For example, it maintains a social media presence using Facebook, Twitter, and YouTube to maintain co… It is important to note that Porter’s thinking has evolved since the publishing of the Competitive Strategy. Over time, stronger brand equity has started translating into higher brand recognition and brand recall. Intensifying Industry Rivalry: competition tends to increase as new firms might appear or the industry in which existing companies operate is relatively limited. It ensures a seamless user experience and higher user satisfaction. Apart from that, Netflix creates most of its own technology and content, which reduces its dependence on the suppliers and controls their bargaining power. Another benefit of creating its own original content is that that company has more control over the quality of the content it offers. Netflix viewers can access digital content from their smartphones, laptops, and other internet-enabled devices, including smart TVs. Apart from these things, environmental concerns have become important because companies with a low environmental impact can find popularity faster among the general public and grow their brand image stronger. Netflix has enjoyed superb growth in recent years driven mainly by higher focus on customer experience, vast amount of original content, and a shifting focus on digital experiences. It is also important that the society and the government follow industries’ structural transformations. Still, the costs will be much lower, and the platform will have strengthened its profitability by combining higher subscriber income with lower operating expenses. The company can grow its sales and revenue by diversifying into newer and related areas. Other entertainment channels like gaming also pose a significant threat to Netflix’s market share. However, by 2023, it could reduce to 86.7%. Netflix is an entertainment company, but its business model is based mainly on digital technology. Van Der Werff, E. (2019). The fine can be a large part of its annual revenue. Most of the existing players in the online streaming industry are either large technology players or players from the media and entertainment industry. In the midst of the great transformations that are taking place in countless markets, some key sectors can end up being consolidated to the point of becoming monopolies, which leads to reduced competition and the loss of incentives for innovation commonly brought by healthy competition between companies. Still, there are other applicable laws, including labor and environment laws, that the company needs to comply with. Like a company having signed leases, Netflix is still responsible for those payments. The emerging markets apart from a large population of net-savvy millennials, also present an opportunity in the form of a large group of middle-class consumers whose lives are becoming increasingly digital in recent years. Recommended strategy 1: Don’t fight anybody’s fight. In 2019, the research and developed expenses of the company reached $1.7 billion from $981 million in 2016. The political systems, governance and level of government control of businesses differ from market to market and region to region. According to Statista, by 2020, the Video Streaming segment’s revenue is estimated to reach $51.62 billion. Heritage, S. (2019). Its memberships grew to 35.5 million from 27.9 million last year. However, that has helped it draw people from all over the world to its platform in larger numbers. The bargaining power of Netflix suppliers is moderate. The content was produced by Netflix itself or by big studios that were hired. The pricing of Voot’s services is comparable with Amazon Prime’s. Another important privacy legislation is the California Consumers Privacy Protection Act (CCPA), signed into law in 2018. Identify and execute your own competitive strategy. The legal framework related to technology businesses and data collection related practices is still evolving in most corners of the world. Netflix Inc.’s business model aligns with the company’s generic strategy for competitive advantage and intensive growth strategies. The company has a heavy debt load and if in the future its subscription growth rate falls, the company would need to diversify its business in order to service its debt. With growing competition in the market, Netflix has also increased its marketing expenses. The impact of new technologies on traditional competitive models can be clearly observed in this particular market as well as in many others. It had a huge success as the service offered affordable prices, movies and shows via streaming. The marketing expenses of the company have grown faster in the past three years. The company also makes good use of data and analytics to save big on user retention and beat the competitive pressure. Netflix invests a huge sum each year in research and development. Unemployment rose across various industries as companies were forced to layoff due to the lockdowns and the fast decline in demand and sales that followed. Share. Amazon Prime membership includes several benefits. Another important factor that has kept buyers’ bargaining power under control is the highly differentiated experience Netflix offers. Rising competition poses a threat to the market share of Netflix. Apart from that, the availability of content in various local languages has also drawn subscribers from different regions in the world. It offers movies in several genres that suit the preferences of various segments of users. A PESTEL analysis helps understand the impact of these factors on a business and how it challenges or supports the particular business under discussion. Netflix rose fast to become the largest online streaming platform in the world. 8. pages. You can read about the data collection practices of Netflix here. This is a lot larger compared to any other rival. Overall, Netflix customers get to choose from a vast collection of content that includes its own original content and content from other makers and shows and movies in diverse genres. Especially in marketing and sales, the importance of sociocultural factors has grown a lot. It offers Netflix a strong competitive advantage in the global market. The Free Press. According to The Motley Fool, when revenue is growing quickly and margins are expanding, profits rise quickly. Netflix is clear that it will invest its content budget in high quality shows and movies rather than live events to attract subscribers. While YouTube has a vast user base, most of it spends its time watching the user generated content on the platform. The industries most severely affected by the pandemic’s economic impact included retail, manufacturing, and travel as well as several more. Netflix streams its movies and shows worldwide in 190 regions. Porter, M. E. (1980). According to Netflix: “In addition to choosing which titles to include in the rows on your Netflix homepage, our system also ranks each title within the row, and then ranks the rows themselves, using algorithms and complex systems to provide a personalized experience. However, some smaller players from the media or tech industry have still been able to grow their presence locally in various markets or internationally using their existing capabilities but they cannot match the core competencies of Netflix and therefore do not represent a major threat to its market share. Netflix is the current leading player in the space with Amazon as challenger. Taking this scenario into account, it does not seem easy, according to Porter (1980), to “predict a competitor’s future moves”. Sling TV can fit into at least two of Michael Porter’s five competitive forces: a “new entrant” that launched “substitute products” priced lower than those of competitors. If it meets fewer standards, the competitive advantage will be temporary. Frustrated by Blockbuster's $40 late fee (when returning a VHS copy of Apollo 13, no less), current CEO and company co-founder Reed Hastings resolved to overhaul the then-established order of video rental. The worth of Amazon Prime Video … Overall, it has a negative impact on the company’s profits. Voot also has cheaper annual plans for Indian users. How much does Netflix … Apart from e-commerce, people turned to digital channels for entertainment as well. course code. The principle was humble: Hastings trusted that he could influence the high-performance ethos and data-drivenness personified by tech businesses to prosper in the DVD-rental-by mail industry. The first is a cable TV, with its “fat” packages. New York. Sixthly, According to the subscription-based services,customer loss is the key strategic issue of Netflix.Owing to the high competitive market and raise of price, … Governments around the world are exercising tighter control over how firms operate locally in their markets. Thus, the cost leader would benefit as there would be less room for differentiation. For many tech organizations, managing their human capital strategically has helped them grow their competitive advantage stronger. Apart from the high cost of revenues, which mainly includes the amortization of streaming content assets and costs associated with the acquisition, licensing, and production of content, the company also incurs heavy marketing and R&D expenses. Among the concepts Porter offers, there is one that deserves special attention:  five competitive forces in a particular industry: Other key concepts of the author include choosing a strategy and stick to it: • A cost reduction strategy, in which a firm achieves dominance over its competitors and gains greater returns thanks to a policy of a reduced production and sales costs without affecting quality. However, that does not mean that Netflix is exempt from laws or can avoid fines even after violating applicable laws. 11. Its marketing expenditure grew by 13% in fiscal 2019 compared to the previous year. The GDPR or the General Data Privacy Regulation is an important international Data protection law governing the collection, transmission, and use of data collected from any of the European Union’s 28 member states. The company has focused on developing its own original content that stands out from the content available on the other platforms. It is because changing social trends can have a strong impact on the sales of particular products and services. More than its debt, its competition is a cause of worry for Netflix. While Netflix can exercise some caution in this area, by 2020-2021, its operating margins can be expected to grow more impressive. As a result, to maintain its lead in the online streaming industry, the company must continue to invest in original content to retain its edge. Michael Porter’s Competitive Strategy (1979) can be helpful in order to answer some of these questions. The result is a strong and lasting source of competitive advantage for the online streaming platform. The company also focused on serving localized content for different societies and cultures. The company invests in projects that are good enough to please its diverse membership base. Netflix is mainly a digital business with low to zero net environmental impact. Netflix offers its services to viewers in 190 countries. 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