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.