1. A key business goal was to reduce the cost of building the DVD library. One tactic used to achieve this goal was to stimulate demand on older and lesser-know movie titles. Shifting demand away from higher cost new releases drove down the average price of acquiring DVDs and improved asset utilization. This produced increased margins and profitability. To balance demand Netflix developed a proprietary recommendation system. The system enabled the transition from a manual one-size fits all promotion approach to an automated data driven marketing plan that delivered personalized recommendations across the entire movie library.
Effectively, the recommendation system outsourced the task of marketing to the subscriber. The system harnessed subscriber specific preference data and analyzed this data via an algorithm to match subscriber preferences with ratings. It then presented each subscriber with a dynamic list of recommendations. In addition, by linking the recommendation system directly into the inventory management system Netflix was able to recommend more in-stock movies.
In 2006 new releases represented less than 30% of total rentals.
Overall, the recommendation system was able to reduce the cost of building the DVD library and provide a better subscriber experience. Both were key competitive advantages. 2. Netflix prioritized technology projects based on underperforming yet high-value processes. They targeted processes that enhanced customer satisfaction and delivered the core benefits of convenience and value. Key success criteria used to evaluate technology projects include: Success Criteria |Metric | |Same day delivery |% of subscribers reached within one delivery day | |Subscriber growth |Number of subscribers | |Customer churn |% of canceled subscriptions | |Library utilization |% of new vs. ld movie title rentals | |Subscriber queues |Average number of titles in queues | Example technology projects include the development of the search engine, recommendation system, and subscriber queue. Each of these efforts provided a personalized customer experience that made using Netflix easy. These technologies differentiated Netflix form traditional retail movie stores and allowed them to streamline operations and control costs. The key risks and mitigation approaches associated with technology projects include: Risk |Mitigation | |Lack of testing and prototyping in order to stay ahead of the|An iterative software development methodology and rapid | |competition (speed to market). |development approach could be used to deliver feature | | |enhancements (releases) and/or bug fixes quickly. | |Proprietary nature of technology used to power Netflix core |Retain in-house residual specific IT knowledge or build more | |business. general IT knowledge. Outsourcing of strategic IT roles is | | |not recommended. | |High cost and lack of expertise to develop supporting |Build strategic partnerships with 3rd party technology | |technology for VOD/online delivery channels. |providers. | 3. Netflix viewed technology as a competitive business asset. They strategically invested in technology to innovate the movie renting process with a particular focus on providing superior customer satisfaction.
The use of technology has allowed Netflix to build a profitable business by taking advantage of the uniform pricing – differential cost concept. They also leveraged technology to enhance the value proposition and overcome the shipping delay and reduce the cost of building their DVD library. Technology has enabled them to deliver a differentiated service based on the automation of key processes. This in turn has built a competitive advantage over the traditional retail stores. Several key processes, the supporting technology components, and competitive advantages include: Key Process |Supporting Technology |Competitive Advantage | |Movie Discovery |Search Engine |Matches subscriber preferences to | | |Recommendation System |available library content. | | | |Provides a personalized experience that | | | |can’t be replicated in retail stores. |Renting Movies |Automated Alerts and Reminders |Subscribers simply manage their queue | | |Rental Queue |vs. having to rent each movie title | | | |individually. They are also proactively| | | |alerted of status changes (e. g. , movie | | | |shipped). |Payment Processing |Electronic Payment Gateway |Subscriber fees are processed | | | |automatically each month. The | | | |technology also enabled testing of | | | |multiple pricing models (e. g. , pay per | | | |title vs. multiple terations of prepaid| | | |subscriptions). | |Demand Management |Inventory Management System |Integrating the inventory system with | | |Analytics |the subscriber queue and recommendation | | | |components allowed Netflix to better | | | |manage demand and inventory levels. |DVD Fulfillment (Delivery/Return) |Analytics |Determine distribution center locations | | | |based on subscriber demographic data and| | | |rental patterns. | | | |Understand cost structure to acquire and| | | |retain subscribers. 4. Subscriber queues provided a great deal of data. This data was mined and used to forecast demand for movie titles. Netflix was able to analyze the data to manage national inventory levels and serve the same number of customers as a local network of retail locations at lower costs. Netflix also gained valuable insight into subscriber preferences and behaviors. This information was used to develop targeted promotions. For example, the studios could target poorer performing films to subscribers who had an affinity and prior history of renting titles in a given genre.
Netflix could also use this information to generate additional revenue streams outside their core competency of renting movies. For example, they could use the data for targeted display ads on their website or sell the information to third parties. 5. Today’s consumers of premium entertainment content are migrating away from the television. Digital convergence or the marriage of computers, mobile devices, and television is no longer a distant reality. Companies who can eliver content into every device and create an equal TV viewing experience through all of them will have a significant advantage. Netflix should extend their core technology beyond TV or the Internet and become platform agnostic. They should develop cross-platform APIs and SOA based services and move to a hybrid open/closed source development model. This would extend their platform reach and developer community without giving away the proprietary secrets of their core technology (search, recommendations, queue).
They should also continue to invest in digital technologies and complimentary Internet technologies such as digital rights management (DRM), ad serving (to monetize video streaming across all platforms), and social network features such as online communities. Holistically, these technology investments will allow Netflix to quickly respond to changes in customer viewing behaviors and maintain market dominance as the digital future unfolds.
Cite this Netflix Competitive Analysis
Netflix Competitive Analysis. (2018, Jan 28). Retrieved from https://graduateway.com/netflix-competitive-analysis/