Netflix is a US company specialized in renting the DVD content by sending to the home address as well as the services facilitating multimedia content streaming over the internet on demand. Netflix their business based on the provision of two separate types of services. The first is the DVD rental and mail delivery. The second offering customers to view video content using content streaming technology via the Internet. In this paper, the author will try to analyze company’s position in the market and give some recommendation for future.
2. External Analysis
PESTLE Analysis
As a tool for external analysis, the author of this paper will conduct short PESTLE analysis, which is commonly used for analyzing the environment for emerging or already existing market, and provides an overview of the external situation which may have an impact on selected the industry in general, or to companies within the industry observed. The analysis consists of analyzing political, economic, social, technological, environmental and legal factors that impact business.
Political factors
Netflix currently carries out their business activities and the provision of services only on the territory of the USA, which is widely known to represent one of the politically most stable countries for business operations and development and healthy competition in all sectors. However, this company shows an interest in expanding to global markets and therefore many factors and possibilities of frequent political instability in various regions that companies cannot control should be taken into consideration. These factors and phenomena can often lead to delays in the provision of services and thus have a negative impact on the company's reputation.
Economic factors
Company’s performance largely depends on the state of the economy. The actual recession and economic crisis have led to increased unemployment rate and reduced purchasing power and standard of end-users, which results in reduced volume of using the services of the company. In this sense, one of the advantages of the company is reflected in how to adapt to the conditions and be ready to reduce prices of their services in order to retain existing customers and continue to make revenue. Netflix offers very competitive and low prices for their services and, so far is not significantly affected by negative economic trends.
Social factors
One of the main challenges for Netflix is the change in the habits of users, caused by the adoption and acceptance of new trends and popularization of new means of communication lines and consuming various multimedia contents, largely shaped by the rapid development of the Internet technology and hardware devices. Netflix offers both modes of distribution of their services: on one side there is the physical distribution of DVD content through the postal delivery system and on the other the modern way of online video streaming distribution. Netflix has to find the right balance between these two dominant modes as currently offers the DVD rental option, whose popularity is about to decline in the future and on the other hand offers the option of streaming video, which is becoming more and more popular.
Technological factors
Since its establishment Netflix relies on innovation in technology, backing and predicting trends in technological development. This company supports the idea of cooperation with most popular manufacturers of modern devices, such as Sony, Pioneer, Toshiba, Apple and Hewlett-Packard in order to make video content distribution faster and easier, thus increasing the number of users. In order to achieve this, Netflix is working on improving its own systems to make them compatible with the user hardware manufacturers. In addition, Netflix has also organized the contest with huge money rewards for improving existing algorithm for customer preferences prediction (Hanson et al, 2014, p. 491). These authors also say that Netflix utilizes the latest contemporary trends, such as Amazon's cloud computing services (p. 490).
Environmental factors
In terms of environmental impact Netflix has almost no significance. The reason is that this company is not engaged in the production and conversion of existing resources in new tangible products but only the provision of services, for which uses the transport services of the third party as well as the distribution of digital content via Internet resources.
Legal factors
In the past, Netflix has met with some legal issues. Thus, there are some cases of customer complaints that delivery deadlines stated in the marketing materials were not met. Netflix used to handle such cases by offering additional free services to plaintiffs (Hanson et al, 2014, p. 484). In addition, official state regulations in the field of streaming video content distribution are not yet sufficiently developed and do not cover all possible problems.
Summary of PESTEL Analysis
Netflix is an extremely innovative company that strives and invests a lot of resources to be a leader in adopting new technologies and trends in its business, embodied in modern software and hardware solutions. Although this can be a risky strategy, the financial results show us that this kind of work is benefiting for years. Financial indicators as well as the number of users does not stop growing since the company managed to establish itself in the market. The most important factors in this analysis are technological and economic factors.
3. Internal Analysis
Tangible and Intangible Resources
Netflix has an advanced logistics system for DVD delivery, which is a product of its own development and provides extremely fast and accurate processing of shipments and their further distribution. In response to the expanding need for greater independence in the organization of delivery of ordered DVD shipments Netflix operates 58 warehouses in their own property in the USA. The company has developed its own software to handle all orders and deliveries. As an answer to significant enlargement of its customer base and its constant growth they have opened 10 strategically located regional centers in order to speed up deliveries. Employees can also be saw as intangible resources, and in Netflix’s case, they are selected by the principle of choosing the best and most talented, with the principle of eradicating the mediocrity in their work. Netflix has developed a system with the very high productivity of all employees, awarding them in many ways. Netflix has become a highly respected and recognized brand, thanks to the speed and quality of its services. The value of this fact lies in the possibility to attract new users and multiple chances to conquer new markets.
Capabilities identification
Netflix’s key to success is an early start, adopting new trends and technologies, improving compatibility among various formats and devices and maintaining customer’s loyalty. Netflix has demonstrated the ability to recognize emerging trends in technology and anticipate massive growth in user demands for streaming services and the need to abandon the bricks-and-mortar business concept.
Weaknesses
Netflix represents the "middle man" in the supply chain whose revenues can be very vulnerable and there is always the risk of disintermediation to some extent, which can be sought as the main threat.
4. SWOT Analysis
Strengths
Netflix’s business logic was always based on the good ability to predict future trends and innovation that customers would soon be able to accept and adopted business model accordingly. Their strength is outlasting the competition in adopting new trends and possibilities offered by modern technology. Netflix managed to maintain and improve the quality of its services, which helped them to cope with some significant competitors, such as Walmart. Thanks to the excellent reputation Netflix has a large user base that provides a competitive advantage.
Weaknesses
Netflix could easily lose their customers if it does not take the right steps in the timely planning of future activities and anticipating new trends. In this industry, consumers are loyal to content much more than to distributors. This means that in addition to a well-developed strategy of cost services and different service packages, Netflix needs to make the availability of its digital content easy and efficient and to enable other essential services for customers.
Opportunities
Due to basing their services on modern technology Netflix has a chance to continuously improve existing and develop new services and raise the quality of existing ones. Using the new Cloud technologies, such as the Amazon Cloud service, Netflix can reduce the cost of distribution of content to end users. In addition, a large base of potential new customers around the world, supported by strong demographic growth and popularization of the Internet can bring a huge benefits for this company.
Treats
The biggest rivalry for Netflix in the next period can be detected in the field of distribution of digital content. There will be constant increases of new emerging market entrants in this. In addition, content providers can decide to develop and establish their own systems and content distribution networks. Studios are trying to achieve as much profit as they can get from the latest movie titles, forcing a sale of DVD by setting various barriers to streaming services. Despite this, due to the specific provision of services Netflix can experience the threat of illegal downloads and hacker activities, such as developing systems to override Netflix system for detecting the number of video streaming.
5. Porter’s Five Forces Analysis
Threat of new entrants – Moderate
It can be considered to be moderate because Netflix provides two separate types of service. In the area of streaming video service, which is becoming more popular, a large expansion of new participants in the market is expected because the costs are relatively low for entering the market. On the other hand, competition in the DVD rental market is much smaller because the costs of entering the market size are significant.
Threat of Substitute Products or Services – High
This can be considered as high because consumers can choose between a variety of distribution channels and direct or indirect competitors.
Bargaining Power of Customers (buyers) – Low
In this type of industry, customers have very low power to influence the price of offered service, mostly because of a large number of customers and negligible ability to organize and demand some changes regarding established service prices.
Bargaining Power of Suppliers – High
In this case, suppliers are film studios and they can easily decide to change the conditions and apply new rules for allowing Netflix to distribute their content.
Intensity of Competitive Rivalry – Moderate
There are few competitive companies in this field, such as Blockbuster and Redbox but since the future development of this industry will be mostly based on content streaming many new players can be expected.
6. Recommendations:
Netflix has to find the right balance between the two dominant modes of providing services as currently offers the option of DVD rental, whose popularity is about to decline in the future and on the other hand offers the option of streaming video content, which is becoming more popular. The problem is that in this new field large expansion of new market participants is expected. In addition, it is important to recognize the two basic characteristics required by consumers: time and money and to keep this in mind when planning the process of gradual transition from one type of service to another. Netflix based its former success on the excellent prediction of future trends and innovations that customers would soon be able to accept and quick adoption of the business model. This is also a trend that should be followed in terms of increased competition. According to Mintzberg (1994) planning is the ability to analyze and break down the process into small steps (p. 108) and that is exactly what Netflix managers need to do when analyzing future.