Management: Netflix - Admission/Application Essay Example

Management: Netflix Year Revenue Net Income/Net Loss Net Profit Margin (in millions) 2007 205.30 $66.70 5.50% 2009 $1,670.30 $115.90 6.90% 2010 $2,162.60 $160.80 7.40% 2011 $3,205.60 $226.10 7.10% For the graph, the following information will be used Year Net Profit Margin 2007 5.50% 2009 6.90% 2010 7.40% 2011 7.10% Illustrating the above information on a graph will indicate the trend of the net profit margin. Though the revenue and net income are rising, the net profit margin indicates a different trend (as shown in the graph below). The trend will be used to suggest recommendations that Netflix’s top management should adopt to respond to the changes in the movie rental industry. The Way Forward for Netflix Given the nature of the future changes in the movie rental industry, Netflix should consider modifying the strategy to meet the needs of its existing and prospective customers. The movie rental industry has shifted from the previous monopoly market system to a more complex and dynamic competitive system. The competitive intensity from both the DVD rental segment and the Video-On-Demand (VOD) and unlimited internet streaming was attributable to the rapid changes within the industry. Netflix opted to implement a strategy whereby the customers had the option of either receiving unlimited DVDs at $7.99 or receiving unlimited streaming at $7.99. The rates for receiving both options increased by 60%, whereby those who paid $9.99 would pay $15.89 under the new strategy (Patton, p. 141). The effects of the strategy are visible from the trend indicated by the net profit margin (shown above). Currently, Netflix and Redbox are dominating the DVD rental section of the industry (Patton, p. 148). However, it is projected that the future of the movie rental industry will settle on internet streaming and the VOD segments. The competitive intensity will shift from the DVD rental section to the unlimited internet streaming. The key success factors that Netflix need to adopt is to have a convenient retail location, obtain expertise in the internet segment, and have a network of wholesalers. The key success factors revolve around the spheres of transiting to the unlimited internet segment. With the emerging internet applications, customers would prefer to adopt online techniques to watch movies. Netflix ought to modify its current strategy to enhance the customer preferences for differentiated commodities. Netflix, therefore, should consider modifying its strategy to ensure that the customer preferences are met for both the DVD rental segment and the unlimited internet segment. Successful Competition for Netflix Netflix has to adjust its operations in specific areas to compete successfully in the “new” movie rental industry. Netflix should understand the following (Patton, p. 146); It is forecasted that it will dominate the DVD rental segment for the current and the foreseeable future. The competitive intensity is shifting to the unlimited internet and VOD segment. Customers will prefer the option that maximizes their utility at a lower price, and Technological changes are rapid and can render the previous technologies obsolete. Netflix should consider the DVD rental segment as a ‘stronghold’. It should focus on the unlimited internet streaming, where the main battle exists in the market place. Online technology is the convenient platform for movie rentals. Netflix ought to adopt effective strategies to compete with the numerous ambitious rivals that are emerging in the movie rental market place. In 2012, Netflix was the apparent leader in the internet streaming option. It had registered over 22 million subscribers who watched movies through an internet-connected appliance. Netflix should acknowledge the different types of customers and classify them as follows; Customers who rented movies occasionally (approximately once or twice in a month), Customers who rented movies frequently (approximately more than three titles per month), and Customers who prefer watching movies on their mobile devices. Among the driving forces for change, customer preferences for differentiated commodities are the optimal competitive strategy that Netflix can adopt in the internet streaming segment. Netflix should ensure that it attends to the specific needs of every group to achieve the desired customer base. Netflix should hire the required expertise to ensure that it is at par with the current technology. Customers are becoming diverse by the day and adopting various technological advancements. For example, technology has shifted from watching movies through the DVD machines to watching TV shows and movies on mobile devices (Patton, p. 148). There are applications that support a wide range of movies through a Smartphone. Netflix will ensure that it wins the viewing time of customers and capture the desired customer base to be profitable if it adopts the right technology that match with the customer needs. In addition, Netflix should strive to be the market leader in both the DVD rentals and internet streaming segments of the movie rental industry by ensuring that the customers maximize their utility with a wide range of products. Action Steps to Implement the Recommended Plans 1. Conduct a research within the movie rental industry market place and analyze the different categories of customers. The management should implement a taskforce to carry out a survey research and establish the following; The customers’ preferences for the DVD rental segment and the VOD and internet streaming segment, The frequency of watching movies among the customers in both segments, The customers’ preferred means for watching movies. 2. Develop a convenient balance technique between the DVD rental segment and the VOD and internet streaming segment. Netflix is a dominant company in the DVD rental segment. It should establish a balance between the resources employed in either segment. The management should not channel all the resources towards one segment. 3. The management should construct a forecast of its operations, revenues, and net income to establish the desired trend in the net profit margin. It would be difficult to implement any plans without considering the financial burden that the company would be subjected to. A forecast for the future budget (the next financial year) would ensure that the company is able to evaluate its expected costs and revenues to centralize the competitive intensity. 4. The management should acquire sophisticated equipments. Technological advancement is imperative for the success of the firm. However, technological advancement cannot be realized if the company fails to employ the required technical knowhow that prevails within the movie rental industry. Message to Top Management Dear Netflix management, I have evaluated your company and situation, and I would like to meet with you to give you a summary of my ideas on how you can keep your company competitive in the future. Here is a summary of my recommendations: The company should seek to acquire dominance within the VOD and internet streaming segments by centralizing the competitive intensity. The products offered should be diversified to meet the customers’ preferences for differentiated products. The company should acquire the technical expertise to match the technological advancement in the industry. The level of competition the marketplace is intensified from the five forces of competition analysis within the industry. Netflix requires clear-cut strategies on how to implement the Key Success Factors (KSFs) and the driving forces for change to adhere to the changes in the “new” movie rental industry. The key success factors suitable for the company aim at increasing the customer base by employing the right technology, establishing a convenient retail location, and forming an integrated network with the wholesalers. Such factors will ensure that the driving forces for change are met. The customers are the sole reason for existence within the market. It would be prudent the customer-centered recommendations are discussed on a face-to-face open forum to formulate the relevant action plans among the one that I have formulated. It is also important to talk about the company’s financials, and more importantly the net profit margin. I welcome the chance to discuss such and other pertinent issues that would drive the company to the desired heights within the movie rental industry. Reference Patton, Joseph. Management and Strategy. New York: McGraw-Hill Education, 2014. Print. Read More