Netflix and Blockbuster - Research Paper Example

?Q1: What are some examples of social responsibility demonstrated by this company? Netflix has contributed to social responsibility in several ways; first, it has encouraged the use of online downloads and purchases as opposed to driving to store. This move has contributed to technological know-how for customers. Technology advances regularly, thus, by engaging customers in the latest technology, it allows them to keep in pace with the advancing technology. In addition, despite the company being in the industry where profitability is the priority, it promotes ethics by ensuring that customers are well informed of the movies so that they may make their own choices. Nevertheless, Netflix and Blockbuster operate their businesses with an aim of achieving customer satisfaction by offering quality products, which are worth the money value of the customer. Netflix ensures fair policies by ensuring that its products are affordable; it also has an established monthly subscription to match customer’s affordability. In addition, these two companies provide employment opportunities for many people in the regions where their stores are located. Q2: The SWOT Analysis of Netflix The strengths of Netflix The financial position of Netflix has been improving over the years. Financial reports show the company’s’ shares performing strongly, with a rise of 61% from 2010’s level to stand at $298.73 as on July 13, 2011. In addition, the company’s profitability has been on an upward trend over the years from a net loss of $58.5 million in year 2000 to a profit of $67.0 million in year 2007. However, these figures are dwarfed by the latest profits, which have risen by 88% in the first quarter of 2011 compared to same period in 2010, standing at $60.2 million. Moreover, although total operating expenses have been increasing due to the company’s expansion, the proportion of such expenses to total revenues has been declining from 165% in year 2000 to 27% in year 2007. Moreover, unlike the major competitor, Blockbuster, total assets have been increasing from $52.5 million in year 2000 to $647 million in year 2007, while as per 2010 financials total assets stand at $13.3 billion. Netflix provided an effective way for its customers to select movie DVDs; it ensured a fast delivery of the selected movies and never gave a deadline for return of the movies. It also provided an effective process of returning the mail. Netflix embraced new technology and provided a transformation for its clients from postal deliveries to internet-based deliveries, therefore enabling its customers to watch 12,000 complete movies and television episodes over the internet. The company also provided its members with an eight choice of subscription plans, which ranged from $8.99 to $47.99; here, a member would choose the plan that suited him the most, depending on his affordability. Prices were slightly lower compared to those of the Blockbuster Company, hence capable of attracting customers. Developed software that enabled subscribers to access detailed information about each movie in its library; for instance, the casts, crew, movie rating and the length of the movie; enabling the subscribers to make the right choice when selecting their preferred movies. Netflix’s software also recommended to the customers the highly rated movies; this was seen as a vital tool that played the role of enticing subscribers. Netflix ensured quick deliveries whereby, it was capable of delivering to 95% of its subscribers on a daily basis, shipping over 2billion DVDs a day. It had developed effective software that minimized delivery time, hence enhancing a fast and effective way to satisfy its customers. Netflix’s advertising strategy contributed to its success, for instance, the use of online advertising contributed to attracting customers. Advertising was mainly done on yahoo, national television, and radio station among other channels. Marketing of the company products led to an increase in revenues from $25.7 million in 2002 to $98million in 2004, and by 2006, revenues had risen to $223.4 million. Therefore, marketing the company via advertising contributed to good returns. Netflix had a total of 9.7 million subscribers by the end of 2008 and the company had managed to attract a substantial amount of customers, hence being at a competitive advantage. Netflix’s weaknesses Netflix only focused on the United States market, while its rival competitor company, Blockbuster, expanded to other countries likes the United Kingdom. Unlike Blockbuster Company, which offered discounts to its customers, Netflix did not offer any discounts. Netflix has not focused on implementing vending machines, especially in demanding areas, as is the case with Blockbuster. Opportunities In 2007, Blockbuster Company, the rival competitor, closed over 700 of its stores in the United States and an additional 500 in other countries. This led to reduction in the number of stores in the United States to 7,619 in the United States; it resulted to a 2.8 billion loss by 2005, losing 85.1 million in 2007. The weak financial condition of the Blockbuster Company was an opportunity for netflix to shine through intense advertising. Blockbuster Company charged late fees for DVDs until 2005 when it decided to discontinue the practice; however, it reinstated the late fee policy later in that year, leaving Netflix at a competitive advantage (Thompson 109). Netflix could expand to other markets that are not penetrated by the Blockbuster Company, Threats Blockbuster was a threat to netflix, as it had a 40% share of the United States movie rental market, and had a branch network in over 24 countries. Other key competitors include online movie providers such as AT&T, Starz, VOD.com, Amazon.com, Movie Gallery, and Hulu.com. Moreover, given that some of customers prefer movies on DVD format, companies such as Wal-Mart and Circuit city. Blockbuster Company specialized in both movie and game rental market, which was a disadvantage to Netflix, which only focused on movie rentals. Blockbuster diversified in the United Kingdom market and expanded on game stations; however, Netflix had not diversified to other countries, hence Blockbuster was a threat. Blockbuster offered customers an unlimited game rentals for 30 days for only $19.99, while it established a store movie rental subscription program at only $24.99 monthly with no specified return dates and no extended fee was charged, a move similar to that of Netflix’s. Blockbuster also introduced online subscription all over the United States and in the Great Britain; and unlike Netflix’s 8 monthly plans; blockbuster offered a 3 monthly plan ranging from $19.99 to $39.99, with a variety of 25,000 titles to choose from. Blockbuster also offered a postal paid envelope for returning DVDs, a strategy similar to Netflix’s, therefore a possibility to attract customers. Blockbusters new look of stores offering a coffee area with beverages and snacks proved competitive for Netflix. Blockbuster had branded DVDs vending machines unlike Netflix. They also implemented over 10,000 high-speed downloading kiosks in places where high traffic retail was evident, creating more places where customers could rent movies. Blockbuster also outweighed Netflix in the number of monthly subscriptions by marking a total of 11 plans. Blockbuster also introduced video games rentals and installed blue ray kiosks all over the United States and in Canada. By 2008, blockbuster was leading in delivering entertainment contents through its stores. SWOT analysis of Blockbuster Strengths Blockbuster has expanded to other countries likes the United Kingdom, while Netflix dominates the united states market only Blockbuster Company offered discounts to its customers, whereas Netflix did not offer any discounts. Blockbuster has implemented vending machines, especially in demanding areas, which is not the case with Netflix. Netflix raised its DVDs prices and rental packages; giving, Blockbuster an opportunity to offer a day free trial on their products. Blockbuster Company specialized in both movie and game rental market, whilst Netflix only focused on movie rentals. Weaknesses Netflix never gave a deadline for return of the movies. It also provided an effective process of returning the mail; however, Blockbuster issued deadlines and charged overdue fees. Financial position of the company has not been good for the last ten years, as statistics for periods 2002-2007 indicate that only the year 2006 that the company earned profit. Indeed, the company went burst (bankrupt) during the first quarter of 2011 and it was acquired by Dish Network Corp.; however, the company has slowly improved, netting a profit of $3.3 million in the six months it has been under the new management. In addition, total assets have been decreasing from $6243.8 in year 2003 to $2733.6 in year 2007. Indeed, this financial downfall was detrimental to the company’s proposed merger with Circuit city in the year 2008. In 2007, Blockbuster Company closed over 700 of its stores in the United States and an additional 500 in other countries, therefore decreasing their stores internationally. Hence giving room for rival competitors to shine. The weak financial condition of the Blockbuster Company was an opportunity for Netflix. Opportunities When Netflix raised its DVDs prices and rental packages, Blockbuster got an opportunity to shine by wooing Netflix’s customers by offering a day free trial on its products. Netflix concentration on the United States market, gives a chance to Blockbuster to achieve a competitive advantage. Blockbuster experience on international market gives it the capability to diversify to other regions. Threats Competition in the market is rife, with companies such as Netflix, AT&T, Starz, VOD.com, Amazon.com, Movie Gallery, and Hulu.com offering the most competition in web-based movie provision, while Wal-Mart and Circuit city provide competition in rental and sale services involving DVD movies. The quick delivery offered by Netflix, the capability of delivering to 95% of its subscribers on a daily basis, puts it at a competitive advantage over blockbuster. Threat of new entry in the industry from companies such as Amazon and iTunes. The buyer’s power is a threat to the company as the rival competitors offer the same services, giving the consumer the freedom to switch to other competitors. With the rise of broadband internet, internet delivery to the television is becoming common, hence cheaper technologies, allowing consumers to prefer the changing technologies. Read More