Business Models of Netflix and Starbucks - Essay Example

Starbucks Starbucks strategy is to provide its s with highest standard coffee in good company and environment with the Starbucks stores as the middle ground between work and home. Throughout its business life, Starbucks has maintained high quality standard in every process and developed this characteristics as its competitive advantage. Over the years, Starbucks has developed its business to be highly capable at multiple levels including: a. Talented and dedicated human resources b. High quality standards in both service, product and business processes c. Association with major brands as partners for developing new products and distribution d. State of the art production facilities for world-class logistics and distribution e. Tightly knit and efficient supply chain to cater to customers high demands f. Effective online presence and marketing teams These capabilities have good fit in its business strategy to give customers the Starbucks experience that Starbucks has aimed to give. Starbucks capabilities are a combination of innovation, ownership, talented employees, merchandising, image building, and retailing. 2. Today, Starbucks have to leverage its resources and capabilities to achieve growths in the retail sales by expanding consumer base and market opportunities. To start with, Starbucks needs to consider its financial standing which currently does not support rapid expansion. Continuing with joint ventures and relying on their network of distribution and marketing would be a wise decision. But since Starbucks core business model is dependent on retail outlets and property ownership then it would be prudent to extend its brands through expansion in the brick-and-mortar environment. Starbucks has the option to develop its growth through increased presence in new markets or transfer its technology through franchising. I would suggest that Starbucks take on franchising partly and continue with expansion on its own. For example one main store in a country with franchises in smaller urban settings. This would ensure that increased baristas without expensive investment in human resources, property, marketing, and logistics without losing the essence of its organizational culture, standards, values and business strategy. Alternatively, if Starbucks continue to expand with its own investment by planting stores in new and emerging markets, in the long term it would have more investment returns and values, but slowdown on achieving strategic objectives. 3. Given the market conditions of the specialty coffee and mushrooming of coffee houses and bars, I would not respond to McDonalds offer. This is because 1) the McDonalds brand is associated with low-price food solutions whereas Starbucks has established itself as high priced specialty coffee distributor and provider of high quality coffee experience; 2) because McDonalds offer means channeling into the basic coffee market whereas Starbucks needs to concentrate on the specialty market. Alternately, Starbucks needs to consider its growth and strategy on expanding its specialty market at the retail, coffee bars, and distribution level using its existing resources and capabilities. This would be a more viable option than McDonalds offer because it would effectively and efficiently utilize Starbucks network of supply chain, and manufacturing technologies to expand and grow in the specialty market. Netflix 1. At the time of the case, Blockbuster had entered the online video rental based on Netflixs business model. Traditionally, Blockbuster has been a brick-and-mortar organization with its core business cashing on on-location rentals while its expansion to online media has been an attempt to compete with Netflix. Despite its huge distribution network, video library, and access to studios, Blockbuster remained traditional in its strategy. On the other hand Netflix since its inception has been a pioneering and innovative organization. Going with the rapid flow of change in media distribution and access of content, as well as robust dotcom boom, Netflix has been fast in adopting online retailing. Using EBay’s business model to appeal to value customers and Amazon type of convenience-and-selection customers, Netflix provided video rentals via the Internet. Similarly, when the trend for online video access came about, Netflix changed its strategy to incorporate VOD by providing videos on rent accessed directly from its website. Netflixs innovative business approach makes it a more viable stock option. 2. Netflixs original strategy had been online subscription-based DVD rental service which allowed customers to choose a list of videos online and pay a minimum subscription fee along with rentals for viewing. Netflix provided the logistics by borrowing USPS network for delivery. Netflixs business strategy did not involve investment in brick-and-mortar locations and solely depended on the limited DVD library and licensing from some studios. By contrast, Blockbusters business model was video rentals which started with VHS tapes and gradually progressed into DVDs. The company largely relied on on-location stores around the country, with the aim to establish Blockbuster stores within 10 minutes’ drive radius for its consumers. The business strategy was to cater to customers who make impulsive decisions to watch movies. With a well-stocked video library its customers would never go without their favorite movie. Blockbusters revenues came from rental fees and subscription. Seeing the success of Blockbusters business model, Netflix changed its direction and focused on reducing its delivery turn-around time from 2 to 1 day to cater to the impulsive customer base. This strategy however did not last for a long time and forced Netflix to change its direction once again. 3. Now that VOD is on the rise, Netflix have several options to evolve its business strategy. I personally think Netflix should opt for developing a stand-alone online video business and expand to international markets. Netflix first of all would not be a follower of the industry by partnering and depending on cable operators or studios to provide video stock for VOD customers. Instead, Netflix would be able to gain more subscribers through repeat viewership first at the continental level (in Canada, US, and Mexico etc.) and perhaps expand later on to Europe and Asia. This option would achieve: a) Less investment in stocking its library yet earn cash flow from its existing one. b) Expansion of customer base without having to borrow from Blockbuster type of rental customers. c) Facilitate early-technology adoption by expanding into developing and future media such as Blu-ray, video streaming and online TV. d) Use its investment in custom preference technology to attract new customers. Reference Case Studies Read More