Netflix

GROUP C14

Santosh Srinivasan 251/47 Sarawagi Varun 255/57 Sharadh Venkataraman 259/47 Shishir Kataria 263/47

1. What caused the company make strategy shifts in its business? In the beginning, Netflix provided three major characteristics to their consumers, which were, value, convenience and selection. Their target segment consisted of the people who had just bought DVD players. When DVD market witnessed a growth and large retailers like Walmart and Best Buy started selling DVDs, Netflix changed its strategy to addressing the general consumer dissatisfaction. The underlying fundamental change was to move away from a traditional model of physical pickup of movies and move towards an online value model providing convenience and selectivity. The major highlights of the model were1) Subscription based model (all you can eat model) Issues addressed a) General consumer dissatisfaction regarding Netflixs value proposition b) Higher rental prices c) Longer delivery times resulting in slower delivery service Solutions provided a) Adjusted the pricing system so as to offer unlimited rentals to the customers b) It allowed the customers to have 4 movies in possession at a time for a prepaid monthly subscription and also receive 4 new films every month. 2) Personalized recommendation engine Issues addresseda) High cost of building library majorly consisting of large number of copies of newer titles. b) Inability to tap the vast revenue potential offered by older and lesser known movies. Solutions provided a) Personalized recommendation for each user having an account based on a preference survey and history of previous rentals. b) Induction of the filter to eliminate out of stock titles from the output, hence, elimination the bait and switch perception. c) With the help of the recommendation system, Netflix established itself as the provider of god but lesser known titles. 3) Multiple distribution centers a) This step was taken to improve delivery service and to ensure that outgoing and incoming DVDs are delivered within one day. b) New delivery centres were opened across the country to cover all geographical regions. c) Multiple truck routes were used to expedite returns and hence shorten the turnaround time for new movies and improve the overall customer experience. 4) Partnership with studios a) A direct revenue-sharing agreement was developed with the major studios in order to stock requisite number of copies of the latest releases which Netflix was not able to do earlier due to high up-front prices. b) It reduced acquisition cost of movies both new and old. 5) Acquiring distribution rights for independent film studios a) This enhanced Netflixs reputation as the highest quality source of independent films. b) It created Red Envelope Entertainment subsidiary. 6) Video-On-Demand a) VOD adds the value proposition of both impulse buying and selection. b) This provided more potential to gain popularity. 7) National inventory and USPS collaboration a) In order to decrease the delivery time to the customers, Netflix worked with the USPS to ensure that the USPS brought the easily recognizable red Netflix envelopes to the closest Netflix distribution centre b) This was done to operate at lower inventory levels than regular retail video rentals. c) The queue model was used to predict the demand in various regions.

2. Were the shifts driven from the top or from the bottom? The shifts were mostly top management driven as justified by the following models which were introduced by NetFlix 1) Identification of the characteristics that may appeal to customers viz., Value, Convenience, Selection 2) No-late-fee subscription model in case of late return of the DVDs 3) Induction of movie recommendation engine so as to enrich the customer experience 4) Opening of more distribution centres to improve the delivery service reduce delivery time 5) Revenue sharing agreements so as to gain better control on the value chain 3. How did they decide what to do next? The mission of NetFlix was to enhance customer satisfaction by providing best home video viewing for its customers. This included reducing delivery times and increasing customer satisfaction by ensuring availability of picked movies and enriching their experience by providing recommendations. The overall model thrives on the concept of catching the long tail. The major factors involved in the decision making were 1) Technology a) This is an integral component for an online business b) Timely delivery was the major concern so technology could play a role in ensuring efficiency 2) Competition a) Retail giants made the market competitive b) Regular innovations were required from NetFlix in order to meet the challenge. 3) Expansion of Customer base through a) Proprietary recommendation system b) Increase in distribution centres