Analysis Of Netflix In Terms Of Michael Porter 5 Force Model
Rivalries are all around us, and they can be many things intense, large small or none at all. The movie rental industry is very competitive as there are a large number of firms in this industry. There are also many methods for consumers to obtain a movie which also increases rivalry. Consumers have four options to choose from such as in-store rental, online selection and mail delivery, Kiosk rental, or Video on Demand. Comparable products can be found at many different locations. There are low switching costs which also lead to fierce competition. Netflix key competitors have large levels of capital and have achieved economies of scale. Lower levels of product differentiation also increase rivalry. The threat of new potential entrants is moderately low. This is largely due to very high cost or capital requirements resulting from stocking the product needed. The branding and image of the largest firms in the industry also causes some difficulty of entering the market.
Key players in the industry include Red Box, Hulu+ and Amazon Prime. A new entrant would have to spend a lot of money on marketing and advertising to become competitive in this industry. The threat of substitute products is high in this industry and costs must be kept low in order to be competitive. Technology has tremendously aided to increase the threat of substitute products. More consumers are using the web to research prices, find sales and read reviews.
The bargaining power of buyers is high. Highly price sensitive customers have a lot of power. There are little to no switching costs and customers have an extremely large amount of options on which products to choose. The bargaining power of suppliers is moderately high. Normally suppliers are able to impose a price increase on their products or reduce the quality of products supplied which may decrease a company’s overall profitability. This proves to be true in the movie rental industry as their suppliers are the studios who make the movies. In 2013 Netflix was forced to remove Nickelodeon and MTV television shows from their selection due to an expired contract with Viacom. More recently Netflix has tried to lessen the power of suppliers through backward integration; it started when they created one very popular series titled “The House of Cards”. Fast Forward some years and now netflix is producing Netflix original series and movies. Large companies in the industry such as Netflix do have some leverage due to the large volume of product they demand.
