Being the first company to enter the online DVD rental market, Netflix has been able to attract quite a following. Though their major competitor, Blockbuster, is somewhat a household name, its delayed entrance into the online market has really put them at a disadvantage in competing with Netflix. However, in order to specifically analyze the online DVD rental industry, we consider the Porter’s Competitive Forces Model (Appendix 1). One of the major forces for Netflix is its rivalry. Blockbuster has recently lowered its prices to match the Netflix plans. Because of this, Netflix needs to build a plan of action that differentiates its product above and beyond price. With that understanding, the company will have to prove customers that Netflix is more beneficial than its major competitor, Blockbuster. Netflix’s buyers are another key force to analyze. Since Netflix provides service directly to subscribers, these customers have the ability to put the firm under pressure. Customers are sensitive to price change, so a plan involving an increase in price, even for a short period of time, should not be considered. Additionally, an important aspect for Netflix is the amount of information they have on their buyers. Through consumer profiles and Netflix blogs, the company understands a consumer’s desire to always be in the know.
Netflix has continued to prosper in an incredibly fast-paced industry, still with so much room for growth (Appendix 2). With more than two-thirds of all households now owning a DVD player, Netflix caters to all different demographic groups across the United States. They have even reached a younger generation by syncing with the XBox Live gaming system. Unfortunately, there are some factors that keep Netflix from just continuing with what they are doing. Blockbuster has positioned itself in a relatively similar manner to Netflix, causing customers to second-guess which one is better. Additionally, with the nearing of 2009, the price of postage will increase approximately $2 per envelope sent. If something is not done to counteract this cost, Netflix may see a sharp decline in revenue starting next year.
According to the Internal Factor Evaluation analysis (IFE), Netflix is above the industry average (Appendix 3). In other words, Netflix is adequately capitalizing on its strengths while minimizing its weakness as best as possible. Having grown to 8.2 million subscribers in the past ten years, the company must be doing something right. The no late fees or due dates and broad range of movies is definitely attractive to customers. However, 2.5% of all DVDs shipped are either lost or damaged. Meaning if Netflix ships two million discs per day, 50,000 would either not be delivered or be unplayable. Though this would certainly be a weakness I’d address, the company is already taking measures to reduce this number. The “watch instantly” option lets subscribers view movies right from their computer with a click of the button; this reduces the number of discs that are actually mailed, keeping them in better condition for a longer period of time. Based on the evaluated strengths and weaknesses of Netflix, it is clear that the company is in a great position for growth. As a DVD rental service, they lead the market. However, in order to continue to expand, the company needs to recognize other aspects of the business (Appendix 4). The most important aspect Netflix can target is the customer.
The issue worth addressing is the means of communication with Netflix subscribers (Appendix 5). I find that having Netflix accounts solely managed online diminishes the loyalty to one brand. Though customer service is outstanding, no meaningful relationship is ever formed with subscribers. Because of this, I feel that a mission with the goal of offering subscribers as much information as possible is the best route to follow, and...
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