Netflix Undergoing a Strategy Shift
Within the past year, Netflix has undergone many strategy changes. One of the most recent familiar changes was when they split their business into a visual and virtual model. Many consumers protested and had mixed feelings regarding this strategy change. However, they did not get it all wrong. In fact, the company has regained stability and continually looked for more innovative routes to take their business. The most current strategy alteration that is creating a media buzz-binge is Netflix’s new strategy. The original Netflix business foundation was based around the idea of being a leader in mailing DVDs.
In 1999, to compete with the video rental market, especially Blockbuster, they launched a subscription service which allowed their subscribers to rent an unlimited number of DVDs at one low monthly price. However, as consumers taste changed so did Netflix’s business model. To incorporate those changes Netflix started to include streaming from personal computers. Within the past year, Netflix completely changed their model by splitting into two businesses. In recent years, DVD rentals are continually starting to reach maturity and the steaming market has continued to take off.
This time period has allowed Netflix to capitalize on an opportunity to execute a new strategy, enter as a new market player, all while maintaining profitability. The strategy in which Netflix is now pursuing entails that of binge viewing. On February 1st, Netflix launched a complete season, all 13 episodes, of ‘Houses of Cards. Ultimately, is Netflix trying to revolutionize the way we watch TV? Some of the most recent changes in television include a shift from primetime television, to DVD rentals, to the most recent streaming. Due to the continued change in television, Netflix has found a need to serve each unique segment.
This in turn has increased the continued success rate of the company because they have not become complacent with their original model. For example, when Netflix changed their business strategy and split into two units under one corporate umbrella, they went after new competition. With the demand curve declining in the visual segment or rentals, they faced fierce competition against Hulu and Amazon in the streaming segment. Again, the binge is now engaging in is because they saw a potential in a different business unit as the streaming market faces saturation.
The competition that they are pursuing with their binge strategy consists of HBO and Showtime. The new strategy hopes to go after a new market base and keep subscribers from going to the competition. The attitude or mindset of many consumers today is one of which includes getting things right when they want them. Essentially, it comes down to getting things our way. For instance, Netflix is now seeking out these consumers who have this type of attitude, making the assumption based on current consumer demand. However, through continued research and monitoring of its clientele base, Netflix found supporting evidence.
This shows a trend that those users who continually watch different television series’ or episode blocks over short time periods. The change of viewing habits supports their alterations in the traditional network release. In addition, this strategy change provides a backing for their reputation of innovative business practices that change the way their subscribers watch television. Overall, Netflix has felt the need to enter into these new markets and continually change their strategy because of careful analysis and consideration.
Both major strategy changes that Netflix has exemplified are due to a formal planning process. As previously mentioned, Netflix prides themselves on having and innovative business model. As far as can be seen, each release of a new business model has increased customer utility by bringing in new customers from different industries they have entered like rentals, streaming, and currently binge viewing. Not only have they brought in new customers, but they have been able to continually leverage their operations over their competitors in each market and be profitable.
Nonetheless, all the planning involved in the strategy changes provides benefits that Netflix anticipates. The bold moves of Netflix create many advantages that foster future growth opportunities. Furthermore, bringing in new customers and the possibility of expanding services for those who already subscribe to Netflix includes other benefits as well. Overall, the hopes are to hold customers longer and increase their viewer retention rate. On the other hand, one of the things Netflix had struggled with earlier on but was addressed and enhanced was the content gap.
Airing a binge of episodes at once compensates for the viewer gap between primetime television and internet streaming. This is due to the fact that primetime television stations and internet companies that stream television episodes do not offer this type of viewer experience at this point in time. Having a larger customer base, that is satisfied with their account spending ultimately increases revenue for Netflix. In addition, Netflix also anticipates increased revenues when they begin to receive payments from those internet companies who want to piggyback off of their broadband-access and offer binge services such as theirs.
Being a first mover requires a great deal of risk that the company must take on but, do the advantages outweigh the cost? Netflix can be seen as an innovative leader because of the focus placed on changing their business strategies. The company has done a great job at finding gaps in current marketplaces and potential in other business units. However, the vast changes in their strategy are due in part to careful planning and analysis. Having a thorough analysis allows Netflix to foresee anticipated benefits from these changes.
