Netflix’s business model

Analysis part

Question 1

In its competition with Netflix, where did Blockbuster go wrong? How was the use of customer data a key differentiator? How might Blockbuster have better positioned itself against Netflix?

3 things that Blockbuster goes wrong are:
1. Slow & Inadequate Response
“No Late Fees” program was misleading
“Total Access” program was not well integrated – customers had to maintain separate accounts for the Web-based system and the store.

2. Structural Issues
Stores were franchise-based and Web site was maintained by corporate Capex requirements for starting a separate Web-based logistics system to deliver DVDs by mail

3. Lack of Information Systems
Lack of knowledge about its customers’ preferences and behaviors Lack of an appropriate CRM system

Question 2

What are the core competencies of Netflix’s current business model (primary DVD-by-mail with an online component)? Assess the value of Netflix’s business as described in the case

Core competencies of Netflix’s current business model
1. Flexibility
• Subscription model – no late fees!
• Customers could rent and watch movies on their own schedules

2. Selection and Logistics
• No physical stores
• Allowed deep selection in a wide variety of genres

3. Convenience
• Mail delivery obviated the need to drive to bricks-and-mortar stores • Queuing system on Web site allowed customers to have a constant flow of movies

4. Customer Insight
• Cinematch collaborative filtering algorithms aided the discovery process – better customer experience • Recommendation system and analytics allowed deeper understanding of customer trends, which let Netflix adapt better and more quickly

Question 3

What effects will the rise of the VOD market likely have on Netflix’s business model? How does VOD threaten Netflix’s business? What opportunities does it present?

For opportunities, Netflix has ability to license its platform, be the benchmark in movie streaming and higher impact of Netflix’s existing CRM system. Therefore, Netflix has to shift organizational focus from logistic efficiency to technology excellence and need to invest in owning a platform to provide the service In terms of threats, the current physical distribution channel will become a liability and competitors like Apple, which has the know-how to sell online and holds a huge customer database and brand equity, will become a threat. Then, Netflix need to shift investment from logistics to technology, continue to build the Netflix brand as an instant provider of movies from studios to customers’ homes and to invest in customer loyalty and CRM solutions

Question 4

Which of Netflix’s current competencies can it best leverage as a competitive advantage in VOD? Which might be liabilities (refer to the comparing value drivers in the Video Rental Market) Netflix has three core competencies to succeed in VOD market which are wide selection, brand equity and customer relationships and recommendation tool and customer knowledge. However, there are weaknesses for Netflix in moving toward VOD market, the warehouse and facilities and employee overhead will threaten Netflix in term of cost since Netflix will rely heavily on technology.

Question 5

What kind of partnerships should Netflix prioritize: partnerships with content providers or with hardware/device manufacturers? Partnership Prioritization: Parallel Tracking Netflix should not limit itself; goal is to be a service provider, not a content producer or a hardware manufacturer. Don’t compete in areas where Netflix is at point of parity; compete where Netflix has advantages. Roll up Roku effort under umbrella of device partnerships; devote resources across all initiatives evenly. Becoming the service provider and content recommender on all cable platforms is a top priority. Assume that movie studios and other content producers will want to distribute via Netflix; it is in their best interest. 1) Competition between Netflix and Blockbuster (where Blockbuster goes wrong):

The case revealed that in general without doubt Netflix was much more stronger than Blockbuster. Netflix could carry a much larger quantity and diversity across genders and at the same time Blockbuster was constrained by physical limitations imposed by its bricks-and-mortar stores, generally limited its selection to mainstream titles. Furthermore, Blockbuster made very big inconvenience for the customers who wanted to keep the movies longer time (because it limited rentals from one to five days). Moreover, customers had to pay additional amount of money (a fee) if they returned a video late. Blockbuster’s pricing model meant the customers had to pay each time they rented a video, while Netflix charged a flat subscription and were allowed to rent one to five DVDs at one time with no limit on how many could be rented in a month or no due date.

Therefore, Netflix’s pricing schemes gave customers a greater flexibility comparing with Blockbuster’s pricing which was not so attractive for current customers. Also, Blockbuster could not offer for its customers one of the main things in business world – the flexibility , because it was constrained by inventory at its stores, but Netflix was strong enough to provide flexibility for customers. The problem was that main focus of a business model was based not on inventory warehouses what had negative effects for customers limiting them on keeping movies as long as they wanted to have them. However, ”no late fee” program , the one Blockbuster was using, later, was also not so successful for the company as it was expected. And finally, the latest one,…