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Netflix International Expansion Case Solution
To analyze the profitability of any industry, Porter’s five forces model can be used. The Porter five forces are the intensity of rivalry in the industry, the threat of new entrants, supplier bargaining power, bargaining power of buyers/customers, and threat of substitute products to the industry
Following questions are answered in this case study solution
Analyze the global profitability of the industry in which Netflix operates. Use the model of Porter's five forces.
Conduct a strength, weaknesses, opportunities, and threats (SWOT) analysis for Netflix and provide strategic suggestions based on that analysis
Define Netflix's competitive advantage. Why is Netflix so successful?
How would you recommend that Netflix overcome its challenges in the international market?
In the future, what strategic actions might Reed Hastings consider?
Case Analysis for Netflix International Expansion
i. Competitive Rivalry
Even though Netflix was the first organization to enter the internet video streaming business, the company today faces high intensity of competition. The internet video streaming business features many small and large-sized local and international firms such as Hulu, Amazon, HotStar, CraveTV, etc. Each competitor offers a unique set of value to customers such as Amazon offering its e-commerce retail products apart from its streaming services and leveraging its global brand name and huge customer base. Thus, Netflix is in a constant struggle to keep innovating and coming up with strategies to increase and maintain its competitive position in a highly competitive industry.
ii. Supplier Bargaining Power
Due to increased competition in the industry, the supplier power has also increased. Suppliers have realized that without them providing innovative, attractive, and quality content to these streaming providers, these streaming services will lose customers as customers will unsubscribe and move to a new streaming service. However, realizing this Netflix and many other streaming services have also started creating their own original content such as Netflix’s Orange is the new black. Thus, suppliers have a moderate power in the industry.
iii. Buyer Bargaining Power
With an increasing number of streaming service options all in the same price range and customers having low switching costs, the buyer bargaining power is more than ever before in the industry. Customers can choose and leave services easily due to the monthly subscription model if the media content provided to them is not up to the mark.
iv. Threat of Substitutes
The threat of substitutes for online streaming services is relatively low. With Gen Z and millennials preferring online streaming services such as Netflix, Hulu, and Amazon, the use of television has gone obsolete. YouTube is another potential substitute, however, the content provided on it largely varies in quality, genre, and professional content. Other media entertainment-consuming options such as cinemas and theatres pose little threat at the moment due to COVID-19.
v. Threat of New Entrants
There is a moderate level threat of new entrants in the industry. While many players want to enter the market due to the growing market and customer base, evolving technology, and the business model is easy to replicate, the presence of large already established players along with large capital requirements, government regulations, and the need for good content makes it's difficult for new firms to enter.
2. Conduct a strength, weaknesses, opportunities, and threats (SWOT) analysis for Netflix and provide strategic suggestions based on that analysis
Netflix is an ad-free streaming service that differentiates Netflix from its competitors and is a major strength for the company as it provides a great user experience.
Netflix is a popular service with a strong brand name and brand equity which helps the company to penetrate into new markets. This is especially because of the first-mover advantage that Netflix has in the online streaming industry
Allows customers to download content so that they can watch it later
Netflix has a large customer base as well as a large number of content providers.
Apart from acquiring media through external parties on contracts, Netflix is also an original content provider producing its own shows and movies which have become very popular. Thus, these shows and movies are only exclusively available on Netflix only and cannot be found anywhere else.
Apart from Netflix's own content, all the other content is available on a contractual basis only meaning they are only available on Netflix for a certain period.
Expensive licensing agreements with third-party content providers
Netflix has an easy to replicate business model which is a weakness since competitors can easily copy the model to enter the online streaming industry
An essential requirement for the company is customers' proper and high-quality internet connection speed which directly affects customers’ satisfaction while using the service.
Large amount of long-term debt used to finance new content
Majorly depend on the U.S Market for revenue
Expanding consumer base through penetration in new markets such as China
Changing consumer preferences with more and more people shifting to online media consumption and on-demand streaming services
Creating localized content for new markets that Netflix expands into.
Exclusive licensing and partnerships agreements to create more original content
Continuously evolving technology
The industry Netflix operates in is facing increasing competition with many large players entering the market such as Hulu, Amazon, etc.
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