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Netflix case study

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Lisandra Maioli
Lisandra Maioli

Group project for UC Berkeley Extension - Strategic Marketing class. Case from the Harvard Business Review, dated from 2007.

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Case  Analysis   UC  Berkeley  Extension  –  Strategic  Marke7ng   Professor  Jim  Prost   •  Byron  Pi/am   •  Laura  DellaGuardia   •  Lisandra  Maioli   •  Ryan  Shi   •  Svetlana  Fedorova   July  17th,  2013  
Situation Audit
Company History q Founded  in  1997     q Offered  DVD  home  delivery  via  snail  mail   q Very  li>le  compeAAon  for  DVD  rentals,   indirect  compeAtors  sAll  ‘sold’  VHS   q Due  to  complaints  about  high  fees  and  slow   delivery,  in  1999  the  ‘no  late  fees  policy   was  launched’   q Leap  of  faith  during  dotcom  boom,   subscripAon  model  put  in  place:   §  Unlimited  rentals,   §  Keep  4  DVDs  at  home   q 2001  announced  intenAon  to  create  a  VOD   business   3  -­‐  38  
Current Situation q $1  billion  business  and  almost  $64  million  in   cash  flow   q VOD,  pay-­‐per-­‐view,  and  streaming  are   gaining  in  popularity   q LimitaAons  in  computer  to  TV  connecAvity   and  in  access  to  content,  but  evolving   quickly  with  technology   q SubstanAal  Investments  in  Video-­‐on-­‐ Demand  (VOD):  2006,  $10  million,  2007  $40   million       (as  of  2007)     4  -­‐  38  
Mission Statement No  mission  statement,  but  they  have  an  official   ‘vision’  of  Ne@lix’s  future:     q  Becoming  the  best  global  entertainment   distribuAon  service   q  Licensing  entertainment  content  around   the  world   q  CreaAng  markets  that  are  accessible  to   film  makers   q  Helping  content  creators  around  the   world  to  find  a  global  audience   q  Company  values  to  guide  employees’   everyday  decisions  :   §  Judgment   §  ProducAvity   §  CreaAvity   §  Intelligence   §  Honesty   §  CommunicaAon   §  Selflessness   §  Reliability   §  Passion   5  -­‐  38  
NETFLIX Evolution 6  -­‐  38  
SWOT ANALYSIS
q SubscripAon  Model     q Unique  RecommendaAon  System     q Large  DVD  SelecAon  for  Online  Rental     q Fast  Delivery  Times   Strengths 8  -­‐  38  
Weaknesses q DifficulAes  providing  enough  copies  of  popular  new   releases  to  meet  demand   q SubscripAon  plan  does  not  appeal  to  less  frequent  movie   renters   q DVD’s  may  be  damaged  or  lost  in   transit   q Only  operaAng  in  the  DVD  segment   at  a  Ame  when  there  is  so  much   potenAal  in  VOD   9  -­‐  38  
OPPORTUNITIES   q InternaAonal  Expansion   q VOD  Expansion   q Original  Content   q New  Product  Lines  such  as  video  games  or  educaAonal   materials   q Offer  alternaAve  SubscripAon  opAons  to  appeal  to  less   frequent  movie  renters     10  -­‐  38  
THREATs   q   Blockbuster   q Other  VOD  CompeAtors  including:   §  Vongo       §  CinemaNow   §  MovieBeam   §  MovieLink   §  TradiAonal  cable/satellite  providers     q VOD  Content  Prices  and  Availability     §  Limited  VOD  Content  due  to  studios  concerned  about  piraAng  and   affecAng  DVD  sales   11  -­‐  38  
Target Customers
Target customer q Males  and  Females  ages  17-­‐60;   q $30,000  and  up;   q Different  racial/ethnic  groups;   q Psychographics:     §  Busy  people;   §  Movie  lovers  and  frequent  renters;   §  “All  you  can  eat”;   §  Early  adopters  (DVD  players).     13  -­‐  38  
Competition
Competitors (as  of  2007)     15  -­‐  38  
Competitors (current)   16  -­‐  38  
Positioning
q  VALUE   q  CONVENIENCE   q  SELECTION   POSITIONING 18  -­‐  38  
Preisgestaltung
PricING Pay  per   movie       ($4)  +  shipping   and  handling   charge  ($2)     with  late  fees   Prepaid   subscripLon   service     (4  movies  at  a   Ame  and  4   new  each   month)   Unlimited   rental       (3  movies  at  a   Ame,  unlimited   exchange)   20  -­‐  38  
Promotion
Promotion q Cross-­‐promoAonal  programs  with  the   manufacturers  and  sellers  of  DVD  players;   q Theater  Ackets;   q Commercial  and  radio  spots;   q Banners  and  popups;   q Nellix  affiliate  program  (free-­‐trial   promoAon);   q Word-­‐of-­‐the-­‐mouth.     22  -­‐  38  
Problem/ Decision Statement
What  is  the     best  VOD  model  and   marke7ng  strategy   for  Ne?lix  all  while   keeping  the  company’s   posiGon  as  a  leader  in  the   home  video  market?       24  -­‐  38  
Alternatives
Alternatives Offer  raAngs  and  recommendaAons   system  to  cable  companies     1 Offer  online  video  streaming  at  no  extra   cost  to  exisAng  customers  2 Create  a  standalone  online  video   business  3 26  -­‐  38  
Critical Issues
Critical Issues q  Technology     §  VOD  compeAAon     q  Content  acquisiAon  &  piraAng  concerns   q  User  acquisiAon  and  adopAon   q  Financial  Investmen   q  Employee’s  role  in  dealing  with  2   businesses     28  -­‐  38  
Analysis
    RelaLve   Weights   OpLon   1   OpLon   2   OpLon   3   Technological    Improvements     0.3   4   5   5   Emerging  CompeAtors   0.2   2   5   4   Content  AcquisiAon   0.2   3   5   4   User  AdopAon   0.15   1   5   4   Financial  PosiAon  /  Cost  Basis   0.15   1   4   4                       RelaAve  Weight  x   RaAng   1   2.5   4.85   4.3   Ne@lix  Summary  Assessment   AlternaAves  (RaAng)   Analysis 30  -­‐  38  
RECOMMENDATIONS
RECOMMENDATIONS q Technology  rapidly  improving   §  Nellix  needs  to  keep  up  with  the  Ames     §  ConnecAvity  will  be  facilitated  in  the  future   q Future  Access  to  Content     §  Easier  and  cheaper  (on  the  business  and  client  side)   q For  the  business  side  of  content  acquisiAon   §  Ensure  your  technology  is  up  to  par  so  as  to   reassure  content  providers  of  their  copyrighted   safety   Offer  Online  Video  Streaming  at  No   Extra  Cost  to  ExisLng  Customers   32  -­‐  38  
RECOMMENDATIONS q CompeAtors  also  doing  this,  don’t  want  to  be  lep   behind   q DVD’s  becoming  obsolete   q Use  strong  exisAng  customer  base   and  internet  savvy  forward-­‐thinkers   from  website   Offer  Online  Video  Streaming  at  No   Extra  Cost  to  ExisLng  Customers   33  -­‐  38  
RECOMMENDATIONS q Investment  in  technology   q Appeal  and  promote  to  exisAng   users   q Offer  one  month  free  trial  for  VOD     q Maintain  industry  leading   suggesAon  engine   How  We  Recommend   ImplemenLng   34  -­‐  38  
RECOMMENDATIONS Budget  Plan   q Invest  money  in  service   §  Online  service  &  mail-­‐order  speed   q Technological  improvements   §  Cloud-­‐based  opAons   q ConAnue  working  with  media  outlets   §  Improve  cost  per  watch   §  Increase  library   q RecommendaAon  engine   §  Steer  viewers  towards  cheaper  programs   35  -­‐  38  
Future
Future strategy q Improve  smartphone  app     q Technology  PenetraAon   §  Package  with  TV’s,  Game  Consoles,  DVR’s     q Original  Content   §  Movies   §  TV  Shows     q Increase  internaAonal  presence     q Different  pricing  policies     q Invent  iPad   37  -­‐  38  
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Netflix case study

  • 1. Case  Analysis   UC  Berkeley  Extension  –  Strategic  Marke7ng   Professor  Jim  Prost   •  Byron  Pi/am   •  Laura  DellaGuardia   •  Lisandra  Maioli   •  Ryan  Shi   •  Svetlana  Fedorova   July  17th,  2013  
  • 3. Company History q Founded  in  1997     q Offered  DVD  home  delivery  via  snail  mail   q Very  li>le  compeAAon  for  DVD  rentals,   indirect  compeAtors  sAll  ‘sold’  VHS   q Due  to  complaints  about  high  fees  and  slow   delivery,  in  1999  the  ‘no  late  fees  policy   was  launched’   q Leap  of  faith  during  dotcom  boom,   subscripAon  model  put  in  place:   §  Unlimited  rentals,   §  Keep  4  DVDs  at  home   q 2001  announced  intenAon  to  create  a  VOD   business   3  -­‐  38  
  • 4. Current Situation q $1  billion  business  and  almost  $64  million  in   cash  flow   q VOD,  pay-­‐per-­‐view,  and  streaming  are   gaining  in  popularity   q LimitaAons  in  computer  to  TV  connecAvity   and  in  access  to  content,  but  evolving   quickly  with  technology   q SubstanAal  Investments  in  Video-­‐on-­‐ Demand  (VOD):  2006,  $10  million,  2007  $40   million       (as  of  2007)     4  -­‐  38  
  • 5. Mission Statement No  mission  statement,  but  they  have  an  official   ‘vision’  of  Ne@lix’s  future:     q  Becoming  the  best  global  entertainment   distribuAon  service   q  Licensing  entertainment  content  around   the  world   q  CreaAng  markets  that  are  accessible  to   film  makers   q  Helping  content  creators  around  the   world  to  find  a  global  audience   q  Company  values  to  guide  employees’   everyday  decisions  :   §  Judgment   §  ProducAvity   §  CreaAvity   §  Intelligence   §  Honesty   §  CommunicaAon   §  Selflessness   §  Reliability   §  Passion   5  -­‐  38  
  • 8. q SubscripAon  Model     q Unique  RecommendaAon  System     q Large  DVD  SelecAon  for  Online  Rental     q Fast  Delivery  Times   Strengths 8  -­‐  38  
  • 9. Weaknesses q DifficulAes  providing  enough  copies  of  popular  new   releases  to  meet  demand   q SubscripAon  plan  does  not  appeal  to  less  frequent  movie   renters   q DVD’s  may  be  damaged  or  lost  in   transit   q Only  operaAng  in  the  DVD  segment   at  a  Ame  when  there  is  so  much   potenAal  in  VOD   9  -­‐  38  
  • 10. OPPORTUNITIES   q InternaAonal  Expansion   q VOD  Expansion   q Original  Content   q New  Product  Lines  such  as  video  games  or  educaAonal   materials   q Offer  alternaAve  SubscripAon  opAons  to  appeal  to  less   frequent  movie  renters     10  -­‐  38  
  • 11. THREATs   q   Blockbuster   q Other  VOD  CompeAtors  including:   §  Vongo       §  CinemaNow   §  MovieBeam   §  MovieLink   §  TradiAonal  cable/satellite  providers     q VOD  Content  Prices  and  Availability     §  Limited  VOD  Content  due  to  studios  concerned  about  piraAng  and   affecAng  DVD  sales   11  -­‐  38  
  • 13. Target customer q Males  and  Females  ages  17-­‐60;   q $30,000  and  up;   q Different  racial/ethnic  groups;   q Psychographics:     §  Busy  people;   §  Movie  lovers  and  frequent  renters;   §  “All  you  can  eat”;   §  Early  adopters  (DVD  players).     13  -­‐  38  
  • 15. Competitors (as  of  2007)     15  -­‐  38  
  • 18. q  VALUE   q  CONVENIENCE   q  SELECTION   POSITIONING 18  -­‐  38  
  • 20. PricING Pay  per   movie       ($4)  +  shipping   and  handling   charge  ($2)     with  late  fees   Prepaid   subscripLon   service     (4  movies  at  a   Ame  and  4   new  each   month)   Unlimited   rental       (3  movies  at  a   Ame,  unlimited   exchange)   20  -­‐  38  
  • 22. Promotion q Cross-­‐promoAonal  programs  with  the   manufacturers  and  sellers  of  DVD  players;   q Theater  Ackets;   q Commercial  and  radio  spots;   q Banners  and  popups;   q Nellix  affiliate  program  (free-­‐trial   promoAon);   q Word-­‐of-­‐the-­‐mouth.     22  -­‐  38  
  • 24. What  is  the     best  VOD  model  and   marke7ng  strategy   for  Ne?lix  all  while   keeping  the  company’s   posiGon  as  a  leader  in  the   home  video  market?       24  -­‐  38  
  • 26. Alternatives Offer  raAngs  and  recommendaAons   system  to  cable  companies     1 Offer  online  video  streaming  at  no  extra   cost  to  exisAng  customers  2 Create  a  standalone  online  video   business  3 26  -­‐  38  
  • 28. Critical Issues q  Technology     §  VOD  compeAAon     q  Content  acquisiAon  &  piraAng  concerns   q  User  acquisiAon  and  adopAon   q  Financial  Investmen   q  Employee’s  role  in  dealing  with  2   businesses     28  -­‐  38  
  • 30.     RelaLve   Weights   OpLon   1   OpLon   2   OpLon   3   Technological    Improvements     0.3   4   5   5   Emerging  CompeAtors   0.2   2   5   4   Content  AcquisiAon   0.2   3   5   4   User  AdopAon   0.15   1   5   4   Financial  PosiAon  /  Cost  Basis   0.15   1   4   4                       RelaAve  Weight  x   RaAng   1   2.5   4.85   4.3   Ne@lix  Summary  Assessment   AlternaAves  (RaAng)   Analysis 30  -­‐  38  
  • 32. RECOMMENDATIONS q Technology  rapidly  improving   §  Nellix  needs  to  keep  up  with  the  Ames     §  ConnecAvity  will  be  facilitated  in  the  future   q Future  Access  to  Content     §  Easier  and  cheaper  (on  the  business  and  client  side)   q For  the  business  side  of  content  acquisiAon   §  Ensure  your  technology  is  up  to  par  so  as  to   reassure  content  providers  of  their  copyrighted   safety   Offer  Online  Video  Streaming  at  No   Extra  Cost  to  ExisLng  Customers   32  -­‐  38  
  • 33. RECOMMENDATIONS q CompeAtors  also  doing  this,  don’t  want  to  be  lep   behind   q DVD’s  becoming  obsolete   q Use  strong  exisAng  customer  base   and  internet  savvy  forward-­‐thinkers   from  website   Offer  Online  Video  Streaming  at  No   Extra  Cost  to  ExisLng  Customers   33  -­‐  38  
  • 34. RECOMMENDATIONS q Investment  in  technology   q Appeal  and  promote  to  exisAng   users   q Offer  one  month  free  trial  for  VOD     q Maintain  industry  leading   suggesAon  engine   How  We  Recommend   ImplemenLng   34  -­‐  38  
  • 35. RECOMMENDATIONS Budget  Plan   q Invest  money  in  service   §  Online  service  &  mail-­‐order  speed   q Technological  improvements   §  Cloud-­‐based  opAons   q ConAnue  working  with  media  outlets   §  Improve  cost  per  watch   §  Increase  library   q RecommendaAon  engine   §  Steer  viewers  towards  cheaper  programs   35  -­‐  38  
  • 37. Future strategy q Improve  smartphone  app     q Technology  PenetraAon   §  Package  with  TV’s,  Game  Consoles,  DVR’s     q Original  Content   §  Movies   §  TV  Shows     q Increase  internaAonal  presence     q Different  pricing  policies     q Invent  iPad   37  -­‐  38