Due to fierce competition in the modern business environment, among other factors, companies are inventing, implementing, and evaluating various business strategies in a bid to meet the company’s goals and objectives for organizational success. Essentially, for businesses to succeed, owners have to conduct market research and plan on how to achieve the set organizational goals and objectives. As such, evaluation instruments such as SWOT and Porter’s five forces analyses enable business owners to evaluate their businesses in terms of the overall competencies or lack of them in doing business.
Netflix: Overall Competitive Analysis
Basically, Porter’s five forces model offers a simple framework for analyzing and evaluating a firm’s competitive strength and position. The five forces model includes an assessment of threats presented by new market entrants, existing competitive rivalry between firms, a bargaining power of buyers, as well as suppliers and a threat of substitute products. In terms of competitive rivalry between firms, Netflix faces a lot of competition from direct and indirect competitors such as Blockbuster and Wal-Mart. There also is an added challenge due to many other factors such as piracy, which makes competitive forces quite a strong factor. For Netflix, the potential for entry of new market players is quite high due to low market entry costs and easy access to distribution channels in the movie rental industry. This means that competition is strong.
In regard to substitute products, Netflix further faces more competition from pirates, who provide movies and TV episodes for free and from Comcast’s Cable’s “On Demand” service. With Netflix being dependent on studios and cable networks for movie content distribution, the bargaining power of these suppliers is quite high. It is obvious that their decision to cancel supply could cripple Netflix, thus empowering the competition. The situation is exacerbated by the high bargaining power of buyers. Since movies and TV shows are a part of the entertainment industry, consumers may choose to forgo them and focus on their basic needs instead or be substituted for some alternative products. Rating the five forces at moderate, strong and low, the competitive forces in the movie rental marketplace are seen as moderate, but closely bordering with strong.
Various forces can be attributed as driving change in the movie rental industry including innovation, piracy, economy, competition, as well as various regulations involving streaming of multimedia content. As aforementioned, competition in terms of consumer’s and supplier’s bargaining power and firm rivalry, among others, is a facilitator of change, as firms are forced to differentiate themselves and diversify their products and services. Innovation is the second force of change, especially when it regards technology. Both software (such as Netflix’s integrative proprietary software) and hardware (especially digital devices that simplify movie streaming) are good examples of these innovations. Piracy is another force driving change in the movie rental industry, given that businesses like Netflix are forced to craft ways to reduce losses.
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The recovering economy can also be seen as a force driving change in the movie rental industry, where firms like Netflix and Blockbuster are forced to adopt better marketing and business strategies to ensure that profitability is maintained. Many free movies and TV shows streaming sites have gotten under the relentless persecution of regulatory bodies. This happens in light of rampant online piracy, which represents another force driving change in the movie rental industry, which causes movie rental businesses to lose profits. Innovation and regulations are more likely to be favorable since they will affect the industry positively, while competition and piracy will be unfavorable, as they may encourage negative practices. This means that, in overall, the impact of these forces on the movie rental industry will be favorable in terms of future industry profitability and competitive intensity.
The strategic group map of the movie rental industry is characterized by a number of market segments covered by similar businesses, product and service quality and diversity, and distribution channels utilized. Netflix, which is analyzed and evaluated against its competitors including Blockbuster, RedBox, and Movie Gallery, is rated at a high level in terms of service attractiveness. This is because the company has maintained its strong presence in the industry for a while and has integrated and provided new software and hardware, including Netflix-ready Blu-Ray players. Moreover, the competitors are identified experiencing difficult times exemplified by the closing of various stores, which opens more opportunities for Netflix. In light of this, product and service differentiation, as well as pricing, will primarily determine the success of businesses in the movie rental industry for the next three to five years.
Consumers will favor businesses providing quality movies and TV shows and faster streaming of these products. This will have to go in line with reduced prices since many people will opt for free merchandise, which is getting more and more attention from consumers. Reduced prices and quality products and services will ensure that consumers, who are definitely appreciating the high quality of streaming, are attracted to the company’s offerings. Product diversification, strategic alliances, customer-oriented service, and aggressive marketing characterize Netflix’s business strategy. Of the five generic competitive strategies, Netflix competitive approach seems to be oriented towards the broad differentiation strategy, which is exemplified by its emphasis on product diversification, strategic alliances, customer-oriented service, and aggressive marketing without mentioning the costs involved. Essentially, Netflix can be identified as trying to achieve a competitive advantage in the form of superior service and wide movie/ TV show selection, which the company can utilize to command a premium price, build brand loyalty, and, eventually, increase sales.
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With SWOT analysis tool providing a comprehensive framework for assessing a firm’s internal strengths and weaknesses as well as external threats and opportunities, Netflix’s strengths include high market power, economies of scale that reduce its expenses, the value in customer services, and a large product portfolio. The company’s weaknesses include its inability to maintain a low churn rate and low subscriber acquisition costs (SAC). Another weakness is the lack of global diversification, which is worsened by potential external threats including studio power compounded by an unpredictable and highly competitive market. Weighting Netflix’s weaknesses and potential external threats against its strengths and opportunities (which include the change towards digital distribution and strategic alliances with other industry stakeholders), Netflix’s overall market position is quite positive. In conclusion, by leveraging its strengths to exploit potential opportunities while effectively dealing with its weaknesses and potential threats, it is likely that the firm will acquire a competitive advantage and, eventually, organizational success.