Netflix Case Study
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Netflix utilizes a number of different advertising methods. Netflix created a coupon in the form of an enlarged movie ticket offering a free month of service. These “movie tickets” are given out at cash registers at all Best Buy stores and are included in packing boxes of most of the major DVD player manufacturers (Sony, Philips, Toshiba, Panasonic, RCA, etc.). Best Buys website also has a link directly to Netflix which is under the “DVD rental service” drop down menu. Each DVD mailer sleeve from Netflix includes a tear off “tell a friend” certificate with a promotion code that provides the bearer with a free month of service. At one time, Netflix sold banner ads on their websites. However, they abandoned this strategy after three months because the revenue stream was not sufficient to cover the cost of maintaining the ads. Netflix also has an aggressive affiliate program. The affiliate program encourages other websites to provide links to Netflix and offers a referral fee for linked new members at a range of $9-$12 per member. This fee is dependent upon the number of referrals provided in a month. If a site is successful at delivering greater than 200 new customers in a month, the referral fee is negotiable, up to $30 per new customer. Netflix is a straightforward company. It rents DVDs via the Internet and sends them to you through the U.S. Postal Service. For a flat fee of $19.95 a month, you can build a list of movies at the Netflix.com Web site that you want sent to your home. The company sends you the first three along with prepaid return envelopes. When youre ready to send them back, you put them in the return envelopes and drop them into any mailbox. The minute the return is processed, the next one, two, or three DVDs are on their way. Depending on where you live, the turnaround time is two to five days.
The average Blockbuster store carries roughly 1,500 movie titles. Netflix carries more than 12,000 titles. It has movies that you cant find anywhere else. And Netflix uses collaborative filtering technology to send you emails that alert you to movies that you might otherwise never consider. Netflix saw the video- and game-rental market moving to DVD and built its business around that trend. Netflix doesnt rent videocassettes, only DVDs (in part because theyre lighter and cheaper to mail). Netflix was able to identify and implement a strategy for growth through product and services acquisition, by turning what seem like an unprofitable rental business in a rental driven financial blockbuster. With a strong development of thought leadership materials to support corporate marketing. Netfilx looked at the business of movie renting as a diverse project, that share a common theme, that bridge the gap between stategy and execution., combined with great customer service to get the competitive advantage to achieve it great success. The two most important finds: No one has any time, and people will spend money on those things that make the environments they control — their homes, mostly — a better haven. Netflix saves time and improves the nest. Any company that does that will ride these trends to real customer loyalty. The thing that everyone hates about Blockbuster is the late-fee drill. Analysts estimate that 18% of Blockbusters $5 billion in revenue comes from late fees. With Netflix, there are no late fees, and you can keep a movie for as long as you like. Blockbusters addiction to late fees helps drive Netflixs success. This is one of the reason that Blockbuster no longer have late fees on it movie rentals. There are no more brick-and-mortar video store that can supply the industry the niche market to capitalize on changing behaviors that traditional video rental stores had taken for granted,
stealing away a lot of customers in the process. We now live in a world driven by hyper-competition. Hyper-competition is where too many businesses are pursuing too little business; i.e. there is not enough demand to go around for all providers of goods and services. The knowledge base for managing in this hyper-competitive environment is called Competitive Intelligence. Competitive Intelligence is a process of giving you insights into what might happen in the near future. This process requires that we go from data to information to intelligence. Here is a basic example:
Data => Prices for our products have dropped by 5%
Information => -new offshore facilities have lower labor costs
Intelligence => Our key competitor is about to acquire a facility in India that will . . . .
The differences between data, information, and intelligence can be subtle, but very real:
Data => Unconnected pieces of information: Nice to know, but so what!
Information => Increased knowledge derived by understanding the relationships of data: Interesting, but how does it relate to what I do!
Organizing the information to fully appreciate the implications and impact on the organization: Oh really, then we better do something! These days, people are hungering for more joy and meaning in their lives, including their work lives. But if they are feeling stressed, maxed-out, and confused by the chaos at work, it is difficult to feel anything approaching joy or meaning. Yet Netflix believe that if people understand the nature of chaos that they may uncover some secrets that will help them to increase their level of satisfaction, by not having to leave the home to rent movies to have entertainment at a touch of a button.