Free Case Study About Strategic Analysis/Porter’s Five Forces
Individual Case Analysis of Netflix
Background/ Problem Statement
There is no doubt that Netflix has revolutionized the way people enjoy their films and movies. Netflix currently ranks as the largest internet subscription website for watching television series and films. It has close to 25 million subscribers across the globe. Netflix offers a monthly flat rate for unlimited television and film watching and this has attracted very large audience across the globe. Things have however started going awry for the company in recent years. In the year 2011, the company announced that it would increase its subscription rates by up to 60%. The result was the loss of over one million customers in just three months. Later on, the company decided to adopt a new strategy of splitting its internet subscription service and its DVD mail order service, giving the latter a new name (Quickster). This strategy was seen as a smart one, but the major failing of the company was that it did not follow through the strategy with a well-developed and furnished communication plan. In addition, the company was widely ridiculed by industry experts as well as customers who felt that the move was unnecessary. For an industry quite as sensitive as film and television, rash decisions are likely to elicit a lot of negative response and may even translate into business loss. Consequently, if a company has to make any decisions that will change the way business is conducted, customers need to well informed and educated and in fact made to understand why a new business move will be favorable to both customers and the organization. There is no doubt that Netflix will once again in the future hope to restructure itself as a means of adjusting and coping with the dynamic market environment, but if this restructuring is to yield any benefits, then the company musts develop an efficient communication strategy right now that will be used for such future endeavors.
Television and film have become the primary form of entertainment in modern days. Consumers, for example, want to come home from work and enjoy a good movie or television series as they relax Others who are on the road would wish to pass their time, for example on the plane catching up with their favorite television series. This is a market with a very high potential, and Netflix needs to get in line or risk becoming irrelevant.
First of all, the threat of new entrants to this market is significantly medium. As mentioned, this is an industry with a very high potential and therefore quite attractive to new prospectors. The only impediment that face new entrants is the intensive capital and infrastructure required to set up such a service and this is primarily the only advantage that Netflix currently has as it is already well established with quite a strong infrastructure.
The threat of substitutes is very high in this industry. First of all, there are millions of free download sites across the internet with “pirate bay” being the most notorious by far. Consumers can easily substitute the content offered by these free download sites for the content offered by Netflix. In addition, consumers can turn to other substitutes like YouTube, which is actually a free video sharing site and that offers some form of entertainment that is almost similar to the one offered by Netflix. The company must, therefore, tread very lightly with the knowledge of this fact.
The threat of suppliers is medium in this market. Suppliers are the production companies and the various media houses that sanction the production of television series and programs. The content that Netflix airs has usually been aired previously on television or on cinemas and if it were not for services such as Netflix, most of this content could not be profitable anymore to production companies. Therefore, their influence and demands on Netflix is quite low as all they want is to make some extra buck.
The threat of buyers is however quite high. Consumers want high-quality content at an acceptable price, and if they feel that they are not getting this, they might turn away from the company. In addition, the presence of substitutes like YouTube and competitors like Hulu also increase the power and influence of the buyers since they might threaten to leave the company for its competitors and substitutes.
The threat of competitors is high to medium. The major competitors offering similar products to Netflix are Amazon and Hulu. Hulu also has some quite attractive packages for its customers and given the current crisis at Netflix, the company might become even more attractive and steal customers from Netflix. The same applies to Amazon
Given the fact that the threat of substitutes, competitors, and new entrants is high and the bargaining power of buyer is also quite high, it is clear that Netflix needs to develop a sufficient communication strategy and a decision making process that is more inclusive of its most important asset; the customers.
The first recommendation is that before the company embarks on a humongous endeavor such as price changing or company structure, it has to initiate a simulation of the proposed project and gauge initial public and industry expert reaction. The company could, for example, create a splitter DVD mail order service that is separate from its online subscription service and then advertise it on its website and see the initial consumer reaction. Based on this initial reaction, the company can then assess whether the project is worthy and viable and if is, it can go ahead and inform the customers giving them the timeline of this project. In fact, the simulation would not only enable the company to know whether the project is viable or not, but it would also inform the company on the components of the project that the public, for example has problems with. The company could therefore rectify these areas and present the same project to the public and see whether the reaction has changed.
The second recommendation is for the company to create training and education focus groups that educate consumers on the new developments on the companies, for example, its restructuring and explain the benefits that will accrue to both company and consumers. This education should be aimed ate explaining all the elements of the proposed change together with its associated benefits. It should also be aimed at tackling any fears that that customers may have about the proposed change. This will then ensure that once the project is set off in motion, it receives very little resistance and the public is hugely receptive of it.
The other major recommendation is the creation of an official public communication time. When Netflix instituted its price change adjustment, most of the customers were initially shocked. They had received no prior communication from the company about the impending change adjustment. This was the same case with the company’s restructuring where the customers were not informed before the actual implementation. What the company needs to do is to draft an immediate public communication timetable and incorporate its into official company policy where it will be stated that the company must inform its customers of any major changes about six months before the actual change in order to allow consumers to prepare for this change. If the company had done this, there is a high likelihood that it would not have received the backlash that it received by increasing its rates without informing the public first.
The first recommendation solves the problem of improper communication because by conducting a simulation before even informing the customers of new proposed new project, the initial reaction can be used to develop good communication plan and strategy that will for example, cater to the customer's worries as expressed in the initial reaction.
The second recommendation supports a good communication plan because even the best communication plans about a certain project may be misunderstood and may lead to unwarranted consumer backlash. When the consumers fully understand what is going on, chances of negative reaction and backlash are minimized.
The strategic analysis has revealed that the bargaining power of customers is high, and Netflix recent move has seemingly ignored this aspect and this is why there is an immediate need to rectify the situation. The recommendations given above cater to this aspect. They ensure that customers are fully included in the planning of new endeavors, and they are not enticed by substitutes or products offered by competitors which have been shown in the strategic analysis revealed above.