TakeAway: Through effective consumer management and distribution strategies, Netflix has changed the rules of the movie rental business and managed to fend off competitors along the way.
However, as the game continues to evolve and Netflix’s distribution advantages become obsolete, will its subscription/information-based consumer loyalty model enable sustained success?
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Excerpted from Knowledge@Wharton, “Netflix: One Eye on the Present and Another on the Future,” October 28, 2009
In a year when DVD sales are falling and studios are facing major shakeups … Hollywood is beginning to look a lot like one of its own slasher films … however, there is at least one success story in the movie industry: Netflix.
… Netflix made a splash in the movie rental business by offering an online subscription model with a flat monthly fee for unlimited rentals and no late charges. Since then, despite a recession, fierce competition and the emergence of online video delivery, the company continues to thrive … Netflix is now in a race to transition to a business model focused on streaming content online …
In 2008 Netflix introduced a “Watch Instantly” service that allows consumers to stream movies on their home computers. Since then, the company has forged a bevy of partnerships to embed its Watch Instantly service in television sets and game consoles …
Netflix CEO said the company’s goals were simple: Grow revenue, subscribers and earnings while expanding into streaming content …
However, Netflix’s DVD business faces intense competition from companies ranging from Apple (iTunes) to Blockbuster to Redbox … and … Netflix’s video streaming model is under fire from powerful rivals … YouTube … But it’s not as though competition is anything new for Netflix. So-called “Netflix killers” have surfaced repeatedly in the last decade … but they haven’t been able to stop Netflix’s momentum …
Netflix has proven its doubters wrong repeatedly, but it is unclear how the balancing act between the company’s old and new business models will play out …
For now movie rental sales figures are playing to Netflix’s advantage … DVD rentals have held up well as consumers opt for cheaper forms of entertainment … Particular strategies have helped Netflix maintain its lead, including: 1) Keeping one eye on the road and one eye on the turn ahead … 2) Employing a subscription model … 3) Moving quickly to stay ahead …
The longer Netflix can maintain its old model while investing in its digital streaming business, the better off it will be. Rivals can’t easily emulate the company’s distribution centers and information systems that allow it to deliver DVDs within one business day to 97% of its subscribers … And, the company’s physical assets have created a “moat” around the Netflix business model …
Digital distribution lowers the barriers to compete with Netflix …
Edit by TJS
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Full Article
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2367
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The Homa Files 
November 30, 2009 at 12:48 pm |
The fast DVD shipping is part of a bigger focus by Netflix on user experience as a competitive differentiator. They apply this same principle to their online experience, which has been a key factor in their survival.
In Web development circles, they are frequently held up as a model for iterative development, where they rapidly launch new features and upgrades to the interface. They test them quickly on the live site, keeping what works and throwing away what doesn’t. This has resulted in their site being extraordinarily usable.
While they certainly are in a competitive and changing marketplace, I would see them leveraging this same focus on customer intimacy in whatever direction the business model heads.