Netflix which established in the 1997 is the largest online movie rental company in the world. It famous by the service that offers their customers subscribe the DVD online or online streaming without any due date or late fees. Until the end of year 2009, they have more than 100,000 movies in DVD catalog, and in 2010, they have over 14 million subscribers. Their competitive advantages are the CineMatch recommendation software and the automated supply chain delivery. The recommendation system that make accurate suggestion movie to their customers, and their 100 plus delivery centers across the country allows 95% customers receive DVD within 1 business day.
Currently, many cable and satellite companies offer Video on demand (VOD) which make customers see the video without waiting and reduce the cost of the shipment. In order to survive in the competitive home filmed-entertainment industry, Netflix take series practical actions to strength its VOD service. Netflix offered a digital rental service call Netflix’s Watch that allows subscribers to download and view movies or television programs instantly on their PC for free depends on their subscribe plan.
Base on the development of entering VOD system through the streaming video, Netflix will create a differentiation compare to other competitors. On the other hand, Netflix will change from DVD online rental segment to distributor of digital entertainment.
Generic strategy- Differentiation
Netflix was founded in 1990s and pioneered the subscriber based DVD rental service. Compared with most of the competitions which are in store rental service such as Blockbuster, Netflix differentiate itself into a whole new business segment. Netflix created its blue ocean by being entirely different from its competitors.
By dominated in the DVD rental market, Netflix required to innovated new technology to compete against competitors who could also cut down the price. For example, Netflix emphasized on customers’ personalization, they using recommendation system which provide customer movies suggestion according to their renting history. On the other hand, they established over 100 distribution centers to deliver the movies and let customers received the mail within one day. Netflix using Oracle ERP Database to manage inventory, customers’ data and CineMatch system and adding value to each business activity. http://noisebetweenstations.com/personal/weblogs/?p=2011#ixzz0zsAJGoMY
Porter’s five forces analysis of Netflix
Netflix is the first company that offer online subscribe rental DVD and through the United States postal service to mail to their customers. Netflix provide their customers with many different efficient systems. For example, CineMatch recommendation software offer personalized service to customers according to their subscribed record, almost 85~90% of customers will enjoy the suggestive movies and continue their subscription. On the other hand, Netflix emphasized 95% of customers will receive the DVD in one business day. Therefore, buyer power is low because other companies don’t have such recommendation system and services compare to Netflix, and also their month fees are higher than Netflix. For buyers, their switching cost is high, so the buyer power is low.
Netflix buy their movies from the suppliers are movie studio such as Hollywood film distributors and USPS. In the film industry, it is no other substitute can choose in the rental market. Therefore, the supplier power is high.
Threat of Substitute-high
The VOD (Video on demand) is a new system that allows users use set-top box, computer or other player devices to watch video at any time. VOD is a threat of substitute for Netflix because customers no longer want to wait for the mail anymore; they want to see the movie right away. Therefore, Netflix has to align with VOD system to maintain its market shares.
Threat of New Entrants-low
It costs a significant capital for new entrants to enter in VOD industry, so that will be a hard barrier for new entrants to get into the market. On the other hand, the existing rental retailers already has the experience in marketing, that is a huge experience advantage exceed the potential entrants. Therefore, the threat of new entrants is low.
Rivalry among Existing Competitors-high
This industry has several main video rental companies that engaged in price war competition, such as Blockbuster, Hollywood video and Redbox. Most of the competitors have developed the digital box to integrate with VOD system in order to satisfy the customers’ need. On the other hand, Apple and Amazon both offer customers downloaded digital videos and watched on their TV by Apple TV and TiVO, respectively. Therefore, the video rental market for VOD system has encountered strongly competition.
Netflix value chain
Netflix’s strategy is establishes partnership with top studios such as Hollywood studios, twentieth century Fox in order to expand its library data. Therefore, Netflix have more new categories of movies or TV episodes available for their customers.
The online recommendation system provided the best movie that is not usually the high-demand new release for customers because they are frequently out of stock. Based on the recommendation system, company can arrange their inventory management without harass the deficiency of supply. Moreover, the company devoted to expanding the distribution centers to deliver mail within 1 day to their customers.
Netflix cooperate with United States Postal Service (USPS) to reduce the delivery time and costs. The returned of the movie from customers is through by USPS to the closest Netflix’s distribution center.
Marketing and sales:
Netflix’s members are available using devices of Microsoft’s Xbox 360, Sony’s PS3 and Nintendo’s Wii consoles to watch movies and TV episodes; Blu-ray disc players from Samsung, LG and Insignia; Internet TVs from LG, Sony and VIZIO; the Roku digital video player and TiVo digital video recorders, and until recently Apple’s iPhone, iPad and iPod touch are accessible as well.
Netflix continuing developed the new technological system such as recommendation system, distribution center, Oracle System and the development with VOD system to provide customer convenient online subscribe experience in order to enlarge their subscriber’s database.
Netflix purchases titles directly from the studios to expand the library database, therefore their customers have more varied choices either on the delivery movies and online download service.
Netflix provided a free Netflix application for iPhone and iPod touch, allowing their members on plans starting at just $8.99 a month to instantly watch movies or a series of TV episodes on their iPhone or iPod touch without charging additional costs.
Human resource management:
To evaluate employees’ job performances for Netflix is the website for customers’ satisfaction. Therefore, employees have to realize the company’s core values, openness, approachability and honesty well before offering service to customers (Patty McCord, 2009).
Netflix has also makes an outstanding data mining to create its competitive advantages. For example, Cinematch recommendation system synthesizes customer rental behavior and movie ratings to assist the company to recommend the movie to customers. This system will make customers keep subscribing and purchasing the movie. In addition, the system also helps company to invest wider range of movies. Netflix avoid to spend too much money by identify more niche film markets and expand distribution for smaller-budget films. In this situation, the company can save money by increasing demand for lesser-known films and reduce demand for big-studio blockbusters.
Customer Relationship Management Systems (CRM)
Customer relationship management (CRM) systems helps Netflix serve their customers more efficiently. The information that collects from their customers stored in the data warehouse
and analyzed by CRM system. By using this system, Netflix can analyze the needs of customers and further realized customers’ behaviors. The goal of CRM system is to crate positive experiences for customers instead of the negative experiences (Haag 50).
One of the most important technologies that support Netflix’s customer relationship management is its custom-built intelligent agent. An intelligent agent is artificial intelligence software that helps or acts on behalf of the user to perform repetitive-computer related tasks (Haag 224). By using this system, Netflix know customers’ preferences and disliked. Moreover, Netflix is able to give accurate, personal recommendations to their customers.
Supply Chain Management Systems (SCM)
By using supply chain management (SCM) systems, Netflix can keep track on its inventory and information that go through its transaction processes. Furthermore, SCM system helps Netflix to reduce its inventory at the warehouse and distribute its products more efficiently.
One of the SCM systems for Netflix can effectively reduce the inventory in warehouse by notify
employees where to deliver its inventory as soon as DVD arrives in the warehouse.
When the inventory arrives at the warehouse, it is immediately sent off to its next destination (Haag 189). Consequently, most of the times inventories are on the way of traveling and being used by a consumer and very less time staying in the warehouse. This method also makes sure that the product reaches its next destination as soon as possible. Netflix’s SCM system also tracks inventory and determines the fastest route to let the DVD into customers’ hands.
Enterprise resources plan (ERP)
Database is resources to help the company better understand customers’ behavior and analyze operational efficiency. Oracle System is a system that Netflix uses to manage the company’s database, so it is a backbone for organizational operation (Netflix website, 2010). The system utilizes the data to manage inventory, financial result of the company’s performance, and customers’ data (Netflix website, 2010). On the other hand, Oracle ERP database is also to support the Cinematch System. In addition, the entire DVD library and logistics are also managed through this system. The company is using this system to manage its company’s information more effective.
Video on demand (VOD)
Cooperate with other companies: broadband-enabled devices
According to the trend and the popularity of using VOD system for the rental DVD market, Netflix see the potential market and started to align with other companies to advance this new technology to viewing movies. Because consumers are not willing to wait for the movies arrive by mail, instead, they seek for the company that allows them to see the movie right away to satisfy their need. For example, Netflix have partnership with LG Electronics, Samsung Blu-ray disc players, Microsoft Xbox 360 console, TiVo digital video recorders, and the Nintendo-Wii. All these devices allowed the members through the hardware to enjoy Netflix’s services. In January 2010, Netflix have partnership with Funai, Panasonic, Sanyo, Sharp, and Toshiba, which also allowed consumers to watch movies and TV episodes through the digital televisions. Furthermore, iPad from Apple developed a Netflix app in 2010, allowing members access Netflix’s library of movies and television shows.
Netflix creates their values by differentiate itself between their competitors, especially Blockbuster. Its outstanding systems make the company accounted the most of the market shares in this industry. However, Netflix is not satisfied the current succeed and still develop the advance technologies, for example developed VOD system and established the partnerships with other companies to increase their amount of subscribers. In conclusion, Netflix should creates company values through innovation and improvement, also improve the CineMatch system to advance the personalized website experience.