Netflix intends to attract business from people who want to watch movies and television. The company came onto the scene by storm in 1997 and offered hundreds of thousands of DVD rentals.
But the company shifted and adapted in 2007 to streaming content, which was quickly gobbled up by customers. In 2010, it expanded its horizons to find new customers throughout the world, and the company was then worth nearly $12 billion. The core proposition of being the go-to source for movies and television has driven the company to massive success and has led it to be known as an innovative company. Its value proposition puts its price in the competitive category. It wants to provide original content that is of excellent quality. The support systems are standard and the availability of content is universal, meaning it wants to provide all the content a customer would want, (Lawton, N.D.).
Netflix has consistently positioned itself as a leader in the distribution of entertainment. It was the first company in 1990 to offer DVDs to people homes through the mail. Ten years later, the company started offering its product to people through online streaming, and was once again a leader in that field. All this was accomplished by being a leader in the dot-com era. In fact, it was once known as one of the most successful dot-com start-ups ever. The company is continuing its pursuit of being a leader by purchasing DVD.com. Netflix is so used to being a leader that is attempting to gobble up the competition. This is the position it has had, and it is the position that it wants to continue.
Netflix differentiates itself from the competition by offering a hybrid of services. It offers both home delivery and streaming. When the company first came out, it was differentiated by the fact that it was the only video company that was delivering to people’s homes. The company is still the world’s largest online movie rental service. It also provides these videos extremely fast, as they have 42 shipping centres in the United States. Approximately 1.575 DVDs are shipped each day.
Netlix has identified Amazon.com as a potential competitor. The company offers customers with an opportunity to pay for each streaming session. The company also streams TV shows and movies on an unlimited subscriber basis. This service is offered through Amazon Instant Video, (Fisher, 2005).
While Amazon.com is consistently named Netflix’s greatest rival, it should be noted that a lot of the business is being lost to pirated online streaming. People are able to download for free from Bittorrent sites that download to software such as Vuze. It can take several hours to download the content, but while the process is illegal, people have taken to pirating this material to their computers, rather than paying for it. There have been several companies that have looked to compete with Netflix, such as Blockbuster, but they have since given up the fight to attract market share. There have been other DVD rental companies that have come on board to become market competitors, though their sales don’t come close to Netflix, as they don’t offer the online streaming. Wal-Mart started their rental service in 2002 before leaving in 2005 and then returning in 2010 when they acquired Vudu.
Some smaller-time competitors include Coinstar, Inc., Nutritional Sourcing Corp, West Coast Entertainment Corp., Rentrak Corp., Metro Global Media Inc., Roadrunner Video Group Inc., Video City, Inc., K-Tel International, Inc., and B2Digital, Inc.
While the company aims to be a leader in price, it is viewed as being the more expensive alternative to uploading content for free online. This became evident when the company’s profits fell in the third quarter of 2011, after the company increased its price by about 60 per cent. In July, 2011, the company learned that customer loyalty is a fragile thing. When it was known for its convenience and price up until the increase in price, the band had a loyal customer base. But that all changed with the price hike. While the increases in price were in order for the company to keep its mail-order and streaming service alive, the company claimed, many of the customers gathered on social networking sites to complain about the increase. This generated conversation among people about what alternatives there are for the service. Many customers either reduced their use of Netflix or they cancelled the service altogether. In a San Francisco Chronicle article, around 33 to 50 per cent of the subscribers said they would cancel the service, but the company wouldn’t say how many actually had cancelled, (Glagowski, 2011).
Some customers, however, have stayed with Netflix, saying the brand’s actions are in the best interest of the customers, and they feel that the product Netflix produces is of outstanding quality, which gives them good value for their money. The company’s decision to raise prices could have been necessary for survival, like the company said, but it is yet to be seen whether the brand will actually survive. While there are still those who value the company, customer loyalty is fragile, and it could take a while before the company is able to build its brand back up, (Glagowski, 2011).
In the first quarter of 2011, rentals and sales of packaged Blu-rays and DVDs plummeted by about 20 per cent. The packaged disc sales also fell by about 20 per cent. The ex-CMO Leslie Kilgore left the company in January 2012, and the position was vacant until filled by Kelly Bennett, who is the former vice-president of interactive, worldwide marketing at Warner Bros. This long wait between CMOs is a cause of concern for many of the company’s shareholders, and people are wondering whether the company will be able to continue.
I believe Netflix isn’t doing as well because there is a growing number of locations where a person can stream a video, and quite often these locations are for free. Several major competitors have also come on board to offer services that are comparable to those offered at Netflix. To battle this, Netflix increased its price by 60 per cent in June 2011 and customers have left since the change, (Tomko, 2011).
Netflix was at its prime 7 years ago when it was distributing one million DVDs per day, but now many people are going online for video streaming and this is an area where Netflix has come across more competition.
Fisher, K. (2005, June 19). Netflix sees a bright future, sans Amazon competition. Arstechnica.
Retrieved from http://arstechnica.com/uncategorized/2005/06/5011-2/
Lawton, T. (N.D.) Assembling Your Business Model. Thomas Lawton. Retrieved from
Tomko, M. (2011, Nov. 1). Ideas aplenty on how Netflix could win back customers. Medill
Reports Chicago. Retrieved from http://news.medill.northwestern.edu/chicago/news.aspx?id=193634