A Strategic Plan And It’s Impact on the Rise and Downfall Of Netflix, Inc. [pic] MBA 517 Fall 2012 (Strategic Planning and Policy Analysis) 14th Dec, 2012 TABLE OF CONTENTS • Executive Summary • Strategic Vision • Business Objectives • Environmental Analysis • Industry & Competitive Analysis • SWOT Analysis • Business Strategy • Implementation Plan • Monitoring Adjustment- A Dynamic Process Executive Summary Netflix, Inc. , the world’s largest and leading online DVD rental company; was founded by Reed Hastings and Marc Randolph in the year 1999 and operated from Los Gatos, California.
In the very initial days Netflix started its business through online DVD rental using web media which is called as www. netflix. com through internet. The business was operated by delivering DVDs through postal mail and then charged the customers and this was called as Pay per DVD rental services. Gradually with this the company revenues increased and in a p of two years Netflix gone for an expansion and the Pay per DVD revenue model was replaced with a “fixed monthly fee system”, the monthly fee was about $ 15. 95 per month.
This was a major breakthrough for Netflix which has allowed all its customers wherein they can rent up to 4 DVDs per month without any due dates or late fees. After initializing the fixed monthly fee system, later in the year 2000, Netflix has launched one more strategy which was like customers can have up to four DVDs with in their possession one time for a fee of $19. 95 per month. Netflix's decided to split the business into two separate companies, one for the streaming and one for the "legacy" DVD business which is called as Qwikster.
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And then Netflix started charging the subscribers two separate bills every month which made Netflix to face the unexpected downfall. Netflix’s website for the subscribers www. netflix. com , which helped in prioritizing the category and the choice of movies based on the customer’s preferences. By doing so, Netflix tracks the wish lists or queues of movies listed so that subscribers can browse movies of similar category and choose to watch. Then Netflix used to ship movies which are on the top of the wish list or queues of subscribers through mail.
Netflix has designed their website as per the requirements in which way it has all the ability and the facility of tracking the subscribers with individualized ratings based on all movies that customers had previously rated after viewing them. Netflix as a company enjoyed tremendous success with all these success formulae, so it has decided to submit for an initial public offering. And later there was a huge drop in the stock market prices which dropped and due o the downfall in the stock the company position became little difficult for a company’s IPO to succeed with uncertainty in the financial markets. In July 2000, Reed Hastings, CEO of Netflix, needed to decide whether the company should proceed with the IPO or withdraw. During the current scenarios, Investment banks predicted that the IPO of Netflix would succeed only if it’s showing positive cash flows within a twelve-month horizon. In 2005, Netflix has grown to a position where the company has 35,000 different film titles available and also shipped one million DVDs out on daily basis.
Netflix developed and maintained an extensive personalized video-recommendation system based on ratings and reviews by its customers. In 2006, Netflix offered a $ 100,000 to the first developer of a video-recommendation program that could beat its existing algorithm. And later in the year 2007, the company delivered its billionth DVD. In 2007, the company began to move away from its original core business model of mailing DVDs and introduced video-on-demand via the Internet. Netflix business has grown but while DVD sales fell from 2006 to 2011.
September 18, 2011, Netflix announced its intentions to rebrand and structure its DVD home media rental service as an independent subsidiary company called Qwikster, totally separating DVD rentals and streaming. Netflix's decided to split the business into two separate companies, one for the streaming and one for the "legacy" DVD business which is called as Qwikster. While splitting the business into two, however the businesses are going to run separately and they are going to operate on different websites. Subscribers of both the businesses got two separate billing statements (Probably it might have made sense in the long-term).
It poses serious and immediate risks to Netflix's streaming business as the strategy to split the business into two did not took the turn as it was expected, and as the subscribers are the people who are all sitting at home and trying to rent DVDs, watch videos probably aren't thinking much about disruptive technologies and innovators' dilemmas. Subscribers just want to watch a movie as cheaply and as conveniently as possible. There was a loud backslash that ensued after Netflix split its pricing plan in two is being turned several notches and as subscribers wondered how this latest business plit will affect them. The reason for the CEO to make this strategy is for the long-term betterment and also will be more profitable to have fewer subscribers paying more for month than continuously adding customers that only sign up for the cheapest plans and then withdraw soon. But the decision to raise prices so drastically $15. 98 a month to rent DVDs and for streaming is a 60% jump which caused customers rage and due to this Netflix has lost about 8,000,000 subscribers in one quarter of a year and investors had been buying on the hope that subscriber growth would continue for a long time.
When Netflix gone ahead and planned to separate the organization into two as the strategy, the reaction of the subscribers is unpredictable and there was a huge reaction from the subscribers and within a p of six months the company lost most of the customers and the organization has incurred huge loss which made the company cancel the separation plan. To implement the above strategy, the management instead of bouncing back, I would suggest having a backup strategy which will be handling the management and opting for the alternative opportunities.
If once we understand that the strategy of separating the business is failed then first thing is we should identify the impact of the decision ,on all parameters like lost market share, customer base, on revenues and profit gained by the competitors etc. and estimate where the organization is positioning . Then I would be going ahead and performing a gap analysis and identifying the current position of the organization and the most possible alternative strategies so that the organization will come back to its previous market.
Apparently SWOT analysis also helps in identifying the areas which we need to work up on the organizations strengths and opportunities and ways to overcome the weakness and Threats which can cause hindrances. Reevaluating the proposed strategy is also one of the ways of implementing an effective strategic plan and a quick feedback of the implemented strategy will give any organization to control the impact before everything goes uncontrollable.
In this case, Instead of applying the new strategy right away on the existing customers, what I suggest describes strategy to rebrand Netflix by applying the separation plans to new customers and allowing the old customers to enjoy the previous benefits and slowly make them adapt to the new product through proper promotional benefits. If any organization decided to launch a new product the best strategy would be introduce with the existing product so that the customers will be adapted to the new product and the existing customers will adapt to the new product by promoting with existing market.
Hence the following plan describes a strategy to rebrand Netflix and successfully separate its business into Netflix and Qwikster based on the surveys and feedback collected from both existing and new customers. In-order to achieve this by holding the existing customers and attracting new customers, Netflix has to market the new product (both streaming and DVDs rental) by providing the new customers a free month trial (30 days) and also by giving the new product for the existing customers without any change in the fee. This would actually hold the existing customers and attract the new customers.
Based on the response from the feedback and surveys, CEO will decide whether to continue providing the new product or move back to the previous existing product (which was already proved as a successful product). After the free trial (30 days) completes the new customers have a choice to be with either the new product “Qwikster” or just stay with Netflix. Strategic Vision According to (CEO) Reed Hastings, "Our vision is to change the way people access and view the movies they love". Reed Hastings (CEO) strongly believed in delivering the product at an affordable price and conveniently .
These are the success factors of Netflix. And also strongly believed that there are no replacements for the movies and the mission of Netflix can be considered as delivering the product in a desired way and make it attractive to the customers. Customer focus and understanding the preferences of the subscribers which helped in customer satisfaction . The goals of the Netflix also played a major role in achieving the desired revenues. Business Objectives Through these objectives Netflix will come out of the chaotic situation .
These objectives can be measured through all the functions of the business mostly of financial and the objectives can be achieved and monitored at all the levels in the business. Financial objectives and Strategic objectives: The prime combined objective in this scenario would be to get back the lost customer base which was due to change in strategy and to gain them back is the prime objective. The second objective should be to expand the Qwikster business by launching the product and to attain a market share for them. The third objective should be increasing the new subscribers for the Netflix, Inc. o that the growth of the company would be prospering. The fourth objective should be to increase the revenues of the company by controlling the costs . The fifth objective should be to add value for business and pay the dividends to the shareholders. The above stated objectives are measured in monetary terms and other than the financial objectives Netflix should also focus on being a successful launcher for the new product Qwikster and also ensure that the quality is maintained without compromising and deliver the best customer service for its subscribers as it always did .
These are the objectives which are more operational in nature. To add on to the Operational objectives improvising on new technology, by improving the current process and optimum utilization of resources by maintaining employee relations and abiding with statutory rules and running the business on social and ethical behaviors are also considered as the operational objectives which can be key to the success for any organization. The time frame to achieve all the above listed objectives should be on quarterly basis.
This could be achieved by doing a trend analysis on a monthly basis and reviewing how it can be achieved over a p of one year. Environmental Analysis The drastic growth of technology is one of the major successes for the Netflix and it is driven on technology based. Though it was started with delivering DVDs through postal services, gradually it started capturing the preferences of the customers by creating a wish list and based on their choices it has gained the customer satisfaction.
Then on using the current technology Netflix has developed streaming videos and later it was heading into developing the apps for usage on mobile devices also. When we discuss about the financial aspect due to the increase in prices there was a downfall in the shares of the company. Immediately after the decision was announced the share prices dropped drastically and there are many cancelations from the subscribers. Netflix faced a major downfall at the time of recession in 2000 and after the price hike strategy in 2011.
These two years are the challenging years for the company however Netflix has overcome these with its current strategies. [pic] Industry & Competitive Analysis Netflix major competitors are Hulu and blockbuster and Netflix share is also disturbed other than the major players among you tube and also effected due to piracy. However Netflix success factor has created a brand image for streaming movies and DVD rentals. Netflix also faced competition from Redbox (movie rentals). SWOT Analysis Netflix’s strengths: Netflix is strong in marketing their business. The main marketing strategy which attracts the customer is one month free trail and which helps the customers to get used to the product and continues with Netflix account. • The other major strength for the Netflix is that they are flexible in delivering the DVDs to home every time subscribes are willing to watch a movie. The Netflix process that customers can create a recommendation based on their interest and those DVDs will be delivered very fast. Netflix is one of the pioneers in using the technology as Netflix streaming method helps the customers to watch instantly and they use the internet as the medium and Netflix is available on all electronic gadgets currently. • Netflix strength is that they are patent protected recommendation service. • Competitive prices are also which made the Netflix on of the niche in rental movie services. Netflix’s weakness: • The fall in the Netflix demand is due to the price strategy when the company decided to split the business which resulted in the downfall of Netflix. The other weakness is the dependency on the associates which has increased in the costs of Netflix. • The disputes with major partners have resulted in limiting the streaming content. • The rules of the movie content are also available with the competitors due to weak agreement. Netflix’s opportunities: • Netflix is like a brand when it comes to watching movies it is the first to create. Though there are many competitors it was like a brand for watching movies online. • One more opportunity is to focus on the international market as these are pioneers they can capture the world market spread. The other opportunity is as they are big players in this market segment they have the privilege of getting associated with big movie companies for a better price. • Netflix can grab the opportunity using it on the mobile devices. • Netflix can focus on streaming Games also. Netflix’s threats: • The major threats for the Netflix are from the few competitors like hulu and blockbuster. • The threat could be availability of pirated sites online and YouTube could also be a possible threat in near future as there are lots of channels spread throughout uploading movies. There is tremendous growth in technology and this company should be thinking on improving delivery methods. • The threat is on increasing shipping costs which is giving an impact on the profits of the company. Conclusion: To summarize on the SWOT analysis is work on getting back the subscribers and find the ways on overcoming the weakness and threats and utilizing the opportunities and concentrate on building a strong market so that the company can run in a profit mode and can give a tough competition to the competitors. Business Strategy
The objective is achieved through the success of the company, while capturing the customer base by spreading the product with marketing their product at one month free trail offer. Due to this they have captured the new subscribers and also focused on the internet users who will be shopping DVDs or games online. The main objective for last year was to get back the customers and the CEO was successful by writing an apology mail to existing customers and apologizing over media about the decision he made about splitting the business.
The CEO’s letter includes “I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly. Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions”. The apology reached most of the customers and many are back to the Netflix as it is one of the most compatible sources we have today.
Implementation Plan Implementation plan is the process where any organization should plan how they are going to achieve the suggested strategy. Netflix main focus should be on holding existing subscribers and also Netflix should attract new subscribers by marketing the new product appropriately. Marketing also plays a crucial role in implementing phase. Netflix should focus more on building a successful organization and the policies of the company should be formed in such a way that the strategies are supporting them.
The company should also set best practices so that the various problems like customer complaints or technical issues can be addressed more effectively and immediately. Below is the Gantt chart view of the parameters and time frame. Also we can notice the time line displaying the tasks and the time frame. [pic] [pic] In my opinion if we follow these steps before implementing any product, it can yield best results. These are considered as the best practices for any implementation plan as implementation is the key for success for any product before it’s launched. Monitoring Adjustment- A Dynamic Process
The monitoring plan would be to gain the control of the company so that the shareholders will invest in the company by winning the confidence of both subscribers and stakeholders where in the Netflix will not opt for any merger or opt for any business combination and the monitoring plan for the streaming company would be to target about 30 million customers across the world and be the world’s leading internet subscribing company where in providing movies for an affordable price and adapt to the technology where in the services can be streamed through various mediums like computers, televisions phones etc. Monitoring Elements | |Price Control | |Quality Assurance | |Customer Service and satisfaction | |Profitability | |Financial Elements | | |
The monitoring plan for Netflix, according to my opinion should be that the company should concentrate more on main Netflix Company as it’s a parent company and then study the market trends for the streaming company by reaching the subscribers and getting them adapted to the new streaming company. However, for the second company to get adjusted with the market is a long term process. Netflix would have promoted the streaming DVDs with the original company over time and then it should have merged the process with renaming instead of doing it at the initial stage.
Below attached is the survey and the result is that subscribers dilemma regarding the product itself and why Qwikster did not reach customers as they are unaware what it does really. [pic] It would have be great success if the name would have rhymed with Netflix so that the subscribers would have thought these two companies are related and as Netflix is most popular for movies and among customers.
Here the monitoring of the entire implementation plan are done by taking surveys and one on one feedback from supervisors, managers and vertical management heads and based on those reviews and suggestions change can be done and also time frame is limited or expanded. Overall with all these steps implemented and thereby Netflix when follows the suggested strategy then can overcome the current situation and also hold the existing customers while acquiring new customers. This will make Netflix, Inc. successfully launch its new product and remain world’s largest and leading online DVD rental company.
References Websites: • Netflix, Inc. www. netflix. com • http://ir. netflix. com/downloads • http://en. wikipedia. org/wiki/Netflix • http://www. bizjournals. com/sanjose/news/2011/09/19/complete-text-of-netflix-ceos-apology. html? page=all • www. google. com • http://www. cbsnews. com/8301-505124_162-43452943/turns-out-netflix-blew-the-qwikster-name-pick----out-of-fear/ • www. yahoo. com Thompson, A. A. , Peteraf, M. A. , Gamble, J. E. & Strickland III, A. J. Crafting and Executing Strategy: Concepts and Readings (18th ed. ). New York: McGraw-Hill/Irwin.
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