International Strategies - Netflix

The most obvious economy of scope that urges companies to develop an international strategy is the potential new customers for the company's current products or services that this strategy may bring. In 2010, Netflix launched in Canada. In 2011, Netflix expanded to the Latin American and Caribbean markets. In 2012, Netflix acquired the United Kington, Ireland, and the Nordics markets. This international expansion into new markets has lead to an increase in Netflix's revenue. 

Here is an article on Netflix's current international strategy. 

Merger and Acquisition Strategies - Netflix

Companies seek merger and acquisition strategies for many reasons including: the desire to ensure firm survival, the existence of free cash flow, agency problems between bidding form managers an equity holders, managerial hubris, and the possibility that some bidding firms might earn economic profits. 

Netflix has undergone a market extension merger in that the firm has gained access to complementary markets through an acquisition. Netflix began as a online DVD by mail service, expanded to stream videos live on many technological devices using the internet, and now produces their own television shows. This primary objective here is to gain access to new geographic markets. In 2010, Netflix launched in Canada. In 2011, Netflix expanded to the Latin American and Caribbean markets. In 2012, Netflix acquired the United Kington, Ireland, and the Nordics markets. 

Here is an article about why AMC and Netflix would be a good merger. 

Strategic Alliances - Netflix

A strategic alliance exists whenever two or more independent organizations cooperate in the development, manufacture, or sale of products or services. Strategic alliances have 3 categories: nonequity alliances, equity alliances, and joint ventures. 

Netflix seems to be exploiting economies of scale by partnering with various technological device companies such as Apple, XBox, PlayStation, Wii, etc. that can stream Netflix's movies and television shows. The cost here is extremely low, and the partnership allows for marketing leverage for each company. Here is an article about a potential strategic alliance for Netflix.  

Implementing Corporate Diversification - Netflix

When a firm begins to implement a corporate diversification strategy, they must organize in a way that allows for the strategy to be carried out efficiently because the firm risks losing economic profit or only earning an average profit. Organizing issues such as agency costs, organizational structure, management control systems, and compensation policies can aid in carrying out a diversification strategy. 

Netflix's Senior Executive is Reed Hastings. He is the founder and CEO of Netflix. His bio can be found here. It is the senior executive's has two main responsibilities: strategy formulation and strategy implementation. Hastings has diversified his company from its origin of DVDs by mail to include video streaming via the internet using a multitude of technological devices. His most recent diversification strategy was to create Netflix's own television show House of Cards. 

Here is a recent article on how Reed Hastings thinks Netflix will win the video subscription war. This sums up his opinion:

Netflix's Diversification Strategies

A corporate diversification strategy is implemented when a firm has brought multiple businesses within its boundaries. I believe that Netflix has a limited corporate diversification in that all or most of their business activities fall within a single industry - movies and television. In 1999, Netflix launched their DVD rental service which allowed consumers to order DVDs by mail. In 2007, Netflix diversified to allow consumers to stream movies and television shows on their computers using the internet. As technology advanced, Netflix kept up by partnering with consumer electronic companies that allowed for streaming on any electronic with internet capabilities. In 2010, Netflix diversified by expanding to Canada. In 2011, Latin America and the Caribbean gained access to Netflix. In 2012, the UK, Ireland, and the Nordics were added to Netflix's markets. Most recently, Netflix diversified by producing their own television shows. What will Netflix do next to keep up with the movie/television rental and streaming industry?

Vertical Integration - Netflix

Vertical integration level of a firm is defined by the number of stages in a product's or service's value chain in which a particular firm engages. Netflix is engaging in forward vertical integration, which means they are increasing the numbers of value chain stages in which they engage. These new stages bring them closer to direct interaction with a product's or service's ultimate customer. Netflix is partaking in forward vertical integration through their introduction of their own television shows. This allows them to enter the television production market in addition to their existing place in the distribution market. Despite its progress to vertical integration, Netflix does outsource. For example, they use Amazon's Web Services (AWS) for online video streaming.

No Integration Raw Materials Intermediate Manufacturing Assembly Distribution End Customer

Backward Integration Raw Materials Intermediate Manufacturing Assembly Distribution End Customer

Forward Integration Raw Materials Intermediate Manufacturing Assembly Distribution End Customer

Netflix's Flexibility: Real Options Analysis Under Risk and Uncertainty

Uncertainty about a firm's actions can have an effect on a firm's competitive strategies. Flexibility is an important factor of any strategy in states of high uncertainty. Flexibility is the ability to change direction quickly and at a low cost, given unanticipated changes in the competitive situation of a firm. Netflix has gained its flexibility in terms of the option to expand meaning the firm has made choices that enhance their ability to abandon a certain strategy. When Netflix first entered the movie rental market, they offered movie rentals through the mail. Netflix expanded its options by offering online movie streaming through many different devices. 

Product Differentiation - Netflix

Product differentiation is a business strategy used by firms to gain a competitive advantage by providing reasons for consumers to purchase their products or services. Netflix has product differentiation by means of offering old products (movies) in new ways. When Netflix first entered the movie market, they offered customers movies by mail. Netflix has expanded to the ability of streaming movies through various technological devices by means of the internet. Netflix still offers movies through the mail, which makes them different from other movie businesses in the market. This is called product mix. This is defined as the linking of functions within a firm. They have a high degree of product mix due to the fact that their products and services are technologically linked. 

To see how Netflix focuses on the relationship with its customers, go here. 

Cost Leadership - Netflix

Even though firms can produce the same products, they can have very different costs. Some of the reasons are (1) size differences and economies of scale, (2) size differences and diseconomies of scale, (3) learning-curve economies, (4) differential access to factors of production, and (5) technological advantages independent of scale. 

Netflix's seems to have established itself as a cost leader through (5) technological advantages independent of scale. Netflix was the first video rental and video streaming company to establish a cost advantage due to their implementation of different technologies. In terms of technological hardware, Netflix has saved money by not having actual storefronts. They only needed storage facilities for the portion of their business that mails DVDs to residents. They have also made advances in technological software through implementing various ways to stream videos online. Some of these examples are the blu-ray player, Ninetendo Wii, the PlayStation 3, etc. Netflix has definitely taken the technological advantages approach to establish cost leadership in the video rental and video streaming business.

Source: Jay B. Barney's Gaining and Sustaining Competitive Advantage

Evaluating Netflix's Strengths & Weaknesses: Applying the VRIO Framework

The questions of value, rarity, imitability, and organization make up the VRIO framework. This framework can be used to understand the return potential associated with a firm's resources or capabilities. 

If a resource or capability is determined to be not valuable, that resource will not permit a firm to apply strategies that exploit environmental opportunities or neutralize environmental threats. If a firm chooses to exploit a particular resource, either a firm's costs will increase or the amount customers are willing to pay will decrease. These resources are deemed weaknesses. Valuable resources that are not rare are considered organizational strengths. 

When a resource or capability is both valuable and rare but not costly to imitate, a company should exploit this resource in order to gain a temporary competitive advantage. This firm will have a first-mover advantage. In order to obtain a sustained competitive advantage, a firm must exploit a resource that is valuable, rare, and costly to imitate. This puts competitors at a deficit because they cannot imitate the firm's strategies. Organization serves as an adjustment factor in the VRIO framework. 

The VRIO can be applied to Netflix. When looking at Netflix's growth over the past several years, the firm's biggest opportunity was the ability to stream movies over the internet on various electronic devices. One can see that the capability is valuable, rare, and costly to imitate. Netflix chose to exploit this opportunity and gained a first-mover advantage. Despite these facts, firms such as Hulu and Amazon have now entered the market of live stream via the internet. 

Source: Jay B. Barney's Gaining and Sustaining Competitive Advantage

Evaluating the Environmental Opportunities of Netflix

Environmental threats a can be used as opportunities. These opportunities are to neutralize the threat using various strategic methods. Both the threat of rivalry and the threat of substitutes can be neutralized in similar ways. A firm can compete on dimensions other than price and improve product attractiveness in comparison to its substitutes by means of methods such as cost leadership, product differentiation, cooperation, and diversification. 

Netflix is arguably the cost leader in the movie rental industry due to the fact that you can access an unlimited amount of movies for a low monthly fee. Netflix also seems to take the lead in product differentiation. Netflix offers a multitude of ways to rent movies. Costumers can access movie rentals via snail mail or using any device with internet capability. These devices include but are not limited to computers, blu-ray players, Nintendo Wii, Playstation 3, and many apples products such as the iPad, iPhone, and iPod. Netflix also cooperates with Amazon, a competing firm by using Amazon servers. A interesting article on this "coopetition" can be found here. 

Source: Jay B. Barney's Gaining and Sustaining Competitive Advantage

Evaluating Netflix's Environmental Threats

When a firm is trying to gain a competitive advantage, they will indure environmental threats. According to Jay B. Barney, an environmental threat is any individual, group, or organization that could potentially threaten the firm's performance. The most famous model used to evaluate environmental threats is the five forces framework, developed by Professor Michael Porter of the Harvard Business School. The five forces are the threat of entry, the threat of rivalry, the threat of substitutes, the threat of powerful suppliers, and the threat of powerful buyers.

The Five Forces Framework for Netflix:

The Threat of Entry - Hulu seems to be the most recent entrant into the movie industry. Hulu competes with Netflix because it also offers movies and television shows via internet access. Despite this new entrant, customers seem to be loyal to the brand they already know.

The Threat of Rivalry - Netflix's rivals include Hulu, Redbox, On Demand, and others. This is due to the fact that the industry growth was slow. This is why we saw video stores rapidly closing. There are cheaper, quicker, and easier ways to access television shows and movies.

The Threat of Substitutes - The firms aforementioned offer products that meet customer needs in a different way thatn Netflix. Hulu offers television shows the day after they air. Redbox offers movies and video games in a vending machine style. On Demand offers the option to order movies through your television.

The Threat of Powerful Suppliers - This does not appear to be an issue.

The Threat of Powerful Buyers - There is a threat of powerful buyers when they don't watch many movies or television shows in a given month. To some, payment a low monthly fee is worth it because they watch several movies and television shows. If they do not watch much in a month, Redbox may be a better option because they are only paying $1.00 per rental. On the other hand, buyers recognize the name Netflix and probably have many friend who are buyers.

You can find a five force analysis for Netflix here.

Source: Jay B. Barney's Gaining and Sustaining Competitive Advantage

Netflix's Firm Performance & Competitive Advantage

Netflix was created in 1997 by Reed Hastings and fellow software executive Marc Randolph and offered only online movie rentals. Netflix shortly introduced the subscription service for a low monthly fee, which could predict choices for members. Netflix continued to grow and was able to offer streaming in which members could instantly watch movies and television shows on their computers. Shortly after streaming was introduced, Netflix partnered with various electronic companies which allowed them to stream on the Xbox 360, blu-ray players, television boxes and Apple computers. A couple of years later, Netflix was also streamable on the Play Station 3 as well as devices that were connected to the internet including the television. As technology advanced, so did Netflix. They can now stream on the iPad, iPhone, and iPods as well as the Nintendo Wii. Netflix has made it possible for users to access movies and televison shows in virtually any way they prefer. Netflix claims to be the world'd leading internet television network. They have over 33 million members residing in 40 different countries. Each member is able to access their favorite movies and television shows for one low monthly price.

Due to the success Netflix and other pioneering companies, we have slowly seen video stores become virtually nonexistent. Netflix has not only a continuing success, but also continues to grow as technology advances as well as expands to reach more viewers. This has led to Netflix to possess sustained competitive advantage which means that it has a long-lasting competitive advantage in that Netflix has created more value than its rival form. Consumers view Netflix has having a high economic value, meaning the benefits they gain by purchasing Netflix are greater than the economic cost.

The ultimate priority of a company is to insure that its shareholders' wealth is maximized. Netflix has a shocking growth of 13 cents per share on Wednesday. Netflix's financial profile including shareholder information an be found here.

Sources: Netflix.com and Jay B. Barney's Gaining and Sustaining Competitive Advantage

Netflix's Mission Statement

Welcome to my blog! Over the course of this blog, I will be evaluating various management aspects of Netflix.
 
After a web search and two phone calls to Netflix, I have concluded that Netflix does not have an actual mission statement. One Netflix Customer Service Representative asked, "What is a mission statement?" The other asked everyone in the call center, to which one person replied with Company Overview that can be found on the Netflix website. The Company Overview says:
 
"Netflix is the world's leading Internet television network with more than 30 million members in 40 countries enjoying more than one billion hours of TV shows and movies per month, including original series. For one low monthly price, Netflix members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments." 
 
The second Netflix Customer Service Representative and I came across what seems to be the best answer. According to About.com:
 
"Netflix doesn't have an "official" published mission statement, but at the Dublin Founders conference in October, 2011, co-founder and CEO Reed Hastings expressed a clear vision for the future of Netflix which includes...

• 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

Netflix did, at one point, referred to its brand promise as a "quest," which many would equate with a mission statement. The published that Brand Promise was...

We promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact.

Additionally, Netflix has published its company values, which provide further clarification about the principles which guided its employees in their daily decisions and activities. The Netflix Company Values were published as...

• Judgment
• Productivity
• Creativity
• Intelligence
• Honesty
• Communication
• Selflessness
• Reliability
• Passion"