Porter\'s 5 forces analysis of Netflix-converted PDF

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ARMY INSTITUTE OF BUSINESS ADMINISTRATION (AIBA) SAVAR, DHAKA July-December, 2020

Quiz: 01

Course name: Strategic Management Course code: MGT 4802

Submitted by Md. Sakib Hasan Khan Srijon Id- B4170B016 Batch: BBA-4

Submitted to Murshida Rahman Lecturer Army IBA, Savar Cantonment Date of Submission: 4th September, 2020

Question: Analyze any firm in a particular industry using Porter’s Five Forces model. Answer: Here I’ll analyze Netflix using Porter’s Five Forces model as a frame of reference. Porter’s five forces model would allow us to gain insight into the industry of Netflix, identifying the magnitude of each of the five forces which affect the company’s business strategy and profitability.

Threat of New Entrants The presence of new entrants becomes a threat when the industry has dynamics that support the business to become well-established and profitable. Netflix is a part of media and entertainment industry, where the threat of new entrants is moderate. The moderate level of threat is created due to the evolving technology up gradation. Netflix has been able to adapt with the changing technology and trends in the media industry by shifting its’ focus from in store DVD rentals to online streaming and dispatching the rented DVDs through post, increasing the ease of gaining access of the customers. The business model is easier to replicate, but what provides an edge to Netflix is the range of content available at the company and convenience. Developing this competitive advantage requires capital investment, supplier contracts and networking in the industry which can be difficult to follow by any new entrant.

Bargaining power of Buyers The media and entertainment industry dynamics allow the customers to have a high level of bargaining power over the service providers. The sales and revenue generated by the company is dependent on the subscribers who are located in different regions across the globe. Within the US, the company also caters to the need of the customers getting rented DVDs through mail, adding to the customer base. However, the low switching cost enables the customers with the option to cancel their subscription with Netflix and seek other media providers increasing the business threat to the company. Due to this pressure, Netflix can’t charge high prices from the customers and needs to keep the pricing strategy according to the demand of the customers, with minimal price increase. Moreover, high bargaining power from customers results in maintaining service quality that is in accordance to the customer needs and preference.

Bargaining Power of Suppliers The suppliers of Netflix can be viewed as holding high bargaining power. This high degree of influence on pricing is result of these few number of entities producing media and entertainment based contents. Obtaining a contract and acquiring the license to distribute the content involves negotiation on pricing, where the suppliers have an edge. Since Netflix is competing against traditional media distributors, it has to show greater flexibility in agreement than the traditional businesses. Likewise, the suppliers have a weaker bargaining power while dealing with the traditional broadcasting businesses, but online distributors like Netflix face a higher degree of influence from the suppliers. Shuen has examined how Netflix had to lower its profits to maintain contract with the suppliers in order to establish customer base, highlighting the high bargaining power of its suppliers.

Threat of Substitute Products The substitute products pose moderate level of risk in the media and entertainment industry. Netflix faces threat from substitute service which are offering similar products through rental DVDs and online streaming. In addition, the traditional media content providers constitute another example of substitute product. Customers can also engage in other sources of entertainment and leisure activities than online streaming and watching media content. To handle the high level of threat from these substitutes, Netflix has to update its content library by adding the TV shows, movies etc. which are in demand by the customer base. The company also has to engage in marketing to maintain the profitability and further expand the customer base.

Competitive Rivalry The media and entertainment industry has intense level of competitive rivalry, pressurizing the companies to strive to retain customers through offering affordable prices. Netflix is facing severe competition from traditional broadcasters, rival companies providing videos on demand and retailers selling DVDs. Amazon is the main direct competitor of Netflix as both of the companies are providing DVDs on rent, thus competing for the similar target market in this domain. Apart from Amazon, there are alternate online channels that provide access to media content such as Hulu, creating stiff competition for acquiring right to display the content. Netflix doesn’t allow every subscriber to surf and watch all of its’ shows. It limits its’ show availability on different regions such as Bangladesh. Furthermore, Netflix has a wide range of shows but it’s not actually very rich in quality contents. These limitations give its’ rivals a chance to compete and win....