Netflix Company Analysis

Abstract

In this paper, the media distribution company Netflix is analyzed. The paper starts with an overview of this company. This overview includes the founding of the company, challenges experienced, current competing firms, and some of the ways the firm has been able to use in order to overcome its challenges. Then, the paper proceeds to the ten-force analysis method to examine different aspects of Netflix.

In this method of analysis, the following factors are discussed: technological, market, ideological, economic, government, media, sociological, ethical, weather, and legal forces. After this analysis, the paper discusses turbulence for future competition against Netflix. After an analysis of these factors, the paper suggests recommendations for solving challenges that Netflix faces and for improving its position in the media distribution industry.

Netflix Overview

Netflix is a company that operates on the Internet where it offers its customers movies, as well as television shows. This service eliminated the need for these customers to get movies from pirating websites. It is also interesting to note that Netflix started the business of providing videos on demand of their customers via the Internet at a time when other firms in the industry did not have such an idea. It was a risk, but the returns were huge for Netflix.

In addition, this company also provides DVD rental services. However, the latter service differs from such of the other companies. This is because it eliminates fees paid due to lateness since there are no time limitations on when to return a DVD. One of the founders of this firm, Reed Hastings came up with the idea of eliminating late fees, which was due to his bad experience of having to pay a fine of $40 for being late in returning a movie he had rented. Moreover, a customer is able to borrow as many DVDs as he or she would like to have since payment is based on monthly plans rather than the number of DVDs a customer rents.

This company showed a very fast growth within a very short period. This growth started when Marc Randolph together with Reed Hastings established Netflix in the year 1997. At the time of establishment, the company had a staff of 30 employees and a small library of less than a thousand titles of DVDs. Currently, Netflix has thousands of movies and television series from various distributors and some being their own production. In addition, the firm also has hundreds of employees now. Another aspect to show the company’s growth is listing in the stock markets in 2002, only five years after the firm’s establishment.

Moreover, despite experiencing challenges after this initial public offer (IPO), the company was able to make profits one year after its IPO. This recovery was possible because, at this time, other companies in the media distribution industry still had the policy of fining their customers if they returned a rented DVD after the provided duration expired. Further, the company’s growth can be shown graphically for the subscribers the company has had.

The company has actually been a leader in the business and has come up with many first ideas, which had not been in existence beforehand. An example of such an idea is the introduction of the Cine software. This software monitors the customers’ rating of movies. Depending on what a customer likes, the software is able to suggest similar movies. As a result, people are able to watch many unpopular movies, which translated to more business for Netflix.

The introduction of online streaming helped this company grow its market share exponentially. This growth can be seen by the report that the company released in the year 2013, which showed that Netflix had more than twenty-seven million online subscribers in the US and an additional two million-plus subscribers from other parts of the world.

Even though the company has this software that gets customers to watch even the movies that are not common, it is also making efforts to ensure that its content is up to date. For instance, Netflix has partnered with leading firms in film distribution such as Lions Gate and Paramount Pictures in order to ensure customers do not miss the latest video entertainment in the market.

Netflix seems to be doing many things differently from its competitors. Apart from introducing online streaming of media content when others still insisted on renting DVDs, the firm does not have a vacation policy. The chief executive officer of the company, Hastings Reed provides his employees with freedom at work. Therefore, whenever an employee finishes his tasks, he is usually in a position to take as many off days as he would love. In addition, this freedom by the CEO means that an employee can also express his or her idea, and the company will consider its implementation.

In addition to starting trends in an industry, Netflix is not a stagnant company because it keeps evolving. This evolution can be seen in the transformation of how the firm started its business to the way it currently operates. In the beginning, Netflix charged its customers for every DVD a person rented. After a while, the company underwent its first evolution. It changed the strategy of charging customers per DVD to charging them a flat rate of sixteen dollars every month and providing a subscriber with four DVDs during that duration.

One year later, the company further evolved and provided its customers with the strategy of paying twenty dollars in a month in order for them to enjoy renting DVDs without limitations, shipping, and handling of rented DVDs. After a while, the firm introduced a wide range of subscription plans. Therefore, a customer is able to choose a plan that favors his or her entertainment needs. With all this evolution in Netflix, the company was able to keep its customers, as well as attract new ones.

Ten Forces Analysis

All businesses operate in environments that have various variables, which keep changing. In order for any of these businesses to stay relevant while making sufficient profits, there is a need to beat the competition. In order to achieve this, any firm should evolve depending on the situation of different forces in its area of specialization. Irrespective of the industry, ten forces analysis is a universal method. However, these forces can be categorized into two.

• First, the first two require a quick change of a firm in order for it to take advantage of available opportunities and avoid a threat (Underwood, 2013).
• Second, the others determine the level of complexity in the changes that an organization should undergo in order to remain relevant (Underwood, 2013).

The following is the analysis of these forces regarding the media industry. In addition, the analysis explains how Netflix can use each of them to stay ahead of the competition.

1. Market Forces

These are the factors that affect the supply, demand, or price of a product. In terms of market forces, Netflix seems to understand customers’ needs, which definitely affects the demand for a certain product. This company has been able to do this by using custom-made software called Cinematch. This software enables Netflix to monitor what their customers love watching by observing their reviews. With this information, this company is able to meet its customers’ needs and even suggest content to them.

Therefore, the company is able to keep its customers satisfied, and this helps to attract new ones, as well. Similarly, this company was able to realize that customers did not appreciate late fees whenever they rented a DVD. for this reason, the company ensures that this fee does not exist in all the subscription plans it provides.

The second factor regarding market forces is the presence of competitors within an industry (Underwood, 2013). When Netflix started its online operations, it did not have competition because other firms in the industry were still renting out physical DVDs. However, other firms have realized the potential of the online operations and joined in the business, as well. These firms include Amazon, Hulu, Blockbuster, as well as Redbox. Each of these companies is offering something that can make customers want to choose them over Netflix.

For instance, Amazon has great shipping offers for individuals who rent DVDs and other products. This reduces the shipping expense especially when someone needs several products. On the other hand, despite Redbox being a smaller company than its competitors are, it has been able to place itself strategically. One of Redbox’s strategies is to allow a customer to rent a DVD for a night if he has only a dollar. Secondly, Redbox has thousands of DVD renting machines that are placed at very convenient locations such as grocery stores.

This way, the firm is able to attract customers due to convenience. With these challenges, Netflix stands the risk of losing some of its customers to competitors. Therefore, the company will have to adjust appropriate changes in order to retain its customers, as well as to attract new ones. One way of doing this is reversing the idea of increasing prices for its subscription plans. This way, customers would not find the need to look for cheaper plans from competing companies.

2. Technological Forces

With regard to technological forces in the media industry, Netflix has managed to stay ahead of other companies. For instance, when DVD rental businesses concentrated on selling the physical format, Netflix was able to evolve. The company started by enabling customers to use set-top boxes to download movies from the Internet and then watch them later. Afterward, when Google introduced YouTube, Netflix also introduced the streaming of movies for its customers. These two technological developments enabled this company to be a market leader. Another idea that this company has been able to exploit to its advantage is the use of its research and development department.

For instance, the use of the Cinematch software enables the company to monitor what customers watch, when they do it, and what device they use to watch the movie or the television show. With this information, Netflix is able to provide the video content on-demand in a format that customers will be able to watch from their devices without problems with video resolution.

With regard to technology, it is a good thing that Netflix is working with the major distributors of entertainment material such as Paramount Pictures and MGM. This way, Netflix is able to provide movies and television shows produced using the best technology. Currently, these distribution firms provide material in 3D, blue ray, and high definition (HD), among others. This collaboration makes customers be confident in products from Netflix due to the high-quality video content.

3. Economic Forces

Every company should be aware of the economic situation around its environment (Underwood, 2013). This situation could be the availability of an incentive program by the government, recession, or availability of plenty of money for spending among customers. For Netflix, the second and third possibilities are of great significance. In the event whereby there is a recession, a company should be able to attract customers by providing incentives that reduce the expenditure burden on them. Netflix was able to achieve this strategy in the 2003 recession.

The company had had a bad time after its initial public offering but managed to make profits after a year. The reason for this success during the difficult times was the absence of late fees and providing different subscription plans. Therefore, customers did not risk paying the extra money if they were unable to return a DVD due to their commitments. Moreover, a customer was able to choose a simple plan if he did not want to spend a lot of money on entertainment.

With regard to customers having sufficient money for expenditure, a company needs to have sufficient stock in order to meet the demand. Netflix seems to be ready for such times. This is because it has partnered with companies such as Starz and entertainment distribution firms such as MGM. In addition, Netflix has started producing its own entertainment material such as the television show House of Cards. These steps ensure that the company has a huge library, and a customer will always get what he or she wants. Another feature that helps this firm is that it suggests appropriate video content to its customers with the help of Cinematch.

These aspects help in retaining customers because of two reasons. First, whenever a customer visits a Netflix store, he or she is able to get what he or she wants. This is convenience, which every customer appreciates. Second, there are times when an individual might want to watch a good movie or a television show, but he does not know which one would interest him. Therefore, with the help of suggestions, such a person is able to make a decision easily. These advantages help Netflix attract new customers, as well as retain the existing ones.

4. Ideological Forces

Customers from different places in the world will have varying beliefs and like (Underwood, 2013). A firm needs to be aware of these factors when setting up a business in different locations. Since Netflix is in the entertainment industry, the company should be able to know what different people like. Luckily, this company has the perfect solution for this market force. Using the Cinematch, software Netflix is able to know its customers’ preferences. Similarly, the company seems to have realized that customers never liked limitations on the number of DVDs they could borrow and late fees.

Eliminating these dislikes has made Netflix be a market leader in DVD rental and online entertainment subscriptions. One place that this company went wrong, albeit the correction made later, is the separation of the DVD rental business from the online streaming business. This would have required customers to subscribe twice within the same company in order to use the two services. Even though this idea was meant to increase the firm’s revenues, it did not consider customers’ needs.

Therefore, it highlights a weakness in the organization in terms of making decisions and focusing on the needs of their customers. This decision was not welcomed by the customers, and the CEO of the company had to apologize for the decision.

5. Political and Governmental Forces

For any company to operate, it needs to meet both federal and state requirements (Underwood, 2013). Netflix has been in existence since 1997. Therefore, the company must be complying with regulations in place in order for it to continue with its operations without being shut down.

Recently, Netflix has had to comply with the Twenty-First Century Communications and Video Accessibility Act (CVAA). This act, which President Obama signed into law, states that if the program is broadcast on television having closed captions, then any firm that redistributes this content must also include such captions. However, there is an exception for either live or almost live programs (Morgan, 2012). In order to ensure all activities follow the set government laws, Netflix has a clause in its code of ethics statement, which promotes compliance with government laws (Investor Relations, n.d.).

6. Media Forces

While in business, the media force plays a very huge role in the way customers perceive a firm (Underwood, 2013). The media usually propagates news, which can be either good or bad about a firm. Every company would like to have its good news spread around because this would attract more customers. This is something that Netflix understands. Therefore, the company enables its customers to share and review movies or television shows watched on Netflix on their Facebook accounts (Law Changed, 2013). Whenever a customer does this, his or her friends are able to see this update, and whenever they follow the link, they get to Netflix’s website.

In other situations, a company would benefit whenever there is bad news about a competitor. However, a company should always watch out for any bad news regarding its operations. This way, the company would be able to correct any mistakes before the damage becomes irreparable. A good example of such correction is the apology issued by Netflix CEO after making the decision of splitting the company into two dependant firms. This apology was timely because customers had already started declining due to the inconvenience of this decision.

7. Sociological Forces

Currently, social forces drive people during the purchase of either a service or a product (Underwood, 2013). For instance, in the Internet age, people start by researching other people’s opinions about a product or service before buying it. In order to get these opinions, potential customers read product reviews on blogs or a company’s website. Moreover, social media provides a huge platform where a product’s image can be either built or tainted. Netflix takes advantage of social media by allowing its customers to review watched movies on their Facebook accounts.

These reviews always reach millions of people once a few hundreds of people share them. Once these people learn about a movie or a television show one of their friends watched on Netflix, they also end up following the link on that Facebook update. Following this link leads someone to the Netflix website, and most of these visitors usually end up trying the company’s services.

In addition, Netflix also takes advantage of various websites that review movies such as cinema hall websites. These efforts are a change of policy since the company did not appreciate advertising efforts at first (Torossian, 2011). However, this change is good because the company is now able to influence people to subscribe to the company’s services. As a result, the company can still stay ahead of its competitors since it is able to attract new customers and increase its revenues.

8. Ethical Forces

This force determines how consumers and potential consumers perceive a company (Underwood, 2013). The factors determining this perception are the skills of employees, companies associated with a business, and the way representatives of a firm treat other people. Netflix usually offers its employees a lot of freedom. For instance, whenever an employee finishes his work, he can take a leave. This is because there is no specific vacation policy at this firm. This is a unique way of allowing employees to take some time off work. Therefore, it definitely improves Netflix’s image among its customers.

One research found out that team leaders are usually very skillful people and they respect employees, including subordinates under them. Moreover, these leaders encouraged employees to come up with ideas, which are usually respected. Whenever potential customers learn about this skillfulness, they appreciate it and feel the need to associate with such a firm.

However, Netflix usually gives its employees only a single chance to make a mistake. Therefore, an employee receives only a single warning and gets fired if he repeats such a mistake. This is not a good policy, and it could damage the company’s reputation. In order to avoid losing customers due to this ethical force, it would be a good idea to improve this policy. This improvement can be giving employees at least two chances to make a mistake before getting fired.

9. Weather Forces

One of the factors of weather forces that could affect the operation of Netflix is the change of seasons (Underwood, 2013). Different seasons have different trends. Therefore, with a company observing consumer trends in DVD borrowing and online streaming, they can anticipate the times when their business will be high or low. With this knowledge, a company such as Netflix can strategize to release its new television shows during high seasons. This way, such a release would receive high sales providing maximum profits for the company.

10. Legal Forces

These factors include the effects of observing or failing to observe laws set at a national or state level with regard to a business operation. These laws include avoiding contravening copyright laws and selling content banned by the government. Either of such actions could lead to serious charges and even running out of business since customers would have a negative image of the business.

Turbulence Study of Netflix Future Competition

Future Marketing Turbulence Analysis

In this analysis, Netflix has a rating of 4.3 out of 5. This type of turbulence has four subcategories: sales aggressiveness, marketing aggressiveness, market strategy, and industry capacity versus demand.

Sales aggressiveness

In terms of sales aggressiveness, Netflix faces stiff competition from several companies. The greatest competitor is Amazon because this company sells more than just video entertainment services. Considering that Amazon started by selling books, it already had a huge customer base by the time of starting a business in renting and online streaming movies and television series. Therefore, the introduction of videos to these customers was a low-risk idea (Van, 2002).

Moreover, this company offers very low shipping rates for its customers who buy DVDs, books, and other items. These rates have delivery times ranging from three to seven days. If a customer wants to receive his or her goods faster than this, Amazon offers such services at a higher rate. This company keeps its business running costs low by having only a few movie titles and getting good rates from the companies that ship goods for them (Van, 2002).

Even though Amazon has the advantages of low shipping rates and the sale of other products other than movies and online streaming, Netflix has the advantage of having a huge stock of Movies. With each company having a competitive edge, sales aggressiveness competition in the movie industry will remain very high within the next three years. Research in this issue rated this aggressiveness at 4.7 out of 5.

In addition to Amazon, several other companies have joined the media content distribution industry, as well. As a result, they have introduced a competition for Netflix. These companies include Hulu, Blockbuster, and Redbox. In order for these companies to attract more business, they have come up with several ideas that entice their customers to increase expenditures in buying video entertainment and attract more customers, as well (Germain, 2002). Even though these companies have great ideas that enhance their position in the market, Netflix is also doing the same.

For instance, Netflix has plans that enable its customers to borrow unlimited DVDs or stream unlimited movies online, and the company does not charge late fees on any of its subscription plans. With these features, it is imminent that sale aggressiveness in the movie industry will remain high for the next three years. However, Netflix seems to have an advantage over all these companies, and there are high chances that the company will still be a market leader even in the future.

Marketing aggressiveness

The marketing aggressiveness is estimated to have turbulence of at least 4 out of 5. This means that Netflix needs to have a marketing aggressiveness more than this rating in order to stay relevant. Various companies in the same industry are very vigorous in attracting customers. There are small and large companies, as well as companies plying their trade on the Internet, and others having several physical shops at various strategic positions.

An example of such a company is Redbox. This company has established 35000 kiosks at strategic positions for renting DVDs but does not offer video streaming services. These strategic positions are grocery stores, as well as gas stations. These venues are strategic because people always visit them almost daily. Therefore, someone is able to refuel his car or buy groceries and rent a DVD from a single location.

Moreover, even when an individual does not have the plan of renting a DVD, he is likely to be tempted to make an impulse decision when he or she sees one of the Redbox kiosks. One of the deals that Redbox offers its customers is allowing them to rent a DVD for only a dollar per night. Unfortunately, this company is behind market leaders such as Netflix. This is because the Redbox network of kiosks is very small when compared to the number of customers that online streaming by Netflix reaches. Netflix is the biggest firm in the industry can be shown by the fact that it does not spend many resources on acquiring new customers. The reduction in resource use is due to low competition in the market (Fromer, 2011).

However, Netflix faces a stiff challenge from Amazon in terms of marketing aggressiveness despite the fact that Amazon joined the business of renting movies much later than Netflix. The advantage that Amazon enjoyed was having been in existence as sellers of other products such as books and electronics. Therefore, this company had a huge number of customers already. The introduction of video streaming was almost seamless for Amazon.

The company just provided incentives for their already existing customers in order for them to subscribe to video streaming services. These incentives included the provision of free shipping and discount rates, among others. In addition to these incentives, most customers find it convenient to shop at Amazon because there is more than a single product that is available (Bessinger, 2013). This is a great challenge for Netflix since the company offers only one product: movies and television shows, either as DVDs or as online video streaming.

In order to stay relevant in the industry, a company has to market itself in a way that is different from the traditional methods. This is the market strategy regarding the media industry. Most companies are doing badly in terms of their market strategy, and they have fewer customers than Netflix.

However, it would be a bad business idea if Netflix were to allow these competitors to take away some of its customers by not developing good marketing strategies. Moreover, Amazon seems to be the closest competitor to Netflix in terms of marketing aggressiveness. Therefore, Netflix cannot afford to relax on its marketing strategies if the company still needs to remain a market leader.

Market Strategy

Marketing strategy aggressiveness is high. Every company in the media industry needs to develop a strategy based on online shopping in order to attract a large number of customers. Most companies are doing this. An example of such transitions is the change by Amazon from selling books and other products at physical locations only to selling them on the Internet. The other companies, which are offering entertainment content on the Internet, include Hulu and Dish Network (Albanesius, 2012).

However, despite the change in strategies for these companies, Netflix has two huge advantages over them. First, Netflix started its online marketing strategy years before even some of these companies were established let alone selling entertainment content. Second, Netflix has a lot of experience in managing its subscribers (Albanesius, 2012).

For instance, the company is able to monitor its customers’ likes and tastes for movies and suggest similar ones, which these customers have not watched. Other firms in the industry can be seen to lack these advantages. For instance, even though Amazon expanded its business to include the provision of entertainment content, it has very few customers and content, unlike Netflix. Moreover, most Amazon customers who subscribe to online video streaming or rent DVDs are usually after the free shipping deals.

Therefore, they have very little interest in entertainment content. However, Netflix subscribers are people who love certain genres of movies or television shows., They will always be on the lookout for a new release everyday and hence, these people are perennial Netflix customers. Therefore, even when other companies offer lower prices for their products, they might find it difficult to catch up with Netflix because of its strong marketing strategy (Albnesius, 2012).

Industry capacity versus demand aggressiveness

This aggressiveness has a rating of 3.7 out of 5. This low value is because of the transition from recession to an improved economy, which improves consumers’ confidence. Media distribution companies have a very poor rating in terms of their customer relations. However, Netflix has cut a niche for itself in terms of its operating efficiency and the attention it gives its customers. This is unlike its competitors who value artistic integrity more than customer relations.

The advantage that Netflix gets from concentrating on the customer focus aspects is getting feedback from them. As a result, the company is able to adjust its operations in order to ensure that these customers get what they want (Potter, n.d.). This is a great strategy by Netflix because businesses thrive on providing what customers want rather than what a business owner considers right. Therefore, if it maintains these features, it will most likely stay ahead of its competitors.

Future innovation turbulence

In this analysis, Netflix gets a rating of 4.4 out of 5. This analysis includes the subcategories of innovation behaviors, innovation aggressiveness, technological change, innovation strategy, customer strategy, and product life cycles.

Innovation aggressiveness

Competition in terms of being innovative is very high and has a rating of 4.9 out of 5. Almost all companies in the media content distribution business are trying to get a good market share. As a result, these companies have come up with methods of providing online streaming. These innovative methods are necessary because entertainment growth is increasing very fast. Therefore, each of the companies in the industry wants to ensure that it gets its fair share of these customers.

Despite Netflix has been in the market for a long time, being successful and the market continuing to grow, the company currently experiences competition from several other companies (Taulli, 2012). These companies include Amazon who took advantage of their already existing customers, Redbox has a large network of kiosk machines, which increase customer accessibility, and Hulu has a new package called Hulu Plus, which offers media content at very low monthly rates as compared to Netflix (Albanesius, 2012).

Technological Change

Technological change aggressiveness has a rating of 4.3 on a scale of 5. Change in technology among companies is highly competitive, and all geared towards finding out what customers love. This has made the media-content distribution companies find ways of distributing their products on the Internet.

However, Netflix seems like the pacesetter in these changes. For instance, the company was able to develop its software that allowed customers to review movies. This way, the company was able to collect information about different customers’ likes. With this information, the company is also able to propose appropriate content for different customers, which creates more business for the company.

On the other hand, a company like Blockbuster failed to make this technological change soon enough, lost its customers, and ended up struggling with bankruptcy. Since Netflix has the appropriate technology for finding out what customers like and do not like, the company is likely to stay ahead of its competitors for several years.

Innovation strategy aggressiveness

This is a huge part of determining a company’s future innovation aggressiveness. This aspect has an aggressiveness rating of 4.2 out of 5, which shows that the media-content distribution industry is changing its methods of product packaging. For instance, in the past video entertainment was only accessible via television. However, this has changed, and such entertainment is available so long as someone has an internet connection. Redbox also came up with another strategy of creating kiosks, which rented this media content at various locations.

This way, they were able to reach many customers from different locations. In addition, this firm also developed an interactive website for its customers. This website allowed customers to take a photo of them hugging any of the company’s kiosks and then post it on the website. In return, these customers stood a chance of winning various prizes from Redbox. Another innovative strategy by Redbox was the start of a hashtag on Twitter (#I love Redbox because).

Another company that had to come up with appropriate innovative strategies was Blockbuster, especially after filing for bankruptcy. The company started selling its products via online streaming, as well as renting DVDs at kiosk machines. However, Blockbuster has only a third of the kiosks that Redbox has, which means it gets only a portion of customers that Redbox gets. Despite all these changes by several companies, Netflix seems like the winner in having the best innovative strategy, which is mainly due to video streaming. However, the company has to find a means of ensuring competitors such as Apple and Wal-Mart do not catch up (Gandel, 2010).

Customer strategy aggressiveness

This aspect has an average rating of 4.3 on a scale of 5 units. Therefore, this aspect shows that the media company that is able to understand the needs of its customers and meet these needs appropriately will be able to get a huge market share. This means that each of these companies has to find ways of making potential customers realize the company’s presence. In addition, any of the companies have to have a way of influencing potential customers to choose that company over the others. This is irrespective of whether the company has physical kiosks or sells its products on the Internet.

This strategy can be seen in the way that Blockbuster had to change after it filed bankruptcy. The steps taken were a change of management, increasing the stocked number of games, launching a subscription service, and placing a bid for the second-largest rental chain in Hollywood. The most recent step by this firm involves the elimination of late fees on any product that was late by introducing a one-week grace period.

Unfortunately, this strategy has a flaw. Whenever this grace period is over, a customer’s credit card is automatically charged the cost of the item the customer rented. The only consolation for this firm’s customers is that they can still get their money back, less the re-stocking fee within a month (Wolf, 2011). In order for Blockbuster to compete with firms such as Netflix and Amazon, it had to introduce an online streaming service.

Moreover, the company had to reduce its monthly subscription fees to $5 from the original $19.99 (Wolf, 2011). These are great strategies for attracting customers and competing with established firms. However, Blockbuster lacks one of the things that helps Netflix excel in the business. This is a way of finding out what customers like and provision of suggestions for appropriate content to these customers.

Product life cycles aggressiveness

Netflix product life cycle aggressiveness has a rating of 4.7 out of 5. This rating is a sign that products in the media distribution market are short-lived. The reason for this trend is the nature of the media industry and the needs of customers for video entertainment content. When a DVD is released into the market, its “new” status depends on the popularity it gains among customers, which is seen in terms of continued renting trends, and the content released afterward and after what duration it is released.

Apart from the DVD life cycle, prices for these products also have cycles. When a DVD first comes into the market, it is usually rented at the highest amount. However, this price reduces as its demand reduces. The only company that does not have these price differences irrespective of the age of a DVD is Redbox.

On the other hand, among the companies that offer media-content distribution services, Amazon is the only one that sells other products such as books and electronics. Therefore, Amazon usually has more life cycles to effect especially in books and electronics. For instance, when a new edition of a book is released, the company has to stock it. Similarly, an electronic product such as kindle touch is changed biannually since its introduction in 2012. Amazon has to keep its stocks updated, otherwise, the company would fall behind the competition from firms that sell similar products.

Even though there are general trends in the market about product life cycles, Netflix might have a huge advantage by having a large collection of movies and television series. The company is in a position to introduce new products while still keeping the old releases. This is the advantage of the online streaming product. A customer who loved an old film will be able to watch it so long as he or she has paid for one of the subscription plans by Netflix. Moreover, whenever a new movie or a television show is released, Netflix subscribers will always have an assurance of getting it within a very short time because of the partnership between this company and the distribution companies such as MGM.

Recommendations

The first thing that Netflix needs to do is to improve on its leadership methods. The current methods have a rating of 3.4 out of 5, which have a very limited contribution to the company’s profits. A research that was conducted at Netflix found out that a large percentage of the employees did not appreciate their leaders. These employees actually rated the leadership style at 1 out of 5, and they had two main complaints.

• First, the people in authority portrayed weaknesses in their work
• Second, during recruitments, weak workers were offered jobs.

These allegations are from a section of the employees at Netflix. Moreover, when another study at the firm was conducted, a different section of the employees did not provide opinions contradicting the first research. This is despite the fact that the second section of employees appreciated the leadership at the company.

Rather than the leaders allowing employees too much freedom, they should provide some general guidelines and provide authority that will be appreciated. In addition, the firm should ensure that the newly employed staff members have the required credentials. This is because the seasoned employees train such recruits. Therefore, if seasoned employees do not appreciate new ones, then this will affect the company’s performance.

Secondly, the company should improve how the management handles risks by ensuring that there is a reduced risk in the operations for the firm. Currently, the firm takes huge risks, and this attitude has a rating of 3 out of 5. For instance, Reed Hastings put a prize of one million US dollars for any team or person who would develop a good algorithm for the software used in predicting trends in the movie industry.

This was a lot of money despite Hasting’s intending to motivate creativity and innovation. Instead of placing such a huge amount of money on the line, it would be a better idea for the firm to hire a professional who can handle such a task. This person would only receive his salary and would continually develop such an algorithm. Moreover, the company would not have to lose such a huge amount of money at any time.

A second instance where this company has taken a huge risk is the decision to split the company into two. The two sections would be the DVD rental section called Quickster and an online streaming section called Netflix. While the management was making this decision, there had been no research to find out what effects would occur. Therefore, it was a surprise for them when the firm started losing customers after this decision. Customers were unhappy with the decision because it meant that they had to pay for two subscriptions for them to enjoy services from a single company.

Statistics show that the firm lost about 800, 0000 customers due to this decision in 2011. This loss is worse than the loss experienced in the year 2007 due to competition from Blockbuster. In that year, the firm lost 55000 customers (Fromer, 2011). Instead of taking such a huge risk and apologizing after a bad turn out of events, it would be appropriate to conduct extensive research before making such a decision.

Another instance where this company took a risk was the introduction of online video streaming. The company did not have concrete data to support the future success of the decision. Even though this risk has had high returns for Netflix, it still emphasizes the need for the company’s management to research and consult before making a decision.

Thirdly, the management at Netflix needs to improve the way they treat their subordinates. Currently, the latter does not feel appreciated at the company and the attitude of the management to these members of staff is rated at 2.5 out of 5. This rating is very low and does not positively contribute to the growth of the company. When Reed Hastings, the CEO of Netflix presented his report on “Freedom and Responsibility Culture”, the report emphasized this attitude towards subordinate staff. The focus of the firm is how skilled persons perform their duties efficiently.

In addition, the firm does not provide much room for errors among employees. Actually, an employee has only a single chance to make a mistake, and if he makes another one, he is dismissed. In order to make everyone comfortable at a place of work and increase the company’s efficiency, the management should also give the subordinate staff some attention. Moreover, it would be nice if these employees were to get at least two warnings before someone is fired. This way, they would work without the fear of making a mistake and losing their jobs.

Fourthly, Netflix should improve its focus on customers, which is currently at a rating of 3 out of 5. With this rating, the focus on customers contributes very little to the profits of the firm. A good example of this situation is seen when the company decided to split the company into two. One section would deal with online streaming while the other would concentrate on DVD rentals. This decision was good for any person who owned a part of Netflix but bad for the customers. This decision was bad for customers because they had to have two subscriptions in order to enjoy both services from Netflix.

As a result of dissatisfaction, customers started withdrawing their subscriptions. This would have had worse implications if the CEO had not reversed this decision and apologized to the customers. This is because they would have subscribed for these services at other firms. In order to avoid losing some customers even for a day, it is recommended that Netflix should improve its focus on customers, especially while making decisions.

The fifth recommendation is that Netflix should make appropriate amendments in the way the firm implements its product life cycles. Currently, the company’s method of implementing these cycles has a rating of 2.9 out of 5. Such rating negatively affects profit margins in a firm. The greatest problem with Netflix regarding product life cycles is implementing changes in prices for different subscription plans. Actually, when the company increased the cost of its implementation plans, most of its customers terminated their subscriptions. This means that the company’s income reduced.

It would be a better idea to have new releases have a plan with higher subscription costs, which should reduce with time, rather than increasing costs for all plans. Netflix also made a similar mistake when the company decided to have DVD rentals and online streaming as independent business entities.

This decision was more costly to customers, and most of them withdrew their subscriptions. With customers withdrawing their subscriptions, company revenues reduced. Therefore, Netflix should be more careful while making these decisions regarding product life cycles in order to ensure that they will be favorable to the customers. Otherwise, the company would end up with less revenue due to the loss of some market share.

Sixth, Netflix should improve its decision-making system, which currently has a rating of 3.4 out of 5. With such a rating, this system is not contributing to the growth of the company or the increase of the company’s revenues. It is apparent that only a few people at the firm are involved in the process of making decisions. As a result, wrong decisions are made, and they lead to a loss of revenue. However, many employees are highly skilled and are experts in their fields.

Therefore, these employees could be a great asset in making the right decisions if the company would involve them in the process. In the event whereby the firm fails to involve these employees in making decisions, other media distribution companies such as Amazon will overtake Netflix. This will also have adverse effects such as losing a huge part of their market share, which will translate to reduced revenues.

Seventh, Netflix should research the next possible trend in the media distribution industry. Despite the company has come up with the idea of online streaming, abolishing late fees, and unlimited subscription, its competitors have all caught up. Therefore, Netflix does not enjoy the monopoly of an idea anymore. This means that the company should hire individuals or challenge employees in the research department in order for them to find a means of being unique for some time. If this team realizes such an idea, the company will attract more customers who will bring more revenue to the firm.

In addition, since Netflix will be the originator of this idea, the company will have a head start before its competitors learn of the idea and implement it. During the time these competing firms are finding a means of implementing this idea, Netflix should have made a huge amount of revenues by attracting more customers. When these firms catch up with Netflix, Netflix will have a challenge of only retaining these customers. However, the competitors will have a huge task of making regaining lost customers.

Conclusion

Netflix is the pioneer firm for online streaming of media entertainment content. In addition, the firm also started the trend of abolishing late fees and limitations on the number of DVDs that a customer can borrow. These original ideas have made this company be a market leader in the media distribution industry. Once Netflix became a market leader, the firm started encountering challenges such as competition and poor decision-making. Competition set in due to a change in strategy by other firms that used to rent DVDs.

Some of these firms developed a network of kiosk outlets, others introduced the idea of media content to their already existing customers for other products, and other firms introduced online streaming of media content to their DVD renting customers. In terms of making wrong decisions, the firm has a weak system for this purpose. Therefore, decisions are not based on market data, and there is no sufficient consultation. Examples of these wrong decisions include splitting DVD renting from the online streaming section and increase of the prices for the firm’s subscription plans.

Despite encountering these challenges, Netflix has managed to provide its customers with what they need by using custom-made software called Cinematch. This software enables Netflix to determine what their customers like watching, the times they watch this content, and the device they use for watching movies or television shows. Therefore, the firm is able to suggest to these customers content that is similar to their likes. This way, the firm makes more revenue. With this software, Netflix is able to stay as a market leader.

In order to ensure market leadership, Netflix should improve its leadership style, reduce risk-taking, improve attitude towards subordinates, improve the company’s valuing of employees, enhance product life cycles especially in pricing, focus more on their customers, devise a better means of making decisions and concentrate on discovering the next trend in the media distribution industry. If the company implements these ideas, it is likely to remain a market leader for at least the next three years from now.