What is strategic planning?
Strategic planning determines exactly where your organization is going over the next few years and how it is going to get there. A strategic plan is a coordinated and systematic way to develop a course and direction for your company. Basically, not having a strategic plan is akin to navigating unknown territory without a map. And without a map, you are lost in a highly competitive business environment that will inevitably throw challenges your way. A rule of thumb is that if there’s uncertainty on the horizon, then you need a strategic plan.
This report focuses on assessment of Netflix strategic plan for online video streaming.
Netflix is a leading online video streaming service company with a global brand. Netflix was co-founded in 1997 by Reed Hastings and Marc Rudolph and originally was launched as a website that allowed consumers to rent DVDs and have them delivered directly to the consumer’s homes. Shortly after, the company started offering a subscription for consumers to purchase, to receive unlimited DVD rentals monthly via mail with a prepaid mailer that would send the DVD rental back to the company. It was a means for consumers to avoid late fees for not returning your DVD rental to the DVD rental store. Located in Los Gatos, California, Netflix began streaming content over the internet in 2007, launching itself into the world’s largest internet subscription service to offer streaming movies and TV episodes. Netflix delivers streaming through software that is available on hundreds of “Netflix Ready Devices,” (David, 2011).
Netflix has expanded globally and trades on the National Association of Securities Dealers Automated Quotations Exchange (NASDAQ) under the ticker NFLX (Netflix, 2018). The subscriber base has increased from 600,000 members in 2002 to over 130 million members. Netflix is in over 190 countries and members can get instant access to great content. Has extensive global content library, featuring award winning Netflix originals, feature films, documentary, TV shows and more. The content varies by region and may change over time (Netflix, 2018). Today, Netflix has directed its focus on consumers who want to subscribe to commercial-free streaming of television shows and movies, changing the way consumers are enjoying in home entertainment opportunities.
Although the company does not have an official Vision Statement. Chief Executive Officer, Reed Hastings, has stated his vision for his company to accomplish the following:
• 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 (Farfan, 2018)
The company essentially has a vision statement, however to motivate employee’s, Netflix may want to solidify the statement so there is no confusion on the continued vision of the company moving forward. It also gives employees the opportunity to review the vision as they develop a strategic plan and try to accomplish the stated goals of the vision statement.
A Mission Statement is the backbone of an organization. Taking the time to fully develop a robust statement helps all stakeholders involved to understand what the individual business is. Without a mission statement it may be hard to strategically implement a business model that can be fully vetted.
“Our core strategy is to grow our streaming subscription business domestically and globally. We are continuously improving the customer experience, with a focus on expanding our streaming content, enhancing our user interface and extending our streaming service to even more Internet-connected devices, while staying within the parameters of our consolidated net income and operating segment contribution profit targets,” (Edgar Online Inc., 2012).
2.0 SITUATION ANALYSIS
2.1 Assessment of key resources/capabilities using VRIN Test
The VRIN model which identifies the characteristics of a firm’s resource(s) which they must possess to create a competitive advantage. According to Barney (1991) a firm resource must have four attributes: first it must be Valuable, in the sense that it reduces a firms own weaknesses or exploits industry opportunities, secondly it must be Rare among the existing and potential marketplace, third it must be imperfectly imitable, meaning the competition cannot easily duplicate the resource in question, and lastly the resource needs to be non- substitutable enough to be a source of sustainable competitive advantage in the marketplace (Barney, 1991).
The first two: valuable and rare – measures whether or not a resource or capability can support a competitive advantage.
The last two: inimitable and non-substitutable – measures whether or not a resource or capability can be sustainable.
Netflix capabilities and resources are as follows:
Recommendation System: Over the years, Netflix has put a lot of energy into fine-tuning its recommendation system to save users time and brain-power, and to fast-track the route to whatever film or TV show is likely to keep them engaged with the service the longest.
If the statistics are anything to go by, they have been rather successful. A vast majority of the time, around 80% of viewers discover their next Netflix binge through recommendation (as opposed to searching the site themselves). Often, it is right there staring them in the face on their personalized home page. The recommendation system is a valuable resource for Netflix and it is rare because it can support a competitive advantage and cannot be easily copied. It is also non-substitutable.
Original Programming Content: On its Annual Report 2015 Netflix points out that the company is “a pioneer in the Internet delivery of TV shows and movies.” Due to its website, Netflix produced more than 320 hours of content in 2015. With the releases of award-winning TV shows, such as “House of Cards”, “Narcos” and “Orange is the New Black”, Netflix has developed to an international content leader on that field. Since 2013 the company has been “changing the rules of how serialized television is produced, released and distributed globally. “Talking about Netflix’s content it is not only the quantity but also the quality that has to be mentioned: 45 Emmy nominations, 15 Daytime Emmy nominations, two Oscar nominations and 10 Golden Globe nominations during the first two years prove that Netflix is well recognized by the TV and film industry. Keeping the variety and quality of self-produced shows is one of Netflix’s main goal for the future, as it is a reason to prefer Netflix compared to its competitors. That makes the competence valuable for the organization. To watch these exclusive shows, one has to sign up for a Netflix account, which brings additional members and money to the organization. That high amount of exclusive content is still rare, although Amazon tried to close the gap during the last year. It is also very cost intensive for others to imitate, as own high-quality productions are more expensive than buying licenses, as the whole production as well as the actors, employees and equipment have to be paid. Therefore, competitors need to decide for high investments first with no secured success afterwards. For Netflix the content as a core competence is also not substitutable, as it is the main revenue source and reason for choosing Netflix.
Global Coverage: In January 2016 Netflix announced the launch in 130 more countries. In addition to the at that time already existing 60 countries Netflix is available in 190 countries. The only main and relevant market missing is China. Because of that Netflix expects up to 100 million more customers. This global coverage is valuable and rare, as the biggest competitor Amazon Prime is available in six countries. That are compared to Netflix only 3.2 %. For Amazon and other competitors, it will be harder to enter new markets, as Netflix was first available and already attracted the customers. Though, competitors have to invest more time and money to enter new markets. As new customers will also increase the income of the firm, this global coverage is a unique and no substitutable core competence.
Technology: One of the core competencies of Netflix is the technology, which “provides easy to use technology for customers to use to order and identify what they wish to view.” The registration for a new account is done within four to five steps, the frontend is designed clearly: big screens showing a trailer of the selected movie, small introductions are given and the usage through wiping or clicking to the right or left is easy, whereas the frontend of Amazon Prime is adapted to the Amazon frontend design, which makes it harder to lead through the website due to e.g. small letters and hidden information. Furthermore, the movies are not clearly structured on Amazon, as the same movie can show up in the genre of Kids and Comedy. “It is also allowed for a subscriber to rate the titles that they had previously viewed and receive recommendations based on the titles they previously rated highly. This service was and continues to be highly successful with a good portion of titles being viewed coming from the recommendations provided.” Netflix also offers to stream movies and shows on up to four different devices at the same time. That is something unique, as Amazon does not offer it. Due to that, on account can be shared between a family or friends using different devices for watching.
2.2 Competitive environment using Porter’s five forces framework
In order to determine nature and strength of the competitor pressures in the movie rental industry Netflix is operating in, we use Porter’s five forces model of competition which are “the threats posed by new entrants, the bargaining power of suppliers, the bargaining power of buyers, product substitutes, and the intensity of rivalry among competitors.”
Threats posed by new entrants: Netflix have to keep on maintaining the rising popularity of e-commerce such as an improvement and enhancing their inventory of stream movies with raise their HD streaming inventory. If this attempt is deferred, more suitable earnings of renting movies will take over such as “On Demand”. This is probable because the low-priced entry barriers in the DVD industry linked to streaming content due to the huge amount of streaming content that could become obtainable to possible distributors.
Bargaining power of suppliers: Netflix is completely dependent on exclusive rights of studios for the content they require to provide to customers. Currently, Netflix does not create any of their own content, if the suppliers were to stop the sharing of their content to Netflix, it might cripple business model of Netflix. This provides the suppliers extreme power over contract negotiations with Netflix for content acquisition because there are only a number of studios who supply the movies and shows.
Bargaining power of customers: The industry of movie rental is an active industry. In times of slower economic growth where customers have a less amount of optional income their ability of expenses in the industry will be reduced. In times of a wealthy economy, customers might spend more money on the industry. This provides customers a high power of bargaining in the industry of movie because they can decide to use their entertainment money on alternative services or products.
Product and service substitute: For most homes Digital cable is now necessary, therefore many customers will have a film collection from their cable network. “On Demand,” Services offered by cable television providers might be a substitute for Netflix if they increase their movie stock list to a similar title selection. It is essential for Netflix to keep up with the continually changing technology sector in order to sustain its success.