Netflix Strategy

Case 1:

Netflix

4. Whitney Tilson argues that Netflix’s competitive advantages are not sustainable. Reed Hastings disagrees. Whom do you agree with and why?

I do agree with Whitney Tilson on the potential risks for Netflix to change the business model from DVD rental market to streaming service market to attract subscribers.

The potential risks towards sustainability are below:

1. Although the streaming service industry is rapidly growing, it is highly competitive with strong competitors including Google, Apple, Amazon, HULU and etc. It is easy for them to capture market share from Netflix.
2. Although Netflix owns big existing customer base from previous DVD business model, Netflix’s competitive advantages in the previous DVD rental business model cannot easily be applied in the new business model. Netflix has to pay for high stream content instead of getting the relatively cheaper content from First Sale Doctrine in DVD business model.
3. The high stream content fee will push Netflix to face dilemma: a) provide weak content with low price; b) provide better content, but pass the cost to customers, which may reduce the subscribers c) provide better content, but lose Netflix’s margin. None of the choices look favorable for Netflix.
4. Internet bandwidth costs potentially get increased, which may increase the cost for subscribers to watch stream videos, thus the subscribers may be reduced.

However, Reed Hastings also mentioned some of the points that Netflix may still have competitive advantages in the streaming service market. Firstly, it has strong loyal customer base (16.9M) and will continuously grow (net subscription additions are from 2.9M in 2009 to 7M subscribers in 2010). Netflix’s monthly subscription fee with unlimited stream services is not high, so that again attracts more and more subscribers. Its international expansion may also bring more customer base. Secondly, Netflix contains a strong brand value for providing qualified content to customers, no matter in DVD or Stream, which is not easily be attacked. Lastly, Netflix’s postage and fulfillment/shipping expenses from old DVD rental model can be reduced and instead it can be used to pay for the streaming content fee.

5. What strategic moves should Netflix make in order to strengthen its position?

There could be three potential moves to strengthen its position:

1. The international expansion can increase Netflix’s customer base. It can partially solve the market saturation problem. However, we should consider content is largely national and it is not clear whether Netflix has much competitive advantage in foreign countries, so Netflix needs to change its contents and adapt into the international market

1. Broaden the content library and use customer data to analyze the customer preferences on stream contents, so that it can continuously provide high-quality contents that attract more and more subscribers.

1. In order to keep the great margin and financial return, Netflix can also think about reducing marketing/advertising fee or increasing prices, however, it may have a trade-off by reducing subscribers.

Case 2:

Enterprise

3. Is Enterprise’s competitive advantage sustainable? Why or why not?

I think Enterprise has a completely different strategy from the airport-focused car-rental companies, which brings sustainable competitive advantages as below:

1. It focuses on small-town business, providing replacement rentals for customers whose cars are being repaired or who need an extra car. It targets on a niche market and enables to escape from the highly competitive airport-focused car-rental services. By simply locating 3100 branches away from airports, it reduces overhead significantly by cutting out high concession fees.
2. It has unusual hiring and promotion practices that have produced a culture perfectly suited to its part of the industry. It hires college graduates, looking for socialized skill and “People people” to be able to chat up service mangers and calm down someone who has been in a car wreck. For promotion practices, Enterprise focuses on internal promotion, few hiring from outside, which builds a strong bond in the company.
3. It sets up inexpensive rental offices just about everywhere. It provides customers easy access to different Enterprise offices. Andy Taylor, the current CEO brags that “90% of the American population lives within 15 mins of an enterprise office”, which can bring big coverage of the business.
4. It develops strong relationships with the service mangers of dealership and body shop in the area, which can bring Enterprise more business.
5. It employs computer network to track the service history of each car to keep inventory lean and cars on the road an average of six months longer than Hertz and Avis do.
6. It also provides extra level of services: it often delivers cars to customers’ homes or takes customers to the cars, which brings more convenience to the customers.

4. What strategic moves should Enterprise make in order to strengthen its position?

Enterprise should continue grow its customer base and market share, focus on strengthening its own unique competitive position in the car-rental industry by continuously expanding to more locations to bring customers easier access, building strong relationships with dealers to attract more business, and working on unique hiring and promotion practices to get more talented people that fit Enterprise’s culture. In addition, Enterprises can also think about increasing promotion/marketing to capture more market share in the industry.