STRATEGIC

MANAGEMENT
NETFLIX IN 2011 Analysis
PGP 1, SECTION 6
GROUP AE1

Members
MAYUKH BHATTACHARYA 15S626
RIDHIMA MODI - 15S635
SRINATH SRINIVASAN 15S647
TEJAS B N 15S649

PARINITA V KUMAR 15805

Summary
Netflix was one of the key players in the U.S. Home Video Rental Market ever since
its inception in 1997. The company was the first of its kind to use the DVD concept
to deliver movies to homes, thereby making a market for itself. With the evolution of
time though, complexities developed and Netflix had to keep modifying its
strategies to maintain competitive advantage. Their recent move to charge
separately for their streaming video service and DVD service had been a huge
cause of concern for the customers.
Over the years Netflix carried out a lot of changes to maintain competitive
advantage and bring about unique value proposition to customers. They have been
listed as follows

Early Days
Reed Hastings introduced DVDs to the movie rental business. Until then, only VHS
videocassettes were available for rental. The new DVD technology gave them a first
mover advantage in terms of technology. The DVDs were easier to ship and hence
proved to be cost effective. At the same time, customers were able to view better
quality content. They went ahead with DVDs model and targeted the early adopters
of DVD technology. They wanted to capture the underserved market and wanted to
be the first one to gain early mover advantage.
Netflix showed great prowess in demonstrating customer value in advance.
Prospective customers saw the DVD technology to be the future of movie rental
industry. It is evident from the fact that DVD player in US households penetrated
from 5% in 1999 to 65% in 2004.

Prepaid Subscription Service

Customer Value proposition is step by step process. Netflix were hit by bad reviews
from customers regarding slower delivery. The customer retention was proving to be
a tough task at a period when they spent 100 200 $ to bring in a customer. The
cost of building a library was also proving to be costly.
Prepaid subscription service was perceived to add value to the customer.
Netflix used this to turn their longer delivery time to their advantage. It proposed to
allow customers to hold 3 movies at a time and exchange as frequently as they
liked. It meant customers always had a Netflix movie DVD at their home. Netflix
were quick to make pricing changes accordingly by introducing unlimited rentals.
The term unlimited proved to be a great value for the customer. It helped Netflix
add more customers to their subscription base. Netflix provided a complete package
to the customers and was termed as Netflixs all you can eat model. This model
was a great alternative to the traditional per-day fee structure that the industry
followed.

Proprietary Recommendation System

The recommendation system from Netflix went on to become a hit for Netflix and
created a unique value for the product. Five movies would be highlighted on their
website, which would then be rented out instantly. It later changed to five movies a
day. The referral system was made to respond better to customer demand. All the
logic behind the suggestion came from a short survey at the start of account
creation. The system also gave rise to Queue method of allocation of movies to
customers to avoid any discrepancies among customers.
To avoid stock out, a filter was placed between the output of recommendation
system and the results displayed to the subscriber. The whole system helped wash
out any customer frustration. Waiting times were also reduced as only in stock
movies were suggested.
The entire system went on to become a great hit. It was totally aligned and
delivered what Netflix aimed for convenience, value and selection.

Building the Movie Library

One of the major sources of dissatisfaction among subscribers was the inability to
rent new relapses in a timely manner. To overcome this, Netflix entered into
relationships with studios that allowed them to have access to a national inventory
of diverse blockbuster movies.

Distribution and Delivery

To solve the problem of next-day delivery, Netflix opened 58 delivery centres by
2009 as they believed delivery time was a key measure of customer satisfaction.

Growing Content Acquisition

To enhance its reputation and to cater better to the ever-increasing subscriber base,
Netflix acquired the distribution rights to certain independent films through Red
Envelope subsidiary which helped them gain access to high quality films.

Customer Retention
In a bid to retain customers and to attract return visitors, Netflix dished out an
online subscription policy where customers could cancel subscriptions as well. Their
profiles were maintained even if they left Netflix. Moves like these were extremely
important to customer satisfaction potential and also helped the company save
costs.

Transition to Streaming Videos

To maintain their position in the industry and to differentiate itself from competitors,
Netflix launched the streaming feature at minimal additional cost and with a view
instantly option.

Developing original content

With licensing costs on the rise and competitors striking similar deals, Netflix
developed the idea of developing original content to differentiate themselves. The
first such movie they invested in was House of Cards, which was met with
tremendous success.