CASE #3 Rewind and Replay There\'s no doubt that people like to watch movies, bu
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CASE #3 Rewind and Replay There's no doubt that people like to watch movies, but how they watch those movies has changed. Although many people that Blockbuster effort when they hadn't by 2003. Then, in 2004, they did are We thought...well they won't put much money behind it. to an actual movie theater, more and more Over the past four years, they've invested more than $500 against us." Not wanting to suffer the same fate as settling back in their easy chairs in front of home entertainment systems, especially now that technology has improved to the point where those systems are affordable and offer many of the same features as those found in movie theaters. Along with the changes in where people watch movies, how people get those movies has changed. For many, the weekend a trip to the video rental store to search th good to watch, an approach Blockbuster built its business on.bi million for bankruptcy protection in 2010 and was Blockbuster (it filed f sold to Satellite TV service provider DISH Netflix is brac ing for other onslaughts. In fact, CEO Hastings, defending his misguided decisions in 2011 said, "We did so year that we got overconfident. Our g obsession for the year was streaming, the idea that "lets d used to start with e racks for something with defending his many difficult things this s consumers can choose a movie by going to their com not die with DVDs. The in-home filmed entertainment industry is intensely com- petitive and continually changing Many customers have multiple providers (e.g. HBO, renting a DVD from Red Box, buying a where the movies come to the customers-a model invented Launched in 1999, Netflix's subscriber base grew rapidly. DVD, streaming a movie f t now has more than 24.4 million subscribers and more and Amazon) and may use any or all of than 100,000 movie titles from which to choose. "The com- pany's appeal and success are built on providing the most expansive selection of DVDs, an easy way to choose movies, month. Video-on-demand and streaming are becoming extremely competitive To counter such competitive challenges, Hastings is focus- ing the company's competitive strengths on à select number of ocused on it. DVD is going to do whatever it's going to do. We don't want d fast, free delivery." A company milestone was reached in late February 2007, when Netflix delivered its one bil intiatives. He says, "Streaming is the future; we're f lionth DVD, a goal that took abou t seven-and-a-half years to accomplish "about seven months less than it took to hurt it, but we're not putting much time or energy into it. s Corporation to sell one billion hamburgers after Others include continually developing profitable partnerships ope its with content providers, controlling the cost of streaming con- Netflix founder and CEO Reed Hastings believed in the tent, and even licensing its original series, In fact, it just lice approach he pioneered and set some ambitious goals for his company: build the world's best Internet and grow earnings per share (EPS) and subscribers every year. In market 2011, though, Hastings made a decision that had customers its first original series called "House of Cards" and starring Spacey. With other companies hoping to get established in the tition is intense. Does Netflix have the script player? CEO Hastings says, "If it's true movie service and it needs to be a dominant complaining loudly. Netflix's troubles began when it announced that you should be judged by the quality of your competitors, we DVDs-by-mail and must be doing pretty well.. it would charge separate prices for its streaming video plans. Then, it decided to rebrand its DVD ser- vice as Owikster. Customers raged so much that Netfix reversed that decision and pulled the plug on the entire Qwikster plan. As Netflix regained its focus with customers, it was once again ready to refocus on its competitors. 1. Describe what you think Netflox's competitive strategy is using Miles and Snow's and Porter's frameworks. Explain What competitive advantages) do you think Netflix has? Have its resources, capabilities, or core competencies con- 2. Success ultimately attracts competition. Other businesses want a piece of the market. Trying to gain an edge in how cus- tomers get the movies they want, when and where they want tributed to its competitive advantage(s)? Explain them, has led to an all-out competitive war. Now, what Netflix 3. How will Netflix's functional strategies have to support its did to Blockbuster, Blockbuster and other competitors are do- ing to Netflix. Hastings said he has learned never to underes- timate the competition. He says, "We erroneously concluded 4. What do you think Netfix is going to have to do to maintain its competitive position, especially as its industry changes?Explanation / Answer
1. Describe what you think Netflix’s competitive strategy is using Miles and Snow’s and Porter’s frameworks. Explain each of your choices.
Using Miles and Snow’s framework, I think Netflix started out with a prospector strategy since it noticed the change in how consumers wanted to watch movies. By analyzing this change, they developed a new process by which consumers to have movies delivered directly to them without having to go to a movie rental company like Blockbuster. They have now moved into the defender category since new competitors have emerged in various areas. These areas include streaming (Hulu, Apple, and Amazon), video-on-demand, HBO, RedBox and buying DVDs. Netflix’s CEO didn’t expect the competition and therefore wasn’t prepared for it. He is now trying to defend Netflix’s position in the industry.
Looking at Porter’s framework, I would say that a differentiation strategy would best describe Netflix. It has some unique products that the various competitors mentioned above don’t have. Netflix also has a loyal customer following and a good reputation and branding. Although Hastings is focusing more on streaming now instead of DVDs, he is also doing the original series. This would indicate a differentiation strategy is a better choice than a focus strategy.
2. What competitive advantage(s) do you think Netflix has? Have its resources, capabilities, or core competencies contributed to its competitive advantage(s)? Explain
Netflix has several competitive advantages. It has started licensing its own series. Although HBO also does this as well, other competitors do not. I believe that its best competitive advantage would be that Netflix offers a broader choice of movies from the past 30 years as well as TV series. I also think that Hastings’ realization of not underestimating competitors could also be used as a competitive advantage. He now knows to watch his competitors more closely and can therefore find and exploit their weaknesses.
Netflix’s large selection of movies and TV series, the largest are their main competitors, has definitely contributed to its competitive advantage. Other competencies include speed and technology.
3. How will Netflix’s functional strategies have to support its competitive strategy? Explain
Netflix’s competitive strategy is to deliver movies to consumers in the most effective and convenient way possible. The product functional strategy employed by Netflix is in making streaming video accessible to consumers both domestically and internationally. By partnering with the makers of the various gaming consoles and mobile devices, Netflix users can access movies and TV series from almost anywhere. Netflix will have to find ways to encourage the users of DVD rentals to include or switch to viewing their movies via online streaming. For HR strategies, Netflix will need to ensure that there is a well-trained and efficient customer service department to handle any issues that consumers may experience. For the support process functional strategy, Netflix will need to ensure that the information systems as well as the financial-accounting systems are updated and effectual. Netflix should continue watching competitors in order to exploit any visible weaknesses. Netflix has already shown that it is willing to listen and adapt to consumers’ concerns and should continue this practice.
Netflix will need to continue getting its product to consumers in the way consumers want to receive it. Even though Hastings’ emphasis is on streaming and not DVD rental, Netflix will have to at least keep the status quo on DVD rentals. Netflix might not be putting a lot of time or energy into that area, but it is not going to do anything to hurt that particular department. Marketing and customer service are other areas that Netflix will need to continue to monitor and develop to help support the competitive strategy. Other functional strategies will be the licensing of original series. Since this article was written, Netflix has created a wide range of original content that includes TV specials, series, movies and documentaries. While streaming may be the major focus for functional strategies, the original content has also been supporting Netflix’ competitive strategy.
4. What do you think Netflix is going to have to do to maintain its competitive position, especially as its industry changes?
CEO Hastings has already indicated that Netflix will be focusing a lot on streaming, which is extremely popular right now. Netflix should also continue with developing its original content and well as brining back old TV shows. Netflix gathers data based on what subscribes are watching and is using this information to help maintain a competitive position by offering consumers what they want, when they want it.
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