Case Study Of Netflix: History And Strategy Of A Company
The founder and CEO of Netflix, Inc., Reed Hastings, a former software engineer, founded Netflix in 1997 for a new way to watch and rent movies. Netflix employed then and continues to employ a subscription-based business model. Originally the company was only a DVD-by-mail service in which the customer paid for a certain level of membership that determined how many DVD’s could be rented at one time. DVD’s were then mailed to the customer and returned by customer after completion of the movies. After a couple years in business, the company began including streaming services along with the DVD-by-mail option. The goal here was to reduce costs by trying to get the subscribers to switch to streaming, which would reduce the costs incurred for postage and shipping with the mailed DVDs. The streaming option began in 2007, with 2, 000 titles available for instant-watching via streaming and around 20, 000 titles in 2010. Until this time, subscribers could receive the streaming option along with the DVD-by-mail subscription in amounts based upon their subscription level.
Netflix was known to be the largest, and most well-known internet subscription streaming service. With market trends in home viewing of movies consistently growing, Netflix had a solid entrenchment within in the market and holding a majority of the subscribers. In 2010, Netflix began offering its streaming services to residents in Canada and in 2011, initiated services in 43 countries worldwide. The mail services only continued in North America as it did originally. In 2011, Netflix announced that this would no longer be an option and there would not be a subscription plan that offered both the option for streaming and DVDs-by mail service. Instead; the services would be offered in two separate packages. In 2012, there was over 23 million subscribers for streaming and around 120, 000 titles available for online streaming. The main competitors at that time was Hulu Plus and Amazon Prime Instant Video.
Netflix was a pioneer in changing not only streaming, but in the entertainment industry in which they compete.
Hastings developed a strategy which made Netflix the largest online subscription service for streaming entertainment in the world. Some of Netflix’s strategy includes: Providing customers with a wide selection of DVD titles to view. Continually acquiring new content by establishing relationships with entertainment providers. Provide easy to use technology for customers to use to order and identify what they wish to view. Provide options for subscribers between streaming and mail services. Aggressive spending on marketing to continue to raise brand awareness. Promote rapid transition of the US subscribers to streaming. Expand Internationally. Netflix chose to outcompete rivals on the basis of differentiation by offering a wider product selection, value-added services and attractive styling.
They also utilize technological superiority by continuing to enter each new technology market as made available. Since the beginning, Hastings had a focus on gaining new content to make available to subscribers. He made negotiations with multiple studios and networks and usually paid licensing fees, direct acquisition or profit-sharing deals to be able to stream these titles through the online service. The proprietary software technology Netflix developed was a large part of their strategy. This software made it easy for a subscriber to preview movies based on category, ratings, and various other filters. It even allowed for a subscriber to rate titles they had previously viewed and receive recommendations based on the titles they previously rated highly. This service was and continues to be highly successful, with a portion of titles being viewed always coming from the recommendations provided. Giving subscribers a choice between DVD-by-mail and streaming services allows for those with preferences of receiving the physical DVDs in the mail. This helped to sustain those subscribers who may not have high-speed Internet in certain areas or who simply like receiving the DVDs in the mail. However, with the large percentage of consumers who have this capability today, part of the strategy is to get as many subscribers as possible to switch to the streaming-only services. This will help reduce costs associated with postage incurred when mail is both shipped to and from the customers.
The company keeps an aggressive marketing and advertising strategy. In 2012, this was increased into newly entered countries. They also offer free-trials to all new customers in which subscribers gain a free month of access to services. Netflix also chose to increase payments to consumer electronics partners. The main strategy to increase profits for the corporation was through international expansion. Not all foreign markets have such strong capabilities for streaming. In Latin America, Netflix ran into multiple issues with lack of Internet-capable devices being used, high-speed Internet connections not being readily available and not all households used credit cards as often in online commerce. Despite, the company continues to move into new segments, diversify globally and succeed in many areas.
