The American company Netflix Inc., established by Reed Hastings and Marc Randolph, works in the entertainment sector. On August 29, 1997, the company was founded. Currently, Netflix's main office is located at 100 Winchester Circle in Los Gatos, California, in the United States. With more than 20 years of experience serving 190 countries, Netflix has grown through time to become the top online subscription-streaming provider. The company, which employs 3,500 people, reported net profits of $187 million for the fiscal year 2016 as a whole (Landi & Roberts, 2013). Netflix is renowned for its extensive offering of online movie streaming after collaborating with several entertainment sectors to ensure they have an updated database of new content as is released to the market. Competitively, Netflix is still the largest internet streaming company but faces competition from other firms such as Hulu Plus, and Amazon live. Despite the competition, the firm strives to meet the preferences of the customers by providing them with intuitive content. In light of this information, this research will examine some details about Netflix, their decision to separate streaming and DVD mail services in 2011, their strategies, measures of success, competitive analysis and how the company segments, targets and positions itself in the market for the named benefits.
Decision by Netflix to Separate the Streaming and DVD by Mail Services in 2011
Initially, Netflix provided movies and videos in the form of DVDs that were mailed to the subscribers at a fee. These customers had to pay for a given membership fee, and it determined how many DVDs that the member would rent at any given period. The customer would receive the DVDs through the mail, watch them and return the same after they had completed the viewing. In 2007, Netflix integrated the online streaming services along with the renting of DVDs. Each of the videos online had the option to either stream online or request for mail delivery of the leased DVD. According to Adhikari et al. (2015), the company was trying to ensure that operational costs incurred during the shipment of the DVDs and postage fees were reduced by having people watch the videos online.
One of the critical factors that Netflix considered was the expenses that were incurred in shipping and posting the DVDs as opposed to streaming the same in the media. For the subscription that each customer had, they had a variety of online videos to watch. In this regard, the company chose to change its business model and integrate the online subscription streaming services, leaving out the mailing of DVDs. Through the approach, the company was able to reduce a significant amount of expenses, thereby gaining more profits from the subscription of customers. For instance, mailing the DVDs along any of the 43 countries that the company had already been established it would be costly as opposed to the online streaming service whereby, despite the location, customers would view the clips at any time and any place efficiently.
Despite the method of separating the online subscription for streaming and mailing services to be different packages failing, the company still made significant amounts of profit over time. The decision that was made to separate the two assisted the company in achieving more advantages and hence understanding the needs of the customers. Since the viewers would watch the videos and provide their ratings on the same, it was possible to distinguish their preferences and choices.
Netflix’s Strategy and the Measures of Success
Netflix Strategy
The strategy that Netflix used was efficient in targeting many customers while raising significant amounts of profits. Reed Hastings developed this approach, and it involved the following activities:
Provision of easy-to-use technology for the customers. Netflix developed a website that had an attractive interface through which customers would stream for the online videos, purchase their subscriptions and identify what they would view. Moreover, ordering the mail-DVDs was done on a similar website which was easy to use and efficient since the process was simple and not complicated.
Customers had the option to choose. Since the mail services were not entirely abandoned, customers of Netflix Inc. had the opportunity to select the packages they would like, the email services or the online streaming services. Moreover, the firm ensured to have both services available for a single movie to provide the customers were satisfied by the approach engaged in by the company.
Marketing was conducted effectively. While the brand was new and growing, marketing had to be done to increase the brand awareness. The company aggressively spent on marketing and promoting the activities, services, and products offered by Netflix to increase its popularity and gain competitive advantages over Hulu and Amazon, the leading competitors. Moreover, through engaging in the international provision of their services, the company ensured to have a more extensive market reach and hence increasing the number of subscribers for the same.
Expanding internationally.While local business was booming in the United States, going international was a chance for Netflix to improve the brand awareness and hence make more profits. International expansion led the company to increase their overall number of subscribers and therefore, gaining more from these customers. Moreover, international expansion led to the business being known within different countries and by various people, thus leading to brand awareness that was beneficial to the firm.
Establishing relationships with entertainment providers. Netflix developed a close relationship with the content providers within different genres to ensure they had a pool of contents to view from. The strategy provided the viewers were always updated and relied on the material from Netflix to understand what was new in the entertainment industry. Netflix avail the movies and television shows as soon as they were available for viewing and every customer of the firm, depending on the subscription fee, would have the opportunity to see the same.
When considering the rivals of the company, Netflix outweighed their competitiveness using these strategies and through the provision of a broader product selection category. According to Landi and Roberts (2013), the services provided by Netflix were value-added and enticing to use. A critical factor that led to their success is the use of advanced technology to work within the technology-oriented field and provide reliable services to their customers. For instance, the company engaged in the development of a proprietary software technology, which ensured subscribers would preview movies based on the ratings, categories, year of release, and other classifications.
Measures of Success
Netflix is an online portal for watching videos, is relied on the use of ratings to understand the critical success of the company. However, the company integrates different strategies to determine the success of the business. One of these approaches is to examine the number of subscribers to their online site. According to Bharadwaj, El Sawy, Pavlou, and Venkatraman, (2013), the number of subscribers tied to Netflix is among the key economic metrics for the company. Currently, the company has a total of 103.95 million subscribers, a total increase of 5.2 million since the year 2016.
Another measure that is involved with Netflix measuring their success is the hours commonly referred to as the “valued hours.” The valued hours are the number of hours within which people stream movies and clips. These hours are not limited and are counted continually by the Netflix system. The number of hours varies depending on the number of subscribers and how much content the people online within a given timeline view. The tally of how much time people spend on Netflix is a critical success measure since it determines how long people spend within Netflix and how many of these persons are consistent. This information is imperative for the company to decide if they have been successful or not.
Another approach used to measure success for Netflix Company is the factor of enjoyment. While the online videos may be exciting and of high definition, people may judge the content of the videos objectively and through the level of satisfaction they did have while watching the videos. According to Spearman (2015), the 5-star rating approach is used to measure how much the movie or video clip was enjoyable, taking into consideration that the film has different levels of stimulus to various persons. This style is used by Netflix not only for its simplicity but since it helps them to understand the needs and tastes of the customers through the rating on each movie.
The company undertakes their operations online within the era of digital crime. Success for the company is measured through the effectiveness of the security features involved with their online website. Different cases of the company’s website being hacked through the use of cookies but have been noted strategies developed to ensure the defect is efficiently curbed. Failure to prevent this cybercrime is deemed to mean that the company has failed to succeed in this sector and is vulnerable to cybernetic attacks.
Competitor Analysis for Netflix
In the content streaming business, many competitors exist to challenge and compete for the competitive edge that Netflix has had over time. The primary competitors for Netflix include Amazon, Hulu Plus, and HBO Go. According to Netflix, HBO is their longest competitor. However, HBO is currently not a bidder against Netflix but has plans to expand their services to other countries including Sweden, Denmark, Finland, and Norway. For instance, the Live Gold Package subscription developed for HBO-Gois priced at $12 for every month which is slightly expensive than that of Netflix (Adhikari et al., 2015).
Amazon Prime is another significant competitor for Netflix. The industry within Amazon Prime is prominent in the growing online streaming industry, with their yearly membership being $79 every year, which amounts to less than $7 every month. The company offers 2-day shipping offer for free for every item purchased on the Amazon website along with book rentals for free as an incentive. Moreover, TV shows can be obtained from the Amazon by the users if they chose to. Moreover, Amazon is available internationally, just like Netflix. However, Netflix is more competitive as compared to Amazon prime in that they provide twice as much content compared to their competitors (Adhikari et al., 2015).
Hulu plus is another competitor for Netflix. Hulu Plus is a new company offering online streaming services and television shows. The firm requires $7.99 per month, which is almost similar to that of Netflix. The company avails television shows released within less than two days, therefore, being an advantage to the company. However, the significant disadvantage is that the online streaming from Hulu Plus is full of advertisements that, in most cases, push away potential viewers.
However, Netflix has many advantages as opposed to the other competitors. One of the key competitive advantages of Netflix is that it has a broad content of videos as opposed to the other competitors. Moreover, the company does not integrate advertisements on their online platform as compared to the other online streaming companies. The services from Netflix are provided internationally as compared to other companies offering similar services which provide the same services but locally. However, Netflix Company is the leading market leader in the industry having a percentage market reach of 46% (Adhikari et al., 2015).
How Netflix Segments and Targets its Customers
Segmentation
The market in which Netflix transacts within is very dynamic. The changing nature of the market is attributed to technological changes and behaviors of the consumers, specifically their taste, preferences, and beliefs. For instance, the average age of people who are subscribed to Netflix ranges between 18 years to 60 years. In total, these people spend a total of about 5 billion hours while streaming through the high-speed internet to watch live TV or stream for online videos (Landi & Roberts, 2013).
Different approaches exist to ensure segmentation of the market involved with Netflix is divided efficiently. One of these strategies is the level of income earned. Various people who have mixed earnings subscribe to packages that they can handle and pay for. According to Mithas, Tafti, and Mitchell (2013), this segment of people differs regarding the subscription package and the fee charged on each. The different levels of subscription help to integrate the high-income earners, the low-income earners, and the middle-income earners, thereby segmenting the market based on the subscription packages.
The next approach is through segregation based on the age groups. While the videos and television shows provided by Netflix have gender ratings, it is essential to ensure that each of the shows viewed is prescribed for different ages. According to Landi and Roberts (2013), the age bracket for viewers of Netflix ranges from 4 years to the older adults. However, the majority of the viewers are aged between 18 years and 65 years. The different ages are catered for by the various program ratings on the Netflix website, which helps to understand the overall ages viewing from the platform.
Another critical segmentation strategy is through the consideration of the watching preferences of the viewers. According to Landi and Roberts (2013), the users of Netflix have different preferences and tastes regarding the content they review. While other persons may choose to watch the action, movies involving fights and other action-related activities, some other may opt to watch comic videos that are funny and intuitive. Moreover, with the consideration of gender, the female may prefer to watch videos involving love stories and romantic movies as opposed to the male who may prefer to view content involving war, crime, football and epic movies. Therefore, Netflix may segment their market based on this criterion to differentiate their viewers based on the preferences of the content viewed.
The other approach is using geographical areas, educational level, the mood of the viewers, beliefs, and gender. These segmentation methods are essential for the company since they aid in ensuring that the company understands the critical customers of the firm and how they vary.
Targeting
Netflix targets a wide range of markets that are capable of viewing online videos and streaming live television. The Company aims at targeting markets despite the background of the customers, their beliefs, age, preferences and other considerations. The targeted market involves persons from different age groups whose occupation and personal details are not regarded, but their likes and dislikes of the content provided by Netflix are considered. The prices involved in the different targeted markets are based on the preferences of the potential customers.
The targeting is also done based on the different preferences, gender, and ages. While the content in the Netflix website varies, the firm uses technology to identify the choices of people based on their ages and gender. In this regard, when new users register on the site, it is possible to provide them with a list of recommended movies that they can watch based on their personal information on gender and age. Kids below ten years are likely to have cartoon related, and funny videos suggested to them, while teenagers may have romantic and love-based movies prescribed to them. This targeting strategy is essential and useful in ensuring the different markets are efficiently reached.
Positioning
The positioning of Netflix Company is based on the comfort of the customer. The strategy used by the business is to ensure speed of streaming, the pleasure of viewing and streaming from a wide range of devices and countries and quality of videos. The company guarantees to provide high definition quality of videos to their customers, thereby ensuring that they view their videos with comfort and ease. Strategically, the online position taken by Netflix best suits all the customers subscribed to the company. Since most of the services are offered online, and the company works internationally, then their online presence is easily accessible from the different countries that subscribers may be in. Through this positioning, it is possible to target more customers since their geographical location does not prevent them from efficiently enjoying the services offered by the company.
Conclusion
This research was aimed at examining some details about Netflix, their decision to separate streaming and DVD mail services in 2011, their strategies, measures of success, competitive analysis and how the company segments, targets and positions itself in the market for the named benefits. One of the critical factors that Netflix considered was the expenses that were incurred in shipping and posting the DVDs as opposed to streaming the same in the media. The strategy that Netflix used was efficient in targeting many customers while raising significant amounts of profits. Netflix is an online portal for watching videos, relied on the use of ratings to understand the critical success of the company. However, the company integrates different strategies to determine the success of the business. The changing nature of the market is attributed to technological changes and behaviors of the consumers, specifically their taste, preferences, and beliefs. However, Netflix Company remains to be the leading market leader in the industry thanks to it applied strategies.
References
Adhikari, V. K., Guo, Y., Hao, F., Hilt, V., Zhang, Z. L., Varvello, M., & Steiner, M. (2015). Measurement study of Netflix, Hulu, and a tale of three CDNs. IEEE/ACM Transactions on Networking (TON), 23(6), 1984-1997. Retrieved on Oct. 11, 2017 from: https://pdfs.semanticscholar.org/24f8/c64530a21db4ef7074ab701f7ea82c68b506.pdf
Bharadwaj, A., El Sawy, O. A., Pavlou, P. A., & Venkatraman, N. V. (2013). Digital business strategy: Toward a next generation of insights. MIS Quarterly, 37(2), 471-482. Retrieved on Oct. 10, 2017 from: https://www.researchgate.net/profile/Anandhi_Bharadwaj/publication/282543175_Digital_business_strategy_Toward_a_next_generation_of_insights/links/5736499508ae9ace840af354.pdf
Landi, J., & Roberts, S. (2013). Netflix: A strategy to succeed?. Master's Level Graduate Research Conference. 238. Retrieved on Oct. 11, 2017 from: http://digitalcommons.brockport.edu/gradconf/2013/program/238
Mithas, S., Tafti, A., & Mitchell, W. (2013). How a firm's competitive environment and digital strategic posture influence digital business strategy. MIS quarterly, 37(2), 511-536. Retrieved on Oct. 9, 2017 from: https://pdfs.semanticscholar.org/3d7a/359e1c9daf3876fdb53ec9b4f044f4ce4a4f.pdf
Spearman, P. (2015). Using sustainable development as a competitive strategy. Walden University. Retrieved on Oct. 11, 2017 from: http://scholarworks.waldenu.edu/cgi/viewcontent.cgi?article=2423&context=dissertations
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