and capabilities satisfies the four requirements, the competitive advantage thus generated will be sustainable. The number of memberships at Netflix has continued to rise fast in recent years. Thus, the cost leader would benefit as there would be less room for differentiation. Netflix Inc.’s generic strategy is cost leadership, which in Michael E. Porter’s model ensures competitive advantage through minimized costs and, frequently, minimized selling prices. All of this exerts pressure on the company’s balance sheet because it comes at the cost of rising debts. Streaming TV is about to get very expensive – here is why. While the company’s revenue has increased in 2019 from nearly all regions, it will need to increase its penetration of the Asia Pacific and European regions to grow its revenue from these markets. Apart from its services’ competitive pricing, Amazon has also added a large number of original videos to its collection that makes it stand out, including several shows in local languages targeted at its ever-growing audience in the emerging markets. The company has experienced sharp improvement in its user base through the recent years. Netflix invests a huge sum each year in research and development. However, Netflix will continue to fill the gap using others’ content. The worth of Amazon Prime Video … The main reason was that while the pandemic had a really strong impact on the lower end of the market, it had a relatively lower or no impact on the higher end which was evident from the sales of premium smartphones. ARPU or Average Revenue per user is expected to reach above $58 by then. 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