Netflix Case - Describe the Competitive Environment of the Video Rental Industry

1. Describe the competitive environment of the video rental industry.

Convenient and immediate service, lower prices and an informative network are what customers of video rental industry are looking for.

In order to achieve shorter delivery time, companies in video rental industry tend to build strong logistics networking and use information technology to facilitate the operation. The number of distribution centers and the smoothness of operation could be the most fundamental indicator for the scale of service territory a company can cover. Building alliances with complement providers and suppliers, such as DVD player manufacturers or DVD publishers, could also be a smart choice to broaden the market share. Thus, companies which now work well with large channels of real stores or virtual portals could be potential competitors to companies of video rental industry.

In addition, customers are sensitive to the value the companies offer. If there is no further service provided, customer demands are tied only to prices and what companies can only do is price war, which could dramatically harm companies’ revenue. As a result, the breadth of videos provided should be diverse enough to serve all customers’ needs. Companies also attempt to work as an information resource to get rid of bleeding price wars.

Blockbuster was the premier brand in the real video rental market, owning 45% market share which was more than three times larger than the second largest brand. As Blockbuster entered the online video rental market segment, the original leading brand, Netflix, was facing intense competition due to lack of sustainable competitiveness and Blockbuster’s abundant resources. The competition could be fiercer in that Amazon showed intension to enter the market too.

2. Following are the advantages that Netflix has over its competitors:

• Promotional offers with the sale of new DVD players by partnering with Sony, Toshiba, Panasonic, and RCA

• Transportation efficiency by using the most durable/cost effective envelope

• Large network of distribution centers that reduce wait-time

• Proprietary