KEY SUCCESS FACTORS
Technology is the most important factor to thrive in the market. Technological advancements will help lower the operational costs for Netflix. However they need to have great content quality. Innovation stands out in their technology. As long as there are innovative strategies executed, Netflix will be equipped to handle fierce competition. Netflix’s success will depend on its product differentiation and content quality, provided with its innovation, high quality and performance delivery. The industry will move towards mass customer distribution and the profits can be achieved by more subscriptions. (Paramesh 2013).
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In order to be successful, Netflix must provide easily accessible movie and TV show selections through the use of interface categories to help the user search for any movie faster.
The American household spends nearly five hours per day watching video content and it is a very effective medium for generating product interest. Online streaming has the opportunity to revolutionize the way products accompany content and introduced to viewers. According to analyst Ken Gao, ”The opportunities are boundless when one thinks of how awesome an experience it would be if we can realize the full potential of combining streaming video and e-commerce – a next-generation Home Shopping Network layered on top of any content. After all, what is video but a medium for the aspiration of product, lifestyles and experiences?” (Gao 2012).
PORTER’S FIVE FORCES MODEL
The rivalry among the movie rental industry is strong because of the large number of powerful firms in the market. Also there are many other methods for consumers to obtain a movie or a TV show such as piracy. Consumers have four legal options to choose. They are in-store rental, online selection and mail delivery, kiosk rental and Video on Demand. Comparable products can be found at many different locations. Same products can be available at many different channels unless an exclusive agreement exists. Low switching costs leads to fierce competition. Netflix’s key competitors have large levels of capital and have achieved economies of scale. Low levels of product differentiation also increase rivalry.
Threat of New Entry
The threat of new potential entrants is low. The main reason for that is due to very high capital requirements resulting from stocking the product needed to making agreements with studios and TV production firms. Key players in the industry include Red Box, Hulu+ and Amazon Instant Video. A new entrant would have to spend a lot of money on differentiating its product and marketing to become competitive.
Threat of Substitution
The threat of substitute products is high in the industry. Costs must be kept low in order to be competitive. United States Laws are undermining Netflix’s business by letting retail sale of movies and DVD’s to have priority distribution on new releases. Substitute products to the movie rental industry are physically attending a movie, watching linear television, surfing the web or even playing a video game. Technology has extremely helped to increase the threat of substitute products. More consumers are using the web to research prices, find sales and read reviews.
The bargaining power of buyers is high. Since there is little or no switching costs, price sensitive customers have a lot of power. Customers have an extremely large amount of options to choose from. Price points in this industry have to be uniform across similar products.
The bargaining power of suppliers is high. Normally suppliers are able to impose a...