One such deal is the multiple years licensing it has with HBO. The most critical difference comes from technological innovation. Apart from the Federal laws, there are hundreds of data protection and privacy laws among the US states and territories. 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. Overall, it has 193 million paid memberships across 190 countries. However, there are pricier premium options also for Hulu viewers. The VRIO framework helps managers when they are analyzing their company’s resources and capabilities. Netflix has a strong competitive advantage supported by differentiated customer experience, a large collection of Netflix originals, its focus on innovation, and a competitive pricing strategy driving higher popularity across all consumer classes. New York Free Press. contact:,, Business Growth Strategy of Facebook: A case study, Business Growth Strategy of Netflix: A case study, Navigating the Job Market During and After COVID-19, 4 Vital Considerations for Businesses Implementing the Internet of Things, How to Build a Sales & Marketing Funnel to Increase Sales Conversions, How To Make Online Marketing Your Business’s New Best Friend. Referring to Cases 27 and 28 in your textbook, Netflix, Inc. and Netflix, and using the three circles analysis, describe Netflix’s competitive strategy. Develop its pricing strategy and subscription model to ensure affordability and new customer acquisition. When the core competency arising from a combination of resources and capabilities satisfies the four requirements, the competitive advantage thus generated will be sustainable. Apart from that, Netflix creates most of its own technology and content, which reduces its dependence on the suppliers and controls their bargaining power. Netflix’s financial performance has improved sharply over the past five years. Another benefit of creating its own original content is that that company has more control over the quality of the content it offers. It offers Netflix a strong competitive advantage in the global market. He graduated with a Hons. 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. Netflix viewers can … Some of the leading suppliers include Dreamworks owned by Comcast, Lionsgate, and Gaumont Film Company. It is also important that the society and the government follow industries’ structural transformations. Netflix offers its services to viewers in 190 countries. Its operating margins are expanding, and its leverage is growing. 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. Netflix has still maintained its leadership position successfully. Bloomberg 16 January 2019. The intervention and control of governments with regards to international businesses has grown a lot in recent years. With time, as it continues to add more good quality and original content, the brand equity of Netflix keeps growing stronger. Several of its competitors have offered more competitive plans and pricing to grow their sales. Netflix generated $11.7 billion in 2017 in net revenues. Netflix is a global brand, but Hulu is available only in the US states, territories, and military bases. (English Edition): Boutique Kindle - Entrepreneurship : The impact has not been the same across all economies but more or less key industry sectors across all regions have been badly hurt. Over time, stronger brand equity has started translating into higher brand recognition and brand recall. The company has focused on developing its own original content that stands out from the content available on the other platforms. The main driver of these huge cash costs is found in Netflix's growing content-production efforts. However, the user experience offered by a platform marks the main difference. 11. The social media network has a large collection of videos that engages users from all over the world and most of it is user-generated content. From around 4% in 2016, the company’s operating margins grew to 13% in 2019 and can rise to 16% in 2020. For many tech organizations, managing their human capital strategically has helped them grow their competitive advantage stronger. It could generate an extra $1.3 billion from the US market alone if it introduced a lower priced and ad supported tier in 2021. Secondly, it is necessary to predict the industry’s evolution. The company has successfully generated strong brand recognition through its focus on marketing. The Threat of New Entrants: new competitors can change the market share of existing companies. Netflix has invested most of its revenues and profits in creating original content. However, by 2023, it could reduce to 86.7%. Moreover, the company has created a differentiated viewing experience that is optimized for all screens. Netflix’s competitive edge. In a media communication sector, a monopoly would also bring the additional risk of losing the desirable diversity of ideas and points of view. The company takes its environmental impact seriously and has adopted practices that help it become more sustainable. 8. pages. Netflix attracts new subscribers in larger numbers compared to the other providers of online streaming content. First, it strives to reduce its production and sales costs maintaining high quality. Marketing is also a driver of solid competitive advantage and popularity for the online streaming brand, strengthening its presence in the global market. The Free Press. With an audience size of close to 200 million, its profitability is poised to improve significantly in 2020. There are few sellers in the market offering a similar experience and as large a collection of movies and TV shows in diverse genres and original content. Therefore, adding extra subscribers brings enormous profits while there is nearly no additional cost incurred to provide services to more subscribers. Its advanced algorithms help optimize the user experience for nearly all types of viewers. Netflix's Business Model and Strategy in Renting Movies and TV Episodes Netflix has a simple strategy, but it works. While good quality content is essential to attract a large audience, the entire user experience matters. Already in 1985’s, in the book called “Competitive Advantage” (1985), he seeks to describe how a company can gain a sustainable cost advantage or differentiate itself from its competitors. Prof. Ricardo BrittoDoctor in Business Administration at USPDean of the IBS Americas. Across most regions, penetration of smartphones and the internet has grown, and people now depend mainly on digital channels for availing of various products and services. 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. Moreover, the company’s business model also involves a flat-rate subscription revenue model. Its memberships grew to 50 million in just five months following its launch. The bargaining power of buyers becomes high in cases where there are multiple substitutes available in the market. The Guardian. Its revenue has more than trebled since 2015. For example, to effectively entertain the world, the movie streaming business must grow its membership to a larger global scale. While Chinese law favours the local businesses mainly, international and particularly the businesses based in the US find it difficult to operate in China without facing censorship from the government. Moreover, people have grown used to digital lifestyles and using digital channels to obtain products and services. At the same time, it brings challenges, especially for those companies that are having hard time adapting to new technologies. Original Content. During the pandemic, the number of subscribers of Netflix grew sharply. In the second quarter of 2020, it added around 10 million new members. Large international businesses are affected heavily by economic fluctuations in the international economic environment. Overall, in the longer term, Netflix will be less vulnerable to competitive pressure and to pricing changes or competitive marketing by its rivals. Abhijeet has been blogging on educational topics and business research since 2016. While Netflix can exercise some caution in this area, by 2020-2021, its operating margins can be expected to grow more impressive. Overall, the company has been able to gain higher loyalty from its employees while also ensuring that they find faster career growth and success. Google owned YouTube also poses a major threat with its large collection of movies that is available for sales or rent throughout the world. Subscribe. Considering this policy, producers use the fifth competitive force: the bargaining power of suppliers. Secondly, it differentiates its products by offering some unique features within the industry in the form of technological advances. Overall, Netflix is in a financially strong position. Because it is an online-enable or Internet-based business that follows the general principles of electronic commerce, Netflix makes extensive use of different digital marketing activities. The human capital of a tech organization is also a fundamental driver of competitive advantage for the company. 0. They accounted for around 50% of its revenue in 2019. Most of these suppliers are movie brands and technology providers like AWS. You can read about the data collection practices of Netflix here. HI6006. 57, No. Despite it, the company has maintained its lead in the global market and continues to add new memberships in large numbers each quarter. Still, several more laws address data collection practices in specific areas like the Children’s Online Privacy Protection Act, The Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act. ARPU or Average Revenue per user is expected to reach above $58 by then. The level of resonance that Netflix gained among its users will be difficult for its rivals to imitate. This is one of their biggest competitive advantages in terms of differentiation of services by providing valuable exclusive experience to their customers. Hulu has also adopted many different pricing plans to cater to the different needs of various user segments. Netflix is known industry-wide as an innovative brand that has established an organizational culture fostering innovation and creativity. Competition from rival players has continued to grow. The political systems, governance and level of government control of businesses differ from market to market and region to region. In 2019, the research and developed expenses of the company reached $1.7 billion from $981 million in 2016. The cloud industry and the tech as well as e-commerce industries remained nearly unscathed despite the pandemic since people’s reliance on digital services grew. Its net revenue grew to $15.8 billion in 2018 and then $20.16 billion in 2019. While its cash flow is expected to improve this year, it may still take some time before Netflix can achieve neutral cash flow. The company has experienced sharp improvement in its user base through the recent years. Maintain and expand its platform on the website, Mobile apps, TV apps. From $187 million in 2016, the company’s net income grew to $1.87 billion in 2019 or by ten times. As a result, to maintain its lead in the online streaming industry, the company must continue to invest in original content to retain its edge. Van Der Werff, E. (2019). Business Insider. Apart from that, Netflix spends on digital advertising and promotions to market its brand and individual movies and shows. Netflix is a global brand and so is Prime, but the competitive advantage of Netflix is stronger. Some authors oppose Porter’s view that firms that achieve cost leadership should encourage competitors to do so as well. The company’s operating margin also expanded from 5% in 2015 to 13% in 2019. However, large businesses, whether they have an environmental impact or not, still are responsible for protecting and investing in the environment. This gave the company enough time to blend in and create a sustainable market for its self. This video presentes Porter’s 5 Forces, described in the book “Competitive Strategy”, by Prof. Michael Porter. Until Disney joined the streaming wars, Netflix’s competitive strategies were rooted mainly in content innovation and revolved around perfecting their recommendation and personalization engine. Brand equity also rests on brand identity and how your customers recognize your brand. Netflix Business Model and Strategy in Renting Movies and TV Episodes. The threat of substitutes for Netflix is low because there are very few players in the market that offer similar products or comparable services. For example, the rise of digital technology has brought sweeping changes worldwide. Despite having achieved unprecedented market success, the company risks losing its leadership position due to the dispersed focus. This is something very relevant for democratic societies. Netflix’s success can be partially attributed to the company’s focus on simultaneously catering to the tastes of varying audiences. WallStreet Journal wrote about its debt in 2019, that an entertainment company’s cash obligations, and audience whims, make the profile of a content provider riskier. Diversifying into other innovative markets such as the video on Demand and the streaming media markets. Netflix has created a strong brand image, and it has established itself as a distinct brand in the industry. Develop a roadmap to enter into the new market. During the pandemic, while the sales of the entry-level smartphones were severely hurt, premium brands experienced impressive sales. As of the fourth quarter of 2019, Amazon Prime Video had about 150 million subscribers—a number that's … The product mix of Netflix is also a critical source of competitive advantage for the online streaming platform. 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. Netflix has invested a lot in the content on the platform. ” This core strategy refers to Netflix’s generic strategy for competitive advantage and intensive growth strategies, and strategically implies the corporate mission statement. In this work, he emphasizes the importance of the industry as a whole – that is, the external environment – in choosing the company’s strategy. Third, while prioritizing the US and European markets, it also tries to attract specific consumer segments on the periphery of the audiovisual media world. Organizations that failed to cope with this dual mission tend to face growing difficulties in remaining profitable in the coming years. It has more than 13,900 titles overall. So, I believe that Netflix could adopt a three-pronged strategy to maintain its foothold in the market. The company also invests in marketing the original content and promotes them online, through media and social media. The company’s key reason for creating its own content is that it will eventually help it lower its content costs in the longer term. In just the past three years, the research and development expenses of the firm have close to doubled showing how technological innovation is driving continuous change at Netflix. For Netflix, there is no reason to stop spending on original content, even at the cost of accumulating more debt. It drives higher user engagement and stronger retention rates compared to rivals. 137-145. Being a competitor in the corporate world requires constant monitoring of your situation and the events that are taking place around you. Apart from creating its own content, Netflix also licenses content from others. However, quality content plays a central role in driving memberships and user loyalty. Apart from its credit borrowings, the company has made contractual agreements for some of its content that it hasn’t yet paid. For example, its ‘The Bad Boy Billionaires’ show faced legal threat in India because of its content. Another important factor that has kept buyers’ bargaining power under control is the highly differentiated experience Netflix offers. However, Netflix has a strong competitive advantage against the other players and also enjoys the largest market share of all the online streaming brands. 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. With growing competition in the market, Netflix has also increased its marketing expenses. But the rules of game in Videos streaming industry is rapidly changing. There are several laws addressing data privacy, and some of them are sector-specific, addressing data collection practices in various sectors of the industry. Until now, Netflix has faced fewer political barriers compared to other large internet businesses like Google and Facebook. A larger number of people worldwide now access digital services including Netflix through their smartphones compared to some years ago. This is the case of the NBC series “The Office”, which from 2021 will be shown only by NBC Universal streaming platform. In many cases, in order to implement the chosen strategy, a firm must also develop more than one of the strategies mentioned above. Economic factors too play a direct role in the context of international business and their impact is quite deep on the profitability of international businesses. Charging $59.99 without the two channels can discourage avid sports lovers. Moreover, there is also the increase of streaming services because of such companies as Disney, CBS, HBO, Amazon and others that mainly offer their own movies and shows (Heritage, 2019). Amazon Prime membership includes several benefits. Among cable TV companies, some continued with “fat packages” containing dozens of channels. Netflix operates worldwide in 190 countries but its core markets are the US and Canada which account for the largest part of its net revenue. The content was produced by Netflix itself or by big studios that were hired. Added on - 18 Feb 2020. Amazon Prime and other competitors of Netflix have also been adding their original movies and shows to their collections to reduce the market influence of Netflix. This will only improve its competitive moat. 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. The company has also adopted practices that minimize wastage in its offices worldwide. Netflix’s strategy: more original content, but shorter runs . While Netflix has already accumulated a vast library of great quality content, it has also continued to improve the user experienced through the use of algorithms. A critical component of the business strategy of Netflix is its marketing strategy and its specific marketing activities. However, Netflix will continue to fill the gap using others’ content. Competitive Strategy: Techniques for Analyzing Industries and Competitors. 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