Netflix Case Study

Introduction:

Have you ever been at home and found yourself thinking how you would like to watch a movie but don’t want to have to leave the house to do so? Have you ever thought of how convenient it would be to watch movies from your own couch? Well Netflix has the solution to your problem. Netflix is a movie based company that offers movies, TV episodes and more in the most convenient way possible. The founder and CEO of Netflix, Reed Hastings, wanted to create a way for people to enjoy movies from their own house instead of having to go out to a theater or a rental facility; therefore, Mr. Hasting founded the company’s online rental service in 1999. This allowed people to rent movies from the comfort of their own home and without the hassle of having to leave the house. Mr. Hasting’s goals for Netflix were simply to create the world’s best internet movie service, to deliver a growing subscriber base and to finally increase earnings per share yearly. This strategy seemed to work very well for Netflix, but wasn’t an easy task.

Analysis:

Netflix was created with a main focus on postal delivery as its major form of business. A customer would order a DVD through Netflix and Netflix would mail out the DVD to the customer with a prepaid return label. This worked very well for Netflix at first, as shown from the increase from 4.2 million subscribers in 2007 to over 15 million in 2010. Netflix was sending out and average of over 2 million DVD daily. The only problem with this strategy was the consumer had to wait for the DVD’s to be mailed which can take a couple of days. With the fast paced economy today Hasting had to come up with a way to speed up delivery times; therefore, Netflix established over fifty distribution centers and sent all rentals through first class mail. This allowed Netflix to incorporate ninety seven percent of its customer base in a one day delivery category. This improvement drastically increased the number of mail rentals. However as technology advances, Netflix started to focus more on the electronic side of their company for revenues. With the world rapidly adapting to become an extremely fast paced environment, Netflix had to find a way to get movies to customers even faster than by mail delivery. Thus Netflix pushed online movie streaming. This allowed customers to watch the movie straight from their device right then. This became very popular, especially in mobile devices such as laptops, smart phones, tablets and gaming consoles. On top of instant delivery, Netflix offers many different levels of subscriptions to meet the customer needs. The subscriptions all include unlimited streaming and for reasonable prices. This strategy allowed Netflix to charge a single rate every month for a certain number of outstanding mail rentals but unlimited online use. This is a big example of product differentiation because