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Competitive and Functional Strategies

Read Case #1, Scripting the Future (www.netflix.com) in Chapter 6 (pp. 157-158) and answer the following questions:

Case #1: Scripting the Future:

There's no doubt that people like to watch movies but how they watch those movies is changing. Although many people still prefer going to an actual movie theatre, more and more are settling back in their easy chairs in front of home entertainment systems, especially now that technology has improved to the point where those systems are affordable and offer many of the same features as those found in movie theatres. Along with the changes in where people watch movies, how people get those movies has changed. For many, the weekend used to start with a trip to the video rental store to search the racks for something good to watch, an approach Blockbuster built its business on. Today's consumers are more likely to choose a movie by going to their computer and visiting an online DVD subscription and delivery site where the movies come to the customers - a model invented by Netflix.

Launched in 1999, Netflix's subscriber base grew rapidly. It now has more than 9 million subscribers and more than 100,000 movie titles from which to choose. "The company's appeal and success are built on providing the most expansive selection of DVD's, an easy way to choose movies, and fast, free delivery." A company milestone was reached in late February 2007, when Netflix delivered its one billionth DVD, a goal that took about seven-and-a-half years to accomplish - about seven months less than it took McDonald's Corporation to sell one billion hamburgers after opening its first restaurant." To commemorate the occasion, one customer in Texas received a life-time subscription.

Netflix founder and CEO Reed Hastings believes in the approach he pioneered and has set some ambitious goals for his company: build the world's best Internet movie service and grow earnings per share (EPS) and subscribers every year. However, success ultimately attracts competition. Other companies want a piece of the market. Trying to gain an edge in how customers get movies they want, when and where they want them, has led to an all-out competitive war. Now, what Netflix did to Blockbuster, Blockbuster and other competitors are doing to Netflix. Hastings said he has learned never to underestimate the competition. He says, "We erroneously concluded that Blockbuster probably wasn't going to launch a competitive effort when they hadn't by 2003. Then, in 2004, they did. We thought... well they won't put much money behind it. Over the past four years, they've invested more than $500 million against us."

The in-home filmed entertainment industry is intensely competitive and continually changing. Many customers have multiple providers (e.g., HBO, renting aDVD from Blockbuster or Red Box, buying a DVD, downloading a movie from Apple) and may use any or all of those services in the same month. Netflix also sees video-on-demand and movie delivery over the Internet becoming a more competitive distribution channel. In many metropolitan areas, video-on-demand is currently available and Internet delivery of movies is available from providers such as iTunes, Hulu, Vongo, Movielink, and CinemaNow. Wanting to maintain its competitive position, Netflix announced in early 2009 agreements with LG Electronics and Vizio that let viewers get Netflix service through those companies' television sets.

To counter such competitive challenges, Hastings is focusing the company's competitive strengths on a number of initiatives including: continually developing a comprehensive library of titles; personalizing merchandising efforts to each and every customer; keeping costs low even as the subscriber base expands; and emphasizing convenience, selection, and fast delivery. With both large and smaller companies hoping to get established in the market, the competition is intense. Does Netflix have the script it needs to be a dominant player? CEO Hastings says, "If it's true that you should be judged by the quality of your competitors, we must be doing pretty well."

1. Describe what you think Netflix's competitive strategy is, using Miles and Snow's and Porter's frameworks. Explain each of your choices.
2. What competitive advantages do you think Netflix has? Have the resources, capabilities or core competencies of Netflix contributed to its competitive advantages? Explain why.
3. Do Netflix's functional strategies suuport its competitive strategies? Explain with details and examples.
4. What do you think Netflix is going to have to do to maintain its competitive position, especially as its industry changes?

Solution Preview

1. Describe what you think Netflix's competitive strategy is, using Miles and Snow's and Porter's frameworks. Explain each of your choices.
At one point Netflix may have fell under what Miles and Snow refer to as the Prospector Strategy. Netflix saw the decline in the video retail market, and knew that they needed to do something new and innovative. The market was flooded with brick and mortar stores, so the founder of Netflix pioneered the first Internet video store. More recently, Netflix has used a defender strategy. They have moved their design strategy from innovation to quality of service. This is to help customers retain easy to use methods of home delivery. This includes mail, and viewing through devices that promote online delivery. This limits supplier power and it allows the company to retain lower overhead costs through their distribution channels. There are companies ...

Solution Summary

The expert examines competitive and functional strategies.

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