Kailey Wallace

Netflix Case Study

11/16/16

1. SWOT Analysis

Strengths

High profit margin

Expedited delivery/ streaming capabilities

Holds half of market share

Exclusive content

Good relations with top studios

Optimized distribution

Patented tracking software

Innovative/future oriented

Broad distribution network

Promotions

Large movie selection

Multi -platform streaming ability

No late fees

Weaknesses

Marketing Strategy

Cost of content

Privacy Issues
 Customer Relations

DVD rentals

Physical presence

Excessive debt

Narrow product line-vide

Opportunities

Original content-Netflix Originals

Advertising

Online Demand

Public Relations

International market expansion

Gaming

Partnerships

Service

Customization for preferences

Threats

Intense competition (Redbox)

Other Services

Lawsuits

Content licensing costs

Studio Delays

Broadcasted shows- more recent

 DVDs dying out

Key success factors: According to the case-study and my research, Netflixs main key success

factor is distribution. In the past, they optimized the process with distributing their DVDs.

Netflix made the distribution process convenient, cost-efficient, and customizable (you dont

have to return DVD until you are done). They guarded their distribution strategy through

camouflaging their warehouses. This aided in protecting trade secrets, but it also helped in

preventing disruption to their operations due to customers showing up to their warehouses and

expecting to be able to drop off their DVDs. They also are successful in the field of technology.

Netflix has proved its ability to improve production processes and innovative technology. They

were also one of the first companies to switch to DVDs when VHS was the main platform. They

have now adopting streaming as the market is switching from DVDs to online streaming.

a. Identification of Sustainable Competitive Advantage: A sustainable competitive

advantage occurs when an organization acquires or develops an attribute or combination

of attributes that allows it to outperform its competitors. In the early market, Netflixs

competitive advantage was that it didnt charge late fees and their distribution network.

However, now that the market has changed so drastically in transitioning to streaming,

their competitive advantage lies within their ability to produce original content that other

leading streaming companies dont have.

2. Key Issues

The main issue in this case was Netflixs public relations management issues when they

divided Qwikster and Netflix. Netflix handled that situation miserably. I even remember when

this happened. My parents were thinking about buying Netflix but because of the price split
between streaming and DVDs, they decided not to. I remember how they talked to their friends

who were extremely angry about it too. We decided to keep using Redbox. Netflix could have

researched more into customer response to this action but they didnt. Unfortunately, this cost

them gravely.

3. Ansoff Turbulence Level

I would give Netflix a current rating of a level 4. Theyve spent a significant amount of

their budget on research and development which has taken them to the next turbulence level.

They have remained strong in their ability to innovate and respond to where the environment is

headed before it actually gets.

4. Identification of Generic Competitive Strategy and Justification

Netflix uses a broad differentiation strategy. Broad differentiation strategies win a

competitive edge by having a company/product/service that clearly sets itself apart from rivals in

a way that creates high value for their products. Done successfully, it allows a firm to set

premium prices, increase unit sales, and gain buyer loyalty. This is definitely the case for Netflix

as it has set itself apart from Blockbuster in the past, and is working on maintaining this with

modern competitors.

5. Ansoff Product/Market Expansion Grid

Netflix is currently in the Product and Market Development phase of the expansion grid. They

have developed their product from DVDs to streaming and by marketing original product.

Netflix has already already penetrated market.

6. Marketing Mix Elements

Product: DVDs and monthly subscription to streaming website

Place: distribution centers, online, apps, mobile

Price: Average prices

Promotion: Word of mouth, strong brand loyalty (recently)

People: shareholders, stakeholders, CEO, anyone who watches movies/tv (most people)

7. Financial Ratios

Netflix Financial Ratios

Financial Ratios 2015 2014

Gross Profit Margins .32 .32

Current Ratio 1.54 1.48

Debt to Equity 3.59 2.79

Unfortunately, I was unable to calculate Netflixs inventory turnover ratio because it does not

have traditional inventory. Streaming is Netflixs main product as DVDs are becoming obsolete.

Netflixs gross profit margins and current ratios are pretty good. They could focus more on
increasing their gross profit rather than maintaining it. However, their debt to equity ratios are

terrible. Anything more than 1 is very bad. Netflix not only is above 1 but they increased their

debt from 2.79 to 3.59! Thats potentially catastrophic.

8. Organizational, Leadership and Ethics Issues:

The main organizational issue with Netflix is their lack of marketing research. If they had

properly researched the ramifications in the splitting of Qwikster and Netflix, they would have

reconsidered it, or at least reconsidered their delivery. This hits on their public relations. The

case gave a great example on how Redbox communicated their price increase. They made it

seem like it was a necessary evil in order to make up for a recent tax increase, however they

increased the price more than what was required to break even. Now, this runs into a couple

ethical issues. Im not suggesting that Netflix make up a tax, or manipulate numbers. However, if

they had focussed more on their delivery, maybe there would not have been as much of a

backlash on their decision.

9. Christian Worldview Comments

From a Christian perspective, Netflix seems to be operating ethically. The one thing I

would address would be that some of their content is extremely explicit. I have seen many of

their Netflix Original shows and while they are incredible, they include a lot more explicit

content then is required to get the point across. Some of the scenes are so graphic that it seems

more like pornography than a tv show. I understand that sex sells, however I think the storylines

and character development are already enough to carry the shows they are making into success.

10. Recommendation
 The main thing that I would recommend Netflix to do is find ways to decrease their debt.

They should higher financial advisors and find ways to cut back on their spending and which

categories to cut back in. If their debt to equity ratio does not start decreasing in the future than

the future of the company is at stake. In addition, they should develop better public relations

team to avoid further issues between Netflix and its customers.