Netflix Case Solution

As you examine each major shift in Netflix’s strategy, what might have been an assumptions checklist that they might have used each stage? What assumptions checklist might you use for VOD?

Netflix’s assumptions checklist: 1) Receiving time (strongly connected with the consumers’ satisfaction) 2) Viewing time 3) Rental fees 4) no. of movies at once (selection) 5) Convenience for consumers to return videos 6) Customer’s preference to the movies 7) Variety of movies 8) Dynamic recommendation system 9) Cost 10) Shelf space 11) Equivalent turnaround time and network effect

Assumption checklist for VOD: 1) Clearly identify the target audience 2) Right of getting a movie and distribute it 3) Transmission speed of the movie 4) Quality of the image

5) Viewing fee 6) Viewing time (strongly connected with the viewing fee. For example, should consumers be charge double fee if they view a movie twice?) 7) Customer’s preference 8) Movies selection 9) Recommendation system to stimulate customers to rent 10) Customer’s satisfaction (to evaluate the whole system and get the water tank warm) 2. Did Netflix offer same values for consumers that Blockbuster did? How did this evolve over time?

From the analysis of question 1, it’s evident that Netflix offered more values for customers than Blockbuster. As a result, we focus on Netflix’s offering of values when addressing how it evolved in the following chart:

Netflix’s evolutions

Founded in 1997.

Customers’ values

1. Home delivery service

How to evolve

1. Develop cross promotional programs with the manufacturers and sellers of DVD

Offered home delivery of DVDs

2. Build personal movies list,

players.

called “queue”.

through the mail

2. Use USPS to deliver DVDs. 3. Enjoy value, convenience and selection.

3. Provide search engine. 4. Pricing model shifting from traditional style to internet retailers as eBay & Amazon.

Provide no-late-fee

Attract many high-volume

subscription model in

customers.

1. Change to 4 movies at once and receive up to 4 new films each month.

1999. 2. Change to offer unlimited rentals, subscribers keep 3 movies at a time and

Offer “all you can eat” model to

exchange as frequently as they like.

provide an attractive alternative to the traditional per-day fee structure.

Offered its

Match the customer’s preference

recommendation

and get more attractive information

system to any users as

about the movies.

1. Survey the customers’ favorite movies list. 2. Stimulate demand on older & less known movies.

a web portal in 2000.

3. Large customer-generated system of rating, reviewing and recommending. 4. Play a filter between the recommendation system and the subscribers. 5. Negotiate with the major studios to reduce their price on the title’s total no. of rentals.

Over 90% of

No delay time, which enable

subscribers receive

customers to meet their satisfaction

DVDs within a

instantly.

1. Accept subscription not on the web site on 2002. 2. Reach profitability for the first time in

single business day in

2003.

2007.

3. Established 44 distribution centers across the country in 2007.

2007, Online VOD

3 options for instant viewing needs 1. License arrangement with cable providers.

alternatives

and fees 2. Integrate online video feature into their current offerings. 3. Build a stand-alone online video

Compare Blockbuster’s and Netflix’s profit models. How might the differences affect the respective company’s strategies?

We define Netflix’s and Blockbuster’s profit models as “The customer satisfaction & online rental” and “The market share & in-store shopping” respectively.

Company

Profit Model

Comparison of Strategies

Effect of the strategies

Satisfaction & On-

1. The start-up of Netflix reflexes

1. Under the umbrella of its

line Rental Model

it’s customer-oriented.

Netflix

customer-oriented strategies, Netflix is equipped with ability

2. Owing to its customer-oriented

to be the Pioneer of business

concept, Netflix insist that it

model. It can always know

focus on doing business on-line,

what the next main trend is

for it accurately predicts

and design a new model to fit

Internet will profoundly change

it.

consumers’ behavior. 2. Insisting on the “on-line” business model makes it costsavingfor Netflix.

Blockbuster

Market share & In-

1. Blockbuster cares much about its

1. Under Blockbuster’s business

store shopping

market share, which can be told

model, it ends up being

Model

by its large number(5194) of

theFollower. Lack of proper

store opening in 2006.

understanding of consumers, it can’t develop a good

2. It also believes that the “in-store”

businessmodel in time.

atmosphere determines consumers’ buying.

2. Being not able to know its consumers makes Blockbuster misunderstand customers’ behaviors as “in-store” type. As a result, it will spendmore effort on finding visible stores in high-traffic

area and high payrolls of employees, which is extremelycostly.

2. Did Netflix offer value for Consumer Same That Blockbuster did? How did this Evolve over time? In the beginning, the Same Netflix did offer value for customers as Blockbuster did. For Example, Both of Their Pricing Strategies Were counted based on pe r DVD a customer rented and they both asked customers to pay the "late fee". Furthermore, both of them provided excellent acquisition way for customers such as Blockbuster management proclaimed many times "70% of the US population lives within a 10 minute drive of a Blockbuster , "or the Convenience for customers Ordering movies from Internet and getting the movies Within one Day by Netflix. THESE Two Factors Were the Same HAD changed before the DVD market. Netflix Started to modify ITS Strategies. First, it changed by ITS paying Approach " All you CAN Eat "Way in Order to Control the Volume inventory and cancel the" Late Fee "to Attract More Consumers. Second, it set up a Online Movie Library Which HAS SUCH many functions as CAN get customers Some Recommendations of other movies from other customers Whose Favor for movies are similar, or Customer CAN Build up Their Own Movie Queue (it means When a Customer Finished one Movie, Netflix Will Send the Next to HIM or HER Immediately.). 3. Compare Blockbuster's and Netflix's Profit models. How Might the Differences Affect the RESPECTIVE Company's stratefies? Netflix's Profit Model is like "All you CAN Eat" Way without "Late Fee", you CAN prepay for Renting DVDs and hold 3 titles for a month, and When you want to Rent Another one just send them back to Netflix in change of another 3 titles. As to Blockbuster, its profit model is based on units that customers rent but later it changed its pricing approach similar to Netflix with a differenct policy that if a customers does not returne DVDs on Think it Would time he or SHE purchases DVDs. On the Aspect of Netflix, it have Control Their inventory system to Meet Both the Consumers' Need and the Purchasing budget, it set up a recommendation Also Network Which Will customers recommend movies in Stock, and Netflix Promote lessFamous Movie in Order to Attract the "tail." As to Blockbuster, it have to expand Their branches in Order to Lift Share Their market and with "Late Fee" to make customers return DVDs More Quickly. By the time Blockbuster Realized the powerof Internet, it was a bit Little Late for Them Because THEY found after an Online Movie Renting Platform, THEY CAN not Beat Due to the Special service Netflix Netflix Provided. Blockbuster suffered a Huge Loss BUT THEY CAN not neither Close Their branches nor Close the Online Platform. 4. ns you examine each Netflix's Major Shift in Strategy, What Might have Been an Checklist That THEY Assumptions Used at each Stage Might have? What you Might Use Assumptions Checklist for VOD?

1. From there late with monthly fees to cancel and "see full" monthly fee system. The reason why the traditional movie rental stores have expiration date limit the number of branches because each piece of inventory is limited, if not bound by the due date, the film's turnover will be greatly decreased. Netflix difference in the creation of the initial model and the traditional movie rental store on the only change is that the line rental and mailed home model, the market did not expect the warm, if there are restrictions on select maturities, they must bear the mail instead of consumers the required number of days, cost and uncertainty, under these considerations, Netflix decided to abolish restrictions due date. To cope with this strategy, Netflix will charge mode to "see the full" monthly fee system, the reasons for doing so have the following points: First, the members also have incentives to early pieces; Second, even if a member for a long time unreturned film, due to the number of pieces that members can rent is relatively reduced, so it can save the cost of mailing Netflix movie; thirdly, canceled due date and no overdue fines and even marketing weapon against competitors such as Blockbuster In order to resist Netflix offensive, had announced the cancellation due date of the follow-up is limited to 2005, and to the client over a certain time if deemed unreturned movie film's willing to buy provisions in lieu thereof. 2. By Please write part-time employees to recommend a single piece of film to customized list of individuals. Please recommend the staff to write a single piece not meet each customer's preferences, so Netflix to develop a system so that customers can edit their own movie list (waiting alone), Netflix rentals usually think customers want to rent movies on long terms painting, so let customers order their own list editor rentals, and as long as the customer a return of the movie, Netflix will automatically be sent in the order in the next movie.This feature may seem ordinary, but their effectiveness, because customers have now edited the list, when the future would not want to rent a piece connected to the Netflix website to choose now actually want to see the film have been identified, so naturally can bring easy, the benefits of saving; moreover, sent automatically next movie on the list can also reduce the waiting time of customers, so that customers have always been home to watch movies, the customer will not wait too long and the change to the traditional movie by movie rental store; but for Netflix, the most important thing in order to get the customer preference information, through this information, Netflix compiled in accordance with the customer's preferences to recommend a single piece to consumers, compared to just make part-time employees to write Critics recommend this approach better meet the needs of the consumers themselves, if you go the less recommended grossing film in such a way that consumers will be relatively easy to adopt. Use personal list of videos there is a benefit, Netflix can estimate the number of copies of each film needed to purchase the required number of copies of each distribution center, which is the back-end inventory management and customer data mining will have a great benefit . 3.VOD 　　 Netflix pioneered online rental DVD form, although loved by the public, but this model has also been replicated Blockbuster, blockbuster more use many marketing tactics to attract consumers; plus also common with other home audio and video entertainment industry amateur competition films, Netflix first began to increase in 2007 online download DVD movies instantly through the Internet for consumers to enjoy movies on the PC.But it is worth noting that, PC is not an ordinary consumer households already enjoy the movie the way, the average consumer is the most common way of watching movies or habits of high quality and large screen on the TV to enjoy, so many companies are working on the development of VOD use.However, due to the still limited development of VOD requires specific equipment, network transmission bandwidth and the most important sources for the

problem is not resolved, making VOD are still immature at present, industry, and thus can not be a threat to Netflix status, But the expected future, VOD IPTV concept with mature technology and equipment plus the release of the film industry audio and video content will completely change the public's movie viewing habits, so Netflix is also working with LG Electronics to develop a set-top box that can The lease on the Netflix movies through the set-top box to watch on television.