STRATEGIC ANALYSIS ON

NETFLIX

CREATING COMPETETIVE ADVANTAGE

 
 Netflix follows External control view of leadership as there are situations in which
external forces have the maximum impact and where the leader has limited influence in
determining the organization's success. 
 
 Vision 
The vision of Netflix is: 
1. Becoming the best global entertainment distribution service 
2. Licensing entertainment content around the world 
3. Creating markets that are accessible to filmmakers 
4. Helping content creators around the world to find a global audience  
 
 Mission 
“We promise our customers stellar service, our suppliers a valuable partner, our investors the
prospects of sustained profitable growth, and our employees the allure of huge impact.”  
 
 Strategic objectives- 
Financial:  
Revenue of Netflix is growing at an incredible rate. Their 2018 annual report further elaborate
that revenue’s growth sources are mostly solid from the growth of subscriptions, and the growth
of international subscriptions is the main force. They invested a lot of money to construct the
original content in an attempt to attract viewers to subscribe and make the revenue grow. To
further elaborate, Netflix’s Total Assets has grown very fast in the past three years, with an
average growth rate of 40% in three years.  
 
Non-Financial:  
 The company's strategy is to focus on original content to drive growth, and it is not currently
looking to stream any other type of media like sports or live streams like it’s competitors. They
also aim to provide regional contents to many countries like in India, Sacred Games to satisfy the
customers and gain competitive edge by giving both international and regional content.  
 
ENVIRONMENTAL ANALYSIS 
 PESTLE Analysis
 
 Political  
1. US has restrictions on countries like Crimea, North Korea and Syria thus leaving a
potential market untapped 
2. Netflix is still not present in the most populated country i.e. China due to permission issues from
Chinese Government 
3. Need to work on content restrictions so that same films and TV shows are available in every
country  
 
 Economical 
1.  Fluctuating exchange rate can negatively impact revenues 
2.Increase in personnel related cost due to increase in workforce.  
3.Domestic streaming cost, domestic marketing expenses and other costs also increased which need
to be controlled 
4.Cash outflow continue to increase so it has less liquidity 
 
 Social  
1. Netflix has big brand reputation and prides itself in complying to ethical business standards and
morality 
2. Netflix is known for giving away student scholarships and charities to aid financially challenged
students  
3. Reed Hastings (the CEO) has set an example by giving a large sum of his personal funds to the
Giving Pledge Charity 
 
 Technological 
1. Improvement in compression techniques will improve overall quality of streaming with relatively
less data 
2. The focus is not only on video streaming quality but also on improving experience in convenient
payment and delivery processes 
3. The New Thumbs Up\Down Rating System will help in improving personalization, making the
front screen on Netflix even more relevant to the users 
 
 Legal  
1. Need to fight battles against Geoblocks (Geoblocking is the process of limiting user access to the
internet based on their physical location) and copyright infringements 
2. Video piracy is the reason of huge loss to the streaming and cinema industry thus punishments to
the offenders should be severe 
3. Streaming on multiple devices should be checked as users are sharing their credentials to reduce
cable bills 
 
 Environmental 
1. Using wind power to offset its energy for cloud storage is a new initiative to reduce its carbon
footprints  
 
 BCG Matrix
 
The international streaming segment for Netflix comes under the category of stars. In the
international streaming market, Netflix occupies the highest market share. 
Contents that have boosted the subscribers of Netflix are, Stranger things, House of cards, The
Crown, Orange is the new black and 13 reasons why and last but not the least Sacred Games
which was recently launched in India under co-production with Phantom Movies comes under the
star segment for the brand. 
Streaming has been a Cash Cow for the brand as more and more people are moving towards
streaming while DVD business for the brand seems to have appeared in the question
mark segment as its share has reduced after online subscription model came into the picture. 
 MEANINGS: 
Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing
market. In general, they are not worth investing in because they generate low or negative cash
returns. 
Cash cows. Cash cows are the most profitable brands and should be “milked” to provide as much
cash as possible. The cash gained from “cows” should be invested into stars to support their
further growth 
Stars. Stars operate in high growth industries and maintain high market share. Stars are both cash
generators and cash users. They are the primary units in which the company should invest its
money, because stars are expected to become cash cows and generate positive cash flows 
Question marks. Question marks are the brands that require much closer consideration. They
hold low market share in fast growing markets consuming large amount of cash and incurring
losses 

SWOT ANALYSIS
 
Netflix’s Strengths – Internal Strategic Factors: 
1. Exponential Growth – In the past ten years, Netflix has become an influential brand for
online streaming content not only in the US but across the world. 
2. Global Customer Base – Netflix is serving over 190 countries across the world, having a
global customer base. There are over 137 million subscribers of Netflix, and it gives the company
a strong bargaining power with the studios for securing exclusive content. 
3. Originality – Another one of its strength is that Netflix has been producing original
content over the years with the highest quality. Some of its original shows like Stranger
things, Narcos, Mind hunter, and Orange is the new black became so popular that its subscriber
count kept increasing over the quarters. 
 4. Adaptability – Netflix adapted to various technologies instantly by providing streaming
on all internet-connected devices like personal computers, iPads, mobile devices, and televisions.
Due to this, their business grew immensely over the years. 
5. Competitive Pricing – The pricing strategy of Netflix has given it leverage over its
competitors. The plans that Netflix has designed are affordable and offer great value. Subscribers
can watch unlimited movies, either on DVD or streaming for an affordable price of $8.99 a
month. It is less expensive than cable movies or going to the cinema and also offers a wider
selection. For a higher price, subscribers can even get premium plans. 
 
Netflix’s Weaknesses — Internal Strategic Factors: 

1. Growing Operational Costs – The original content produced by Netflix gives it

a competitive advantage, but the cost of supporting this content keeps growing. The projected
spending (June 2018) on original programming by the Economist for this year was 12-13 billion
USD. The amount has exceeded from the last year’s spending. 
2. Limited Copyrights – Netflix does not own most of its original programming, and this
affects the company negatively. The rights taken from other studios expire after a year, and that
content starts appearing on other sites. 
3. Increasing Debt – Netflix is serving its diversified content in many countries around the
world which requires huge amounts of money. Netflix keeps adding to its long-term debt to fund
new content, and as of September 30, 2018, it reported $ 34 billion in long-term debt. The
increase in debt every year is the sign of a significant weakness. 
4. Lack of Green Energy – Netflix has still not utilized renewable energy and hasn’t created a
business model to promote environmental sustainability. Contrary to this, tech companies
like Amazon, Google, Apple, and Facebook have already started using renewable energy to help
sustain the environment. The four tech giants have committed to using 100% renewable
energy for their businesses. The lack of green energy utilization has a negative impact on the
brand image of Netflix. 

Netflix’s Opportunities – External Strategic Factors: 

1. Expand Customer Base – With such a huge current subscriber base, Netflix can tap into
many other countries and expand its services and subscribers. They can start to target
the countries where it is currently not available. Recently, Netflix expanded its operations and
added a few more countries on its operation list. However, it is still unavailable in China, Crimea,
North Korea, and Syria. 
2. Refresh Content library – It can expand its content licensing by increasing the contracts
with various movie distributors. Additionally, Netflix should refresh its content library as it is
now producing its original content. 
3. Alliances – It can also partner up with various telecom providers and offer bundle
packages in different countries. Alliances and partnerships can prove to be beneficial for Netflix.
In the past, Netflix partnered with Channel 4. It can form more solid partnerships with local
broadcasters. 
4. Niche Marketing – Producing region-specific content in their local languages is also
another big opportunity for Netflix. Niche marketing has been proven beneficial for Netflix. For
example, it started an original TV series ‘Sacred Games’ in India, which is a massive hit. Netflix is
now planning to move forward with the second season of ‘Sacred Games’. 

Netflix’s Threats — External Strategic Factors: 

1. Competitive Pressure – Netflix is not the only one which provides digital streaming
around the world. Its competitor base keeps increasing every
year. HBO, Amazon, Hulu, AT&T, and YouTube are competing continuously with Netflix by
giving repeated access to new and original content to its subscribers. 
2. Government Regulations – Strict governmental rules and regulations regarding service
providers like Netflix in many countries can be a big threat for them. For example, Netflix
expansion to China will be unlikely because of its restriction on foreign content. 
3. Piracy – Digital piracy is still at its peak as thousands of people around the world find
ways of downloading media content because of high monthly costs which they cannot afford. It is
another big threat that Netflix faces. 

Netflix, Inc. Porter Five (5) Forces Analysis for Services Industry  
 
1. Threats of New Entrants  
New entrants in CATV Systems brings innovation, new ways of doing things and put pressure on
Netflix, Inc. through lower pricing strategy, reducing  costs, and providing new value propositions
to the customers. Netflix, Inc. has to manage all these challenges and build effective barriers to
safeguard its competitive edge.
2. Bargaining Power of Suppliers  
All most all the companies in the CATV Systems industry buy their raw material from numerous
suppliers. Suppliers in dominant position can decrease the margins Netflix, Inc. can earn in the
market. Powerful suppliers in Services sector use their negotiating power to extract higher prices
from the firms in CATV Systems field. The overall impact of higher supplier bargaining power is
that it lowers the overall profitability of CATV Systems.  
 
3. Bargaining Power of Buyers  
Buyers are often a demanding lot. They want to buy the best offerings available by paying the
minimum price as possible. This put pressure on Netflix, Inc. profitability in the long run. The
smaller and more powerful the customer base is of Netflix, Inc. the higher the bargaining power
of the customers and higher their ability to seek increasing discounts and offers.  

4. Threats of Substitute Products or Services  

When a new product or service meets a similar customer needs in different ways, industry
profitability suffers. For example services like Dropbox and Google Drive are substitute to
storage hardware drives. The threat of a substitute product or service is high if it offers a value
proposition that is uniquely different from present offerings of the industry. 

5. Rivalry among the Existing Competitors  

If the rivalry among the existing players in an industry is intense then it will drive down prices
and decrease the overall profitability of the industry. Netflix, Inc. operates in a very competitive
CATV Systems industry. This competition does take toll on the overall long term profitability of
the organization.  
 
Primary Activities in Porter’s Value Chain Analysis  
 As illustrated in the Value Chain diagram, Netflix Blockbuster has five generic categories of
primary activities –
6. INBOUND LOGISTICS  
These activities of Netflix Blockbuster are associated with receiving, storing and disseminating
the inputs of the products. It can include material handling, warehousing of physical products, as
well as architecture to receive and store customer information for digital media company. Netflix
Blockbuster at present has outsourced most of its inbound logistics activities. 
7. OPERATIONS  
Activities that help the organization to transform raw material into finished products. For the
purpose of this article the definition is broad – it can mean using customer data to serve
advertisements based on usage behavior to clients, moulding plastic to make products etc. 
8. OUTBOUND LOGISTICS  
Netflix Blockbuster under takes these activities to distribute the finished products to channel
partners and final buyers. Outbound logistics activities include – warehousing, distribution
network, wholesalers and retailers order fulfillment, scheduling, and processing. 
9. MARKETING AND SALES  
These activities are undertaken by Netflix Blockbuster to create means through which the buyer
can buy a firm’s products. These activities include – pricing, marketing, sales force management,
channel selection, advertising and promotion etc. 
10. SERVICES 
Netflix Blockbuster needs to provide after sales services and maintenance for successful usage of
the product. Service activities of Netflix Blockbuster can include – post sales maintenance, part
supply, product forward and backend alignment of software, training, and installation services. 

Support Activities in Value Chain Analysis  

As the name explains, Support Activities of Netflix Blockbuster are the one that supports the
firm’s Primary Activities. Porter divided the Support Activities into four broad categories and
each category of support activities is divisible into a number of distinct value activities that are
specific to the industry in which Netflix Blockbuster operates. The four generic support activities
are –  
1. FIRM INFRASTRUCTURE  
 Firm infrastructure support activities at Netflix Blockbuster consists activities such as – finance
and accounting, planning, legal services, quality management and general management.  
Firm infrastructure activities at Netflix Blockbuster supports entire value chain though the scope
varies given that Netflix Blockbuster is a diversified company even within the industry.
For example the finance and planning at Netflix Blockbuster are managed at corporate level while
quality management, accounting and legal issues are managed at business unit level. 
2. HUMAN RESOURCES MANAGEMENT  
In an environment where each organization is striving to become a learning organization, Human
Resources Management is key to the success of any organization. HRM support activities include
– Recruiting, Skill Assessment, Hiring, Selection, People Planning, Training & Development and
Compensation at both business unit level and corporate level.  
Human resource management affects competitive advantage in any firm, but in some industries it
is defining factor. For example in the consulting companies HR is the main source of competitive
advantage.  
3. TECHNOLOGY DEVELOPMENT  
Technology supports almost all activities in modern day organization. In the technology industry,
technology development has become a source of competitive advantage. Technology
development at Netflix Blockbuster may include activities such as - field-testing, component
design, feature design, process engineering, and technology selection.  
4. PROCUREMENT ACTIVITIES AT NETFLIX BLOCKBUSTER  
Procurement activities at Netflix Blockbuster include activities that are undertaken to purchase
inputs that are used by Netflix Blockbuster’s value chain. It doesn’t include purchase inputs
themselves. Purchased inputs may include - raw materials, supplies, machinery, laboratory
equipment, office equipment, and buildings.  
Like all other value chain activities procurement also employs technology for things such as –
procedures, vendor management, information system, and supply chain partner qualification rules
and ongoing performance evaluation.  

BUSINESS LEVEL STATEGY OF NETFLIX 

 Business-level strategy is a strategy designed for firm or a division of the firm that competes
within a single business. It can be achieved by using Porter’s three generic strategies which are
based on breadth of target market (industrywide versus narrow market segment) and type of
competitive advantage (low-cost versus uniqueness).
The Porter’s three generic strategies are as follows:-
 Overall cost leadership - a firm’s generic strategy based on appeal to the industrywide market
using a competitive advantage based on low-cost.

 Netflix using cost leadership strategy that serve lowest monthly fee and low rental cost
 Pursue market penetration strategy by excellent service and low prices
 Its pricing system offers unlimited rentals by eliminating the high cost of paying for each movie 
 Netflix came with a goal of offering their service at the lowest cost possible and with most
efficiency
 The subscription price in US is  $11 USD and in India the basic subscription starts at Rs 500/- on
a monthly basis. 

 Differentiation  - a firm’s generic strategy based on creating differences in the firm’s product or
service offering by creating something that is perceived industrywide as unique and valued by
customers.
 Netflix focuses and creates its own content to maintain competitive advantage.
 Engineers developed a recommendation system to balance customer demand.
 Netflix increased their distribution centers to enable 90% of customers to benefit from one day
delivery.
 Enables customers to have the best home viewing experience via a high degree of personalization
on its platform interface.

 Focus – a firm’s generic strategy based on appeal to a narrow market segment within an industry.
A firm following this strategy selects a segment or group of segments and tailors its strategy to
serve them.
 Netflix selects a segment or group of segments (or niche) and tailors its strategy to serve them
 Netflix achieves competitive advantages by dedicating itself to these segments exclusively

CORPORATE LEVEL STRATEGY OF NETFLIX

 Corporate level strategy means how to create value through entering new markets,
introducing new products, or developing new technologies . It can be achieved through
diversification which refers the process of expanding firm's operations by entering new businesses
. Diversification can be performed in two ways: -
1. Related businesses - a firm entering a different business in which it can benefit from leveraging
core competencies, sharing activities, or building market power.
2. Unrelated businesses - a firm entering a different business that has little horizontal interaction
with other businesses of a firm. Benefits of unrelated diversification come from the vertical or
hierarchical relationships.
 Netflix has a related corporate diversification within a single industry - movies and
television
 In 1999, Netflix launched their DVD rental service and the diversifies to stream online
shows and movies
 As technology advanced, Netflix kept up by partnering with consumer electronic
companies
 Most recently, Netflix diversified by producing their own television shows
 Today, Netflix expanded to UK, Ireland, Canada, China, India , etc..
 Diversification can be performed through various methods :-
1. Mergers and acquisitions - Mergers involve a combination or consolidation of two firms to form
a new legal entity and Acquisitions involve one firm buying another either through stock
purchase, cash, or the issuance of debt. Netflix merged with -
 Cox Communications joined the trend in late 2017 as well, integrating Netflix with its
Cox Contour platform
 Netflix reached an agreement with Altice USA to add the streaming service via its new set-
top box. 
2. Strategic Alliances and Joint Ventures - are assuming an increasingly prominent role in the
strategy of leading firms, both large and small.
 Netflix seems to be exploiting economies of scale by partnering with companies such as
Apple, XBox, PlayStation, Wii, etc. 
 These companies are technological device companies that can stream Netflix's movies
and television shows.
 Netflix and Google have a strategic alliance where both companies came together to help fight
the recent trend of ISP’s from charging higher fees for the increased bandwidth used by video
streaming
 In India, Netflix signed a strategic partnership with direct-to-home player Tata Sky.

INTERNATIONAL STRATEGY
 
Netflix’s global growth plays a very important role in its success. Netflix was already operating in
190 countries and almost 73 million of its 130 million subscribers are outside USA. As Netflix’s
headquarters are in California so in order to maintain its presence globally and to manage its
operation properly, it started having its subsidiaries in various countries. They only operated in
the U.S before 2010 but then they were operating in almost 50 countries by the year 2015. In
order to operate globally, Netflix had to deal with diversified target audiences with varied
preferences. Further in order to achieve competitive advantage in the global market Netflix had to
focus on reducing cost and adapting to local markets. Netflix adapted a localization strategy to
attract the local markets. They also secured licenses to distribute content from all over the world
which included regional producers along with Hollywood producers. So, now it offers drama
series from Korea, anime from Japan and other television series and films from countries such as
UK, China and India. As Netflix has the capacity to produce or co-produce its own content which
enables them to promote exclusively of its online streaming service which helps them to compete
against various production companies like HBO and Fox Studios.  

Entry Modes of Expansion 

Netflix carefully selected its markets with reference to geography and distance as they targeted a
variety of markets and this choice was influenced by shared similarities with USA. In 2016,
Netflix integrated with the largest cable operator of USA called Comcast and recently there was a
strategic partnership which was signed between Netflix and Tata Sky to broadcast Netflix along
with their set-top box.  

Entrepreneurial Strategy 
The founders of Netflix stated that they recognized the opportunities that there was an increase in
the DVD sales and that this was a market which they could innovate and adapt to the emerging
digital sector. Further the co-founder gives importance to collaboration and team work so they
made sure to have a team which would help them to come up with new ideas.  

Conclusion
 
Netflix continues to be the US leader in online video streaming. It focuses on the customer
satisfaction and their dedication to excellent services which has kept the company on the
consumer’s good side.  As the online streaming sector keeps on developing, Netflix constantly
keeps on working on way to reach a wider audience with more better and developed content and
continuously becomes more innovative than their competitor.  

By -Aastha Sathpathy
Kanika Jain
Tanya Agnihotri
Yash Zalte