Prepare a report on a strategic planning exercise for your own organization or an organization with which you are familiar with, containing detailed assessment of various components of strategic management process and suggest which business strategy you believe will be most appropriate for your chosen organisation and why?
Student name: Karl-Von Bruce-Quaye
Student number: ABS0618015
Subject name: Strategic Management (607 SMGT)
The present global business environment is so highly dynamic thus; a good marketing plan is an essential aspect of any business. In a good strategic plan, several aspects have to be present to ensure its effectiveness.
This report focuses on Netflix strategic plan for online movie streaming venture. It describes their current market situation, the company’s key resources or capabilities, the assessment of of these resources and capabilities using the VRIN test, competitive environment using porters five forces framework, SWOT analysis, their strategic objectives and a recommendation of the most appropriate strategy for the organisation.
TOC o “1-3” h z u 1.0 INTRODUCTION PAGEREF _Toc525052156 h 12.0 SITUATION ANALYSIS PAGEREF _Toc525052157 h 22.1 Assessment of key resources/capabilities using VRIN Test PAGEREF _Toc525052158 h 23.0 COMPETITIVE ANALYSIS USING PORTERS FIVE FORCE FRAMEWORK PAGEREF _Toc525052159 h 52.2 Environment Analysis PAGEREF _Toc525052160 h 53.0 STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREAT ANALYSIS (SWOT) PAGEREF _Toc525052161 h 63.1 Strengths PAGEREF _Toc525052162 h 63.2 Weaknesses PAGEREF _Toc525052163 h 63.3 Opportunities PAGEREF _Toc525052164 h 73.4 Threats PAGEREF _Toc525052165 h 74.0 MARKETING STRATEGY PAGEREF _Toc525052166 h 84.1 Objectives PAGEREF _Toc525052167 h 84.2 Segmentation PAGEREF _Toc525052168 h 84.3 Targeting PAGEREF _Toc525052169 h 84.4 Positioning PAGEREF _Toc525052170 h 95.0 MARKETING MIX PAGEREF _Toc525052171 h 105.1 Product PAGEREF _Toc525052172 h 105.2 Price PAGEREF _Toc525052173 h 105.3 Place PAGEREF _Toc525052174 h 115.4 Promotion PAGEREF _Toc525052175 h 116.0 CONTROL PHASE PAGEREF _Toc525052176 h 117.0 CONCLUSION PAGEREF _Toc525052177 h 11BIBLIOGRAPHY PAGEREF _Toc525052178 h 11
1.0 INTRODUCTIONWhat is strategic planning?
Strategic planning determines exactly where your organization is going over the next few years and how it is going to get there. A strategic plan is a coordinated and systematic way to develop a course and direction for your company. Basically, not having a strategic plan is akin to navigating unknown territory without a map. And without a map, you are lost in a highly competitive business environment that will inevitably throw challenges your way. A rule of thumb is that if there’s uncertainty on the horizon, then you need a strategic plan.
This report focuses on assessment of Netflix strategic plan for online video streaming.
Netflix is a leading online video streaming service company with a global brand. Netflix was co-founded in 1997 by Reed Hastings and Marc Rudolph and originally was launched as a website that allowed consumers to rent DVDs and have them delivered directly to the consumer’s homes. Shortly after, the company started offering a subscription for consumers to purchase, to receive unlimited DVD rentals monthly via mail with a prepaid mailer that would send the DVD rental back to the company. It was a means for consumers to avoid late fees for not returning your DVD rental to the DVD rental store. Located in Los Gatos, California, Netflix began streaming content over the internet in 2007, launching itself into the world’s largest internet subscription service to offer streaming movies and TV episodes. Netflix delivers streaming through software that is available on hundreds of “Netflix Ready Devices,” CITATION Dav11 l 2057 (David, 2011).
Netflix has expanded globally and trades on the National Association of Securities Dealers Automated Quotations Exchange (NASDAQ) under the ticker NFLX CITATION Net18 l 2057 (Netflix, 2018). The subscriber base has increased from 600,000 members in 2002 to over 130 million members. Netflix is in over 190 countries and members can get instant access to great content. Has extensive global content library, featuring award winning Netflix originals, feature films, documentary, TV shows and more. The content varies by region and may change over time CITATION Net18 l 1033 (Netflix, 2018). Today, Netflix has directed its focus on consumers who want to subscribe to commercial-free streaming of television shows and movies, changing the way consumers are enjoying in home entertainment opportunities.
Although the company does not have an official Vision Statement. Chief Executive Officer, Reed Hastings, has stated his vision for his company to accomplish the following:
Becoming the best global entertainment distribution service
Licensing entertainment content around the world
Creating markets that are accessible to film makers
Helping content creators around the world to find a global audience CITATION Far18 l 2057 (Farfan, 2018)The company essentially has a vision statement, however to motivate employee’s, Netflix may want to solidify the statement so there is no confusion on the continued vision of the company moving forward. It also gives employees the opportunity to review the vision as they develop a strategic plan and try to accomplish the stated goals of the vision statement.
A Mission Statement is the backbone of an organization. Taking the time to fully develop a robust statement helps all stakeholders involved to understand what the individual business is. Without a mission statement it may be hard to strategically implement a business model that can be fully vetted.
“Our core strategy is to grow our streaming subscription business domestically and globally. We are continuously improving the customer experience, with a focus on expanding our streaming content, enhancing our user interface and extending our streaming service to even more Internet-connected devices, while staying within the parameters of our consolidated net income and operating segment contribution profit targets,” CITATION Edg12 l 2057 (Edgar Online Inc., 2012).
2.0 SITUATION ANALYSIS2.1 Assessment of key resources/capabilities using VRIN Test
The VRIN model which identifies the characteristics of a firm’s resource(s) which they must possess to create a competitive advantage. According to Barney (1991) a firm resource must have four attributes: first it must be Valuable, in the sense that it reduces a firms own weaknesses or exploits industry opportunities, secondly it must be Rare among the existing and potential marketplace, third it must be imperfectly imitable, meaning the competition cannot easily duplicate the resource in question, and lastly the resource needs to be non- substitutable enough to be a source of sustainable competitive advantage in the marketplace CITATION Bar91 l 1033 (Barney, 1991).
The first two: valuable and rare – measures whether or not a resource or capability can support a competitive advantage.
The last two: inimitable and non-substitutable – measures whether or not a resource or capability can be sustainable.
Netflix capabilities and resources are as follows:
Recommendation System: Over the years, Netflix has put a lot of energy into fine-tuning its recommendation system to save users time and brain-power, and to fast-track the route to whatever film or TV show is likely to keep them engaged with the service the longest.
If the statistics are anything to go by, they have been rather successful. A vast majority of the time, around 80% of viewers discover their next Netflix binge through recommendation (as opposed to searching the site themselves). Often, it is right there staring them in the face on their personalized home page. The recommendation system is a valuable resource for Netflix and it is rare because it can support a competitive advantage and cannot be easily copied. It is also non-substitutable.
Original Programming Content: On its Annual Report 2015 Netflix points out that the company is “a pioneer in the Internet delivery of TV shows and movies.” Due to its website, Netflix produced more than 320 hours of content in 2015. With the releases of award-winning TV shows, such as “House of Cards”, “Narcos” and “Orange is the New Black”, Netflix has developed to an international content leader on that field. Since 2013 the company has been “changing the rules of how serialized television is produced, released and distributed globally. “Talking about Netflix’s content it is not only the quantity but also the quality that has to be mentioned: 45 Emmy nominations, 15 Daytime Emmy nominations, two Oscar nominations and 10 Golden Globe nominations during the first two years prove that Netflix is well recognized by the TV and film industry. Keeping the variety and quality of self-produced shows is one of Netflix’s main goal for the future, as it is a reason to prefer Netflix compared to its competitors. That makes the competence valuable for the organization. To watch these exclusive shows, one has to sign up for a Netflix account, which brings additional members and money to the organization. That high amount of exclusive content is still rare, although Amazon tried to close the gap during the last year. It is also very cost intensive for others to imitate, as own high-quality productions are more expensive than buying licenses, as the whole production as well as the actors, employees and equipment have to be paid. Therefore, competitors need to decide for high investments first with no secured success afterwards. For Netflix the content as a core competence is also not substitutable, as it is the main revenue source and reason for choosing Netflix.
Global Coverage: In January 2016 Netflix announced the launch in 130 more countries. In addition to the at that time already existing 60 countries Netflix is available in 190 countries. The only main and relevant market missing is China. Because of that Netflix expects up to 100 million more customers. This global coverage is valuable and rare, as the biggest competitor Amazon Prime is available in six countries. That are compared to Netflix only 3.2 %. For Amazon and other competitors, it will be harder to enter new markets, as Netflix was first available and already attracted the customers. Though, competitors have to invest more time and money to enter new markets. As new customers will also increase the income of the firm, this global coverage is a unique and no substitutable core competence.
Technology: One of the core competencies of Netflix is the technology, which “provides easy to use technology for customers to use to order and identify what they wish to view.” The registration for a new account is done within four to five steps, the frontend is designed clearly: big screens showing a trailer of the selected movie, small introductions are given and the usage through wiping or clicking to the right or left is easy, whereas the frontend of Amazon Prime is adapted to the Amazon frontend design, which makes it harder to lead through the website due to e.g. small letters and hidden information. Furthermore, the movies are not clearly structured on Amazon, as the same movie can show up in the genre of Kids and Comedy. “It is also allowed for a subscriber to rate the titles that they had previously viewed and receive recommendations based on the titles they previously rated highly. This service was and continues to be highly successful with a good portion of titles being viewed coming from the recommendations provided.” Netflix also offers to stream movies and shows on up to four different devices at the same time. That is something unique, as Amazon does not offer it. Due to that, on account can be shared between a family or friends using different devices for watching.
2.2 Competitive environment using Porter’s five forces framework
In order to determine nature and strength of the competitor pressures in the movie rental industry Netflix is operating in, we use Porter’s five forces model of competition which are “the threats posed by new entrants, the bargaining power of suppliers, the bargaining power of buyers, product substitutes, and the intensity of rivalry among competitors.”
Threats posed by new entrants: Netflix have to keep on maintaining the rising popularity of e-commerce such as an improvement and enhancing their inventory of stream movies with raise their HD streaming inventory. If this attempt is deferred, more suitable earnings of renting movies will take over such as “On Demand”. This is probable because the low-priced entry barriers in the DVD industry linked to streaming content due to the huge amount of streaming content that could become obtainable to possible distributors.
Bargaining power of suppliers: Netflix is completely dependent on exclusive rights of studios for the content they require to provide to customers. Currently, Netflix does not create any of their own content, if the suppliers were to stop the sharing of their content to Netflix, it might cripple business model of Netflix. This provides the suppliers extreme power over contract negotiations with Netflix for content acquisition because there are only a number of studios who supply the movies and shows.
Bargaining power of customers: The industry of movie rental is an active industry. In times of slower economic growth where customers have a less amount of optional income their ability of expenses in the industry will be reduced. In times of a wealthy economy, customers might spend more money on the industry. This provides customers a high power of bargaining in the industry of movie because they can decide to use their entertainment money on alternative services or products.
Product and service substitute: For most homes Digital cable is now necessary, therefore many customers will have a film collection from their cable network. “On Demand,” Services offered by cable television providers might be a substitute for Netflix if they increase their movie stock list to a similar title selection. It is essential for Netflix to keep up with the continually changing technology sector in order to sustain its success.
3.0 STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREAT ANALYSIS (SWOT)SWOT analysis is a tool for auditing an organisation and its environment. Netflix has several powerful strengths on which to build but their major weakness if from the declining DVD subscribers and the damaged reputation.
3.1 Strengths These internal capabilities can help the company reach its objectives.
Branding – Netflix has strong brand awareness, an instantly recognizable logo, invokes classic cinema imagery.
Accessibility – Multitude of compatible devices like Television, computers, tablets, and smart phones. All one needs is a compatible device and internet connectivity.
Content – Netflix currently has 9,796 titles available which is the largest available for streaming.
Customer loyalty – this constitutes 57% of video streaming market. Netflix creates loyalty through product excellence, fast streaming without commercials with quality and quantity of content.
3.2 WeaknessesThese internal elements may interfere with the company’s ability to achieve its objectives.
Declining DVD subscribers – From December 2011 to now, subscribers have significantly dropped. The DVD is in the decline stage of its product lifecycle.
Damaged reputation – Tremendous backlash from Netflix separation into two separate subsidiary services (Netflix and Quickster). Quickster was eventually dissolved leading to the creating of a sub website.
Netflix are slow to get recent content.
3.3 Opportunities These areas of potential interest in which the company might take advantage.
International Expansion – By prioritizing long-term performance over short run profits, they are looking to expand internationally because these markets are relatively untapped.
Diversification – Netflix currently lacks strong diversification, as its entire service falls under the film and television industry. They could diversify its portfolio by branching out into different markets like video games puzzles interactive media, live video (news, sporting events etc.).
Original Content – With success from original shows like House of cards , Orange is the new black and the continuation of previously cancelled TV shows like Arrested development, Netflix has shown that pursuing its own original content is highly marketable.
3.4 ThreatsThese challenges posed by an unfavorable trend or development that could lead to lower sales and profits.
Competitors – Increased competition is the company’s largest threat. The three major competitors, Hulu Plus, Amazon Prime, and HBO are seeking to penetrate Netflix dominant market share.
Increase in licensing cost – Netflix is dependent on materials it has licensed from media providers. An increase in licensing cost would present a much greater expense and could reduce the speed at which Netflix expands its library.
Legal factors – Due to changes in European laws Netflix will have to pay higher in value added taxes in most of Europe.
4.0 MARKETING STRATEGYThe marketing strategies used includes the establishment of objectives, the segmentation methods and evaluation of segment attractiveness, the selection of the target market and the development of the positioning strategy.
4.1 ObjectivesThe two core aggressive and achievable objectives have been set to allow market entry of the new streaming product line extensions. The first objective is to penetrate the United States market and achieve 100,000 new subscribers within six months. The second objective is to have in place after the first six months new technologies for smaller file sizes and video compression improvements to allow for enhanced global streaming that will allow for new subscribers to reach a minimum of 200,000. Thus there would be continuous growth both domestically and globally and the improvement of customer service.
4.2 SegmentationMarketing segmentation is essential to ensure effective marketing of products or services. Its helps in categorizing potential customers into groups that have similar tastes, preferences, and characteristics (Armstrong et al., 2015). A marketer is able to personalise their marketing campaign and strategies with segmentation. It enhances the cost effectiveness of a marketing campaign and reduces the time and resources spent on marketing CITATION Wes15 l 1033 (West, Ford, & Ibrahim, 2015). Segmentation would be in two demographic groups;
Needy Customer – these are typically older customers who are used to traditional channels, they have low propensity to substitute, higher propensity to purchase video.
Convinience Customer – these are typically younger, want to watch anytime in their computers, they have high propensity to substitute.
Segments must be substantial, reachable, responsive, identifiable, and profitable.
4.3 TargetingThe target market is the audience and customers that the marketing campaign intends to reach. The choice of the target market for a marketing plan helps in reducing the cost and resources spent in the marketing process. Netflix targets the mass market of consumers.
4.4 PositioningNetflix Value Proposition – For streaming consumers they are able to enjoy legal access to an expansive movie database which is roughly around 20,000 episodes. They also have the personalised service expressed in the personal suggestion of movies for each customer withour interruption of advertising. This rating algorithm makes a better use of movies available on the website tailored to his or her tastes. Netflix also create value by having some of the widest supported device ranges.
Consumer Perception – According to a survey conducted by Yougov, Netflix has recently receive significant popularity increase due to the recent price hikes by Amazon Prime, one of Netflix’s largest competitor. One reason for netflix’s overwhelming success over its other competitorss such as Amazon Prime, HBO, and Hulu Plus is Netflix’s larger inventory as well as it’s ” critically acclaimed original programing as well as no commercial.
Markets Ideal point and Size – As of right now Netflix’s ideal points are right where they want in terms of product satisfaction. They believe for the cost of their product, it is about as efficient as they want it to be. They are well ahead in the streaming market and therefore do not fear the immediate competition. Netflix instead is focusing on improving or promoting their brand awareness and streaming capabilities. They want to increase their market share esepecially through media presence with the use of promotional tools.
Competitors Position – Although netflix has held a position as reigning monarch in the online video streaming industry. This is because of its originality, amount of content and the ability to meet increased demand. The unlimited access via website login from cable description has made HBO Go very popular to many already HBO subscribers. Amazon Prime offers free shipping on millions of items and rented books as well as being an equally strong brand that many people are acquainted with by previous purchasing orders. VUDU which is Wal-Mart new partner has the same brand awareness strength.
Netflix Position – Netflix operates within the highly competitive media streaming market that has been forcasted to increase tenfold from $1.3 billion in 2007 to $12.5 billion in 2017. Netflix offers physical media rentals which is slowly being phased out due to lack of demand that has been occuring since 2012 or the introduction of streaming. To stay the leader in the market, Netflix has positioned themselves by being the most successful streaming operators in the business with incredible advancement in technology and this market has potentials to keep increasing.
Positioning Strategy – To keep the current customers from switching services that offer fresh media, netflix is producingand licensing more content at the same low price point. This positioning strategy is focused on first expanding availability in the United States by increasing the diversity of devices that netflix can be streamed on. They also want to move into more international markets as they are gaining the necessary technology. By constantly rechecking their ideal points, netflix was able to shift their goals in providing “the very best new and original content on their already robust platform to an expanding international audience ” allowing them to stay as leaders of the market.
5.0 MARKETING MIXWhat makes Netflix’s marketing mix so successful?
5.1 ProductNetflix is the worlds leading internet television network, has 57% of the video streaming market. Has two service lines Streaming services ( completely intangible ) and DVD rental (a little more tangible). The new streaming products include four levels of service each of which increases the number of simultaneous devices that can stream. They have rebranded their logo and currently have 9,796 titles available.
5.2 PriceNetflix targets the mass market. Level one is $7.99 per month for one device, level two is $10.99 for two devices, level three is $13.99 for three devices and level four is $15.99 for four devices. The use of this market penetration pricing will produce large number of new subscribers to the existing customer base.
5.3 PlaceBecause this product streams through the existing network to internet capable devices there are no other distribution requirments necessary except for continual technological enhancements to increase speed and video quality.
5.4 PromotionOffering of a free month of service to the current subscriber base, their friends and family, social networks, and advertising on the internet, television and radio will run continually as part of the marketing plan.
6.0 CONTROL PHASEThe controls utilised will afford us the ability to monitor subscriber movement as well as quality and customer satisfaction. Weekly and monthly activity report generated will monitor existing subscriber base and changes as well as new subscriber services. Weekly and monthly report will provide data for budgeting resources for first six months with new revenues distributed proportionally. Analysing customer satisfaction surveys weekly allows for prompt problem resolution. Contingency plan development continues and modified as new technologies are developed and competition increases.
7.0 CONCLUSIONNetflix brand equity heightens and customer satisfaction grows because of this marketing plan. Minimal resources place this product on the market, increasing the competitive advantage and guaranteeing a greater market share. Implementation of this plan places Netflix ahead of the competition and secures its position in the global marketplace.
BIBLIOGRAPHY BIBLIOGRAPHY Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing: An Introduction. Pearson.
Netflix. (2018, January). Netflix. Retrieved July 15, 2018, from Netflix Investors: https://ir.netflix.com/ir-overview/profile/default.aspx
West, D. C., Ford, J. B., & Ibrahim, E. (2015). Strategic Marketing: Creating Competitive Advantage. USA: Oxford University Press.