Netflix - Achieving A Strategic Advantage

Netflix - Achieving a Strategic Advantage
Before Netflix, when you wanted to rent a movie or video

game it required you to physically drive down to your local
Blockbuster for video rental store. Netflix was the first video
rental store to see this as a problem. Netflix was able to utilize
technology, more specifically the internet, to allow customers
to browse thousands of DVDs and video games online, then
select the ones they want to rent, and finally deliver them to
your mailbox the next day. Now one of the largest, if not the
largest, video rental stores Netflix has 6.3 million subscribers
and over 70,000 DVD titles without a physical store front.
Netflix ships roughly 1.575 movies per day! ( Noise Between
stations)
Netflix's success can be attributed to the fact that they were
the first to recognize a new trend in consumer behavior. With
growing online sales in other merchandise, Netflix was the
first to allow customers to rent movies online and have deliver
to their homes very quickly at roughly the same price they
were before at physical storefronts. Netflix has achieved a
tremendous competitive advantage. While their strategic
advantage may not be permanent, it certainly has been
sustained over the past few years. Blockbuster and Wal-Mart
have tried to copy Netflix's and offer online video rentals, but
have had a hard time cracking the market share that is
dominated by Netflix.
Some reasons that Netflix has been able to sustain their
competitive advantage is the due a few things. First, one of
Porter's Fives, barrier to entry, has allowed them lead the
online video rental market. The barrier to entry is the fact
many people have already chosen Netflix as their online
movie rental choice and it would be very hard for a new
comer to steal allow Netflix's business. It would be incredibly
hard to offer the same choices at the same price, not to
mention a lower price. Another reason that Netflix's
competitive advantage has been sustained is due to the theory
of first-mover advantage.(Noise Between Stations)
One new trend that has been thought to hurt Netflix is the
beginning of online movie viewing. To combat this trend and
to adjust to the consumer market, Netflix has implemented
their own online movie viewing product, an alternative option
to their mail rental system. While the online movie viewing
market has increase, Netflix has shown no signs of backing
off their initial idea and have shown increased earning the past
year. Blockbuster on the other hand has shown poor results
for their mail rental system and have had to increase their
prices to stay afloat.(Netflix Delivers Upbeat News)
Now that Netflix has settled into the leader in online video
rentals, they have decided to focus on another aspect of
business, customer service. You might find this odd due to the
fact they do not have a physical store and are online only
business, but they have eliminated e-mail based customer
service inquiries. Thus forcing all complaints, questions, and
suggestions to their call center. Unlike other companies where
it sometimes feels impossible to locate a telephone number to
contact customer service, they have made it very simple and
easy to find on their main page. And unlike the increasing
trend of many other companies, they have chosen not to
outsource their call center. Their call center is located in
Oregon and along with being local is open 24 hours a day.
(Netflix, Victory for Voices Over Keystrokes)
Questions
Question 1: What generic strategy is Netflix using? Explain.
(Chapter 1)
Question 2: Do you feel that Netflix has gained a sustained
competitive advantage? Why or why not? (Chapter 2)
Question 3: How has Netflix and their use of the Internet
changed the video rental industry? Give examples. (Chapter
2)
Answers
1. The generic strategies that Netflix is using is Cost
leadership, and differentiation. Netflix strategy of
differentiation is they were the first video rental merchant to
offer their renting services to customers online. While the
other video rental companies required customers to physically
come to their store to rent videos. By having the customer
from their home order movies online and have them delivered
to the customers mailbox gives Netflix a niche in the video
rental market. Also Netflix is using a cost leadership strategy
by having their prices much lower than the current
competition, also since Netflix ships the movies directly to the
customer this eliminates much of the overhead cost that
Blockbuster has to pay. Store locations, extra employees,
since Netflix ships the movies out they don't require Store
locations just one or two storage locations.
2. From what I have stated from question 1 yes. Not only did
Netflix have a great niche with online video rental, by saving
the company on cost they can pass on the cost savings to their
customers which they do. It has started to cause Netflix's
competitors to rethink their current strategies and how to
better compete with Netflix. Also Netflix has put up a tight
barrier to entry, the fact that many people have already chosen
Netflix as their online video rental provider. And it’s also very
hard for competitors to offer the same prices as Netflix, and
the fact that Netflix is a first mover into the online video
rental provider.
3. First off from your article Netflix saw the problem that
customers would have to drive to a physical store to rent
videos, instead of going online and having videos sent directly
to their house's. Many customers now shop online due to the
ease of use, and also save them from driving cost of gas and
time waiting in traffic, and time to travel. The new trend that
has started is the beginning of online movie viewing; Netflix
has implemented its own online movie viewing product,
which is an alternate product to their current mail rental
system. Netflix has changed the face of movie rentals, by
eliminating the need for a physical store.
I found this article very informative and interesting to see that
Netflx is going into the online viewing of movies, that
ultimately is where technology will probally lead movie
watchers to. Netflix is a great example of a company that uses
a couple of strategies.
Competition will be higher the easier it is for other companies to enter the industry – this
according to an article found online at www.themanager.org.
Considering the Threat of New Entrants – Netflix’s business model deals with the different
pressures of new entrants in the following ways: Competition would have to develop an
enterprise of significant size to be considered a threat. Considering the volume of hardware,
software and personnel; the initial cost to competitors would be very high. Existing
competitors, though experienced, would not be prepared to compete in an online
environment. The loyalty in this industry is to the product, not the distributor. Competitors
would have to completely retrain or replace existing staff. Distribution channels are online
and controlled by online social trends. There is really no switching cost. Future legislation
may someday contribute negatively to Netflix’s online sales.

The pressures of suppliers bargaining power are low with Netflix considering the following
factors: The supplier, movie industry, sales copyrights – they don’t care to whom. There are
no substitutes for suppliers, but this is true across the board. The switching cost among
suppliers is low. The suppliers are likely to increase costs as the industries profits increase,
but the volume of movies sold by Netflix offsets the increase. It is not likely that demand for
Netflix’s product will lessen.

The bargaining power of the customers determines the pressure customers put on a particular
market. Netflix’s business model considers this in the following ways: Customers generally
do not buy large volumes of the product. There are only a few operators in the industry. The
fixed cost by suppliers is high, but this applies to competitors as well. There is really no legal
substitute for the product. Customers are price-sensitive, but Netflix provides the product
cheaper that brick-and-mortar competitors. Customers can not produce the product. The
product is of strategical importance – entertainment. The average customer likely has not
idea of the production cost.

Threat of Substitutes – There threat of alternative products does not exist. It is only the
distribution of the product that has alternative modes. The customer gets the same brand of
the same quality with Netflix as with any other seller in the industry. Close customer
relations do exist, but not in the conventional sense; however, it exist through online
tools. There is no switching cost to Netflix. There is no notable difference in the price for
performance – except the ease of obtaining Netflix’s products. Unquestionably, Netflix
entrance into the new economy makes it trendier than its brick and mortar competitors.

Competitive Rivalry – There are not a lot of competitors in the industry. Most competitors’
strategies are out-dated. The product is the same between competitors; it is Netflix’s online
presence that makes it more attractive. The market growth is constant. The cost of exiting
the industry, online, is high (cost of hardware and software).

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Before Netflix, when you wanted to rent a movie or video

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