Case 16 Netflix PDF

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Netflix case Analyzed through VRIO framework...

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Netflix Business model and its competencies

Strategic Management Course Teacher: Irine Guruli Student: Hossein Farrokhipour

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Netflix’s Business Model etflix may not be the first company to have acted in the DVD rental business or even streaming but its swiftness in adapting online streaming platform while only being in acquisition of 10 percent of its library to initiate on online stream was a brash move. Serving a niche market while barely in the stage of development tells us that managers in Netflix are bold and carry the characteristics of entrepreneurs, and the rapid growth of company between the years 2006 to 2011 by over 250 percent shows us how they were successful in pursuing this type of model. As of 2011 cash in hand exceeds long term debt and Netflix is in a good financial position however rebranding DVD rental service and increasing subscription was a setback for Netflix. Although other competitors were active and highly recognized by customers, Netflix was able to grow rapidly and gain its competitive advantage through expansion of its library and sticking to core competencies. In order to keep the competitive advantage they also dedicated 8 percent to research and development because they recognized how vital internet will be in the future, the bandwidth and quality of new movies with the introduction of Blue-ray was well recognized as a threat and well responded by managers. Matters mentioned above also can put proof that also Netflix used a Time model, in a way that they built the infrastructure to gain their competitive advantage in the years to come.

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Netflix’s Competencies Evaluation Using VRIO Framework Value: Netflix growth over the years has shown that it has gained relatively major competitive advantage over the other competitors, even defeating some in the way. Many factors can contribute to this achieved goal such as innovation, Netflix’s potential in managing online streaming even with the barriers on the way, The brand name itself and recently we witnessed Netflix taking action into its own hands, creating content under its own brand. On the other hand recognition of the right generation who are Millennials and maintaining baby boomers trust with DVD rentals are some of the key elements why they remained superior. Not to forget the importance of the backbone they built over the years has helped them achieve this superiority, in addition what is not mentioned in the case study is obtaining copy rights from the movie and entertaining companies. All said above, one drawback Netflix still struggles with is its dependency on entertainment and movie industry, where the main source of service is coming from. To sum up Netflix managed to keep competitive advantage in all matter except dependency to other companies for content Rareness: In terms of rareness according to the case study and the current time, this service no longer is recognized as an innovating business (online movie streaming) and any company with enough investment may manage to start the same business, however the name Netflix carries is how they can manage and maintain their advantage. Furthermore the infrastructure 2

and library collection gathering and internationalization are defined as core competencies of Netflix. Furthermore we will shortly discuss the importance of internet as a key factor in Netflix’s success. Imitability: as the case study specified, some companies, and new companies which emerged or developed years later such as Amazon prime, YouTube, Walmart and Apple TV have substantial share in the market and are quite successful, however Netflix managed to take advantage by exploiting customers trust, keeping them loyal, by focusing on the price and quality which are its core competencies, And as we see, Netflix took its business to another level by starting its own production line which is a field other companies won’t be willing to invest in. Organization: in terms of organizing Netflix management managed to create a sustainable brand, cooperate with third party movie makers, and manage to exploit its resources which are its customers loyalty, internet bandwidth management (even during pandemic and the rampant use of internet Netflix managed to reduce the quality of movies in way to keep both ends happy). Netflix allocated 8 percent of its total funds to R&D which turned out to be a success in international markets such as South America where internet is slow or Canada where data usage is limited, therefore entering foreign markets and gaining benefit is also a proof of a success in its marketing strategy. To sum up VRIO analysis. Results are finalized in the table below Value √ √ √ √ √

Rar e

√ √ √     

Inimitabl e

√ √

Organized

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Competitive Disadvantage Competitive Equity Temporary Competitive Advantage Unused Competitive Advantage Long-Term Competitive Advantage

Competitive Disadvantage: High dependence on third-party entertainment content producers Competitive Equity: Innovativeness and Information technology assets Temporary Competitive Advantage: Support and licenses from entertainment content creators and copyright holders Unused Competitive Advantage: High potential for online music distribution, High potential for online textual content distribution Long-Term Competitive Advantage: High equity of the Netflix brand, Large platform of content producers and consumers, High capacity for original content creation

Reference Thomas L. Wheelen • J. David Hunger Alan N. Hoffman • Charles E. Bamford, Strategic Management and Business Policy 15th edition, London, 2018 https://www.rancord.org/netflix-vrio-vrin-analysis-value-chain-analysis-resource-based-view accessed 25/04/2020

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