STI COLLEGE LEGAZPI CAMPUS

RIZAL ST. CABANGAN EAST LEGAZPI CITY

SY 2022-2023

TASK PERFORMANCE
IN
STRATEGIC MANAGEMENT
(SERVICE SECTOR)

NETFLIX INC.

MEMBERS:
EBUENGA, RISTY JAVIER
BUEMIA, RENEE BOY
ABAYON, KENNETH
OLIQUINO, KING EDDUARD
DARAG, SHEEN CARL
I. COMPANY BACKGROUND

A. CURRENT PERFORMANCE
Netflix, Inc. is a company that provides streaming entertainment services. The company offers a
subscription service that includes streaming movies and TV episodes over the Internet and mailing
DVDs. Netflix, Inc. is an Internet subscription and service that is one of the world's leading
entertainment services with 208 million paid memberships in over 190 countries enjoying TV series,
documentaries, and featured films. It was founded by Marc Randolph and Wilmot Reed Hastings Jr. on
August 29, 1997, and is headquartered in Los Gatos, CA. In the fourth quarter, the service surpassed 200
million paid subscribers for the first time. In 2017, it surpassed 100 million. Members can watch as many
as they want from any internet-connected device, at any time, and from any location. Members can
watch without ads or obligations, and they can play, pause, and resume watching at any time. For
several reasons, Netflix is an excellent coronavirus stock. Because of the service's low cost and high
value, it has seen increased demand from a large number of currently housebound customers around
the world.

B. STRATEGIC POSTURE

Mission
Netflix Inc.'s corporate mission is to "entertain the world," which reflects the company's role as a
provider of on-demand movie streaming services. The company thrives on meeting viewers' needs and
desires when it comes to the media they consume, so this strategic mission, like the corporate vision
statement, focuses on activities in the film industry.
Vision
Netflix's vision is to "become the world's most powerful global entertainment distribution service." The
mission statement of the company explains what it intends to accomplish. It emphasizes the need for
on-demand video streaming to be improved.
Objectives
They aim to hire the best and value integrity, excellence, respect, inclusion, and collaboration, as do all
great companies. Netflix, on the other hand, is unique in how much it encourages employees to make
their own decisions. Openly, widely, and purposefully share information. The focus on original content is
one of the pillars of Netflix's business growth strategy. The company has continued to add to its library
of original films and television shows. It also intends to increase the number of them in 2020 and 2021.
Its competitive moat has grown even wider.
Policies
Netflix is a personalized subscription service that allows members to stream movies and television
shows to certain Internet-connected televisions, computers, and other devices. To become a Netflix
member, you must be at least 18 years old, or the age of majority in your province, territory, or country.
Adult supervision is required for minors to use the service. On the specific payment date indicated on
the "Account" page, the Netflix membership fee and any other charges incurred in connection with
member use of the service, such as taxes and possible transaction fees, will be charged to the member
Payment Method.

II. EXTERNAL ENVIRONMENT

A. PORTER’S FIVE FORCES

Supplier Power
Cinemas have traditionally required a 90-day exclusivity period before switching to on demand
streaming services. Netflix, on the other hand, has been fighting the major theater chains by requesting
a 45-day window. Traditional cinemas' dominance will continue to dwindle as Netflix's influence grows.
Netflix did something similar in 2018, giving Alfonso Cuaron's Roma a 21-day run in independent and
small chain theaters before releasing it on Netflix.

Buyer Power
Because of the growing number of streaming services, viewers' power will continue to grow. The
industry has a low-price sensitivity. Because all shows are priced the same, viewers will be more
concerned with the television experience. In this situation, consumers' power cannot be overstated, as
they now have the option of watching whatever they want if it isn't available on Netflix. By going to a
competitor's website, they can quickly find something new. Due to how easy it is for audiences to join
and cancel subscriptions, buyers' influence will remain strong.

Competitive Rivalry
Companies in the advertising and film industries compete fiercely for customers while maintaining low
prices. Traditional broadcasters, video-on-demand providers, and DVD sellers are among Netflix's
competitors.

Threats of Substitute Products

In 2019, the average amount of time spent watching public television in the United Kingdom is 192
minutes, down from 242 minutes in 2010. When comparing 2017 to 2019, the average viewing time of
subscription video on-demand services like Netflix increased by 7 minutes. Netflix is up against some
competition these days, with traditional broadcast television on the decline, particularly among young
adults who are shifting to streaming video platforms.

Threats of New Entrants

Apple, Disney, HBO, and Britbox are among the major companies selling or introducing new streaming
services (BBC and ITV). The extremely high costs of either producing new content or purchasing content
from major players create significant barriers to entry for a potential entrant who does not already
produce their own video content. Netflix now faces very specific and significant competition from new
rivals, as an increasing number of companies decide to launch competitive channels with their own
content. Finally, future competitors pose a significant threat to Netflix, which requires constant
monitoring.

III. INTERNAL ENVIRONMENT

Netflix Resources
Infrastructure for high-quality streaming media is a must. They have a well-trained staff that can
perform all of the tasks. Customers must subscribe before being granted the license necessary to stream
across multiple platforms.

Capabilities
Netflix has a well-known brand, a large global platform, and the ability to produce original content.

Competencies in Marketing
The platform's focus on technological innovation is one of its key competencies that supports its rapid
growth. Netflix's success has been fueled in part by its commitment to continuous platform
improvement through innovation. Technology innovation is the most significant difference. While good
content is important for attracting a large audience, the overall user experience is also important.

Competencies in Operations
Netflix is known industry-wide as an innovative brand that has established an organizational culture
fostering innovation and creativity. However, to foster faster growth, it spends a heavy sum each year
on research and development. Focus on innovation has helped the firm build a source of sustainable
competitive advantage.

Competencies in Finance
Netflix's financial performance in comparison to key competitors like Amazon is also important to
consider when developing strategic recommendations because it aids in evaluating current positioning
and goal formulation. Netflix reported total revenue growth of 34% year over year (YoY), outpacing their
competitors' average revenue growth of 21% YoY. Their net margin of 10%, on the other hand,
contributed to their admission of lower profitability than their competitors. This could be due to a
variety of factors, such as increased investment in expansion and development, and should thus not be
regarded as objectively bad. Furthermore, Netflix stock has performed admirably this year, more than
doubling in value. Netflix is a growth stock in the stock market, with much of its value based on the
expectation of continued expansion.

IV. CORPORATE LEVEL STRATEGIES EMPLOYED BY THE FIRM

A. GROWTH STRATEGIES

Horizontal and Vertical Growth

Netflix used a horizontal growth strategy, expanding its business operations and global market reach.
Netflix began its global expansion in 2010. One of Netflix's goals in implementing this growth strategy is
to expand the business by entering new markets in new countries. Also, how Netflix's generic strategy
maintains competitive advantages to gain and retain more customers in current markets is critical to
growing revenues and market share. Netflix used backward integration in their vertical strategy by
creating their own original content, which allows them to save money on licensing costs in the long run
while also retaining and attracting new viewers, which is especially important given the increased
competition in recent years.

B. STABILITY STRATEGIES

Pause/Proceed-with-Caution Strategy
Netflix has chosen to conduct a 360-degree review. It's a period of reflection on yourself and your peers.
Regular but informal reviews are given. Employees are advised on what they should Stop, Start, or
Continue in this new procedure by their coworkers. To avoid awkwardness, the reviews started out
anonymously, but they've since progressed to signed feedback and, eventually, face-to-face 360
reviews. Netflix believes that if people are told the truth, they will be able to deal with anything.

C. RETRENCHMENT STRATEGIES
Turnaround Strategy
To date, Netflix's business model has proven to be a huge success. Fighting the blockbuster battle over
content acquisition and creation, on the other hand, is becoming increasingly expensive, with a growing
number of competitors such as Amazon, Apple, Disney, and Google. All of these businesses offer digital
download and streaming services, which they already do or will soon. Netflix's subscriber growth is also
slowing. After disappointing growth numbers, the company's stock market valuation dropped by more
than 15% in the last month. Netflix may not have the bandwidth to look at platform opportunities right
now, given the resources (financial and human) required to develop and acquire high-quality content.
Given the enormous potential payoff and the risk of becoming trapped in a content acquisition and
creation war, we argue that it should create the necessary bandwidth. Being a content platform is far
more scalable, valuable, and defendable than simply creating and selling content.

Allowing third parties to sell content whose quality isn't fully controlled by Netflix and on terms that
aren't entirely determined by Netflix runs the risk of allowing low-quality content to slip through the
cracks and alienating customers, who would then hold Netflix responsible. That is a valid concern, but
Netflix, like other companies that have turned their products into platforms like Amazon, Intuit, and
Salesforce, can mitigate this risk in a variety of ways. We're not arguing that Netflix should adopt a
YouTube-style open platform model, where anyone and their cat can upload video content. Instead,
Netflix could transform its service into a carefully curated platform with relatively strict governance rules
that could be relaxed over time.

V. ANALYSIS OF STRATEGIC FACTORS

A. SWOT ANALYSIS

Strengths

Exponential Growth - Netflix has become a global brand for online streaming content in the last ten
years, not just in the United States.

Global Customer Base - Netflix is available in over 190 countries and has a global customer base. Netflix
has over 167 million subscribers, giving it significant negotiating power with studios in order to secure
exclusive content.

Originality - One of Netflix's other advantages is that it has consistently produced high-quality original
content over the years. Tiger King, Stranger Things, Money Heist, Narcos, Mindhunter, and Orange Is the
New Black were among the shows that grew in popularity over time.

Adaptability - Netflix quickly adapted to new technologies by making streaming available on all internet-
connected devices, including computers, iPods, mobile devices, and televisions. As a result, their
company has grown tremendously over the years.

Weaknesses

Rigid Pricing - Customers want more options and customized pricing. Netflix's pricing structure is
restrictive, with only three tiers: Basic, Standard, and Premium. The lack of variety has resulted in a
plateau in the number of new subscriptions.
Limited Copyrights - Netflix does not own the majority of its content, which has a negative impact on
the company. After a few years, the rights obtained from other studios expire, and the content begins to
appear on other websites.

Support Shortages - Because people were stuck at home due to the Pandemic, the number of Netflix
users and hacked accounts increased in the first half of 2020. Netflix has also cut support hours. The lack
of customer support irritated users, who had to wait longer to reclaim accounts that had been hacked.

Opportunities

Low–Price Mobile Streaming Option - In order to entice and retain subscribers in the international
market, Netflix could offer a lower-cost option. In India, Netflix has been testing a cheaper mobile-only
plan those costs only $3 per month. It can expand this lower-cost option globally to compete more
effectively against lower-cost alternatives such as Disney+, Apple+, Peacock, and others.

Refresh Content library - It can increase the number of contracts it has with different movie distributors
to expand its content licensing. Netflix should also refresh its content library now that it is producing
original content.

Expand Global Customer Base - Netflix can tap into many more countries and expand its services and
subscribers because it has such a large current subscriber base. They can begin by focusing on countries
where it is currently unavailable. Netflix recently expanded its operations to include a few new
countries. In China, Crimea, North Korea, and Syria, however, it is still unavailable.

Threats

Competitive Pressure - Netflix isn't the only company that offers global digital streaming. Every year, the
number of competitors rises. Netflix is constantly competing with Disney+, Apple TV+, HBO, Amazon,
Hulu, and YouTube by providing subscribers with new and original content on a regular basis.

Government Regulations - In many countries, strict government rules and regulations regarding service
providers like Netflix can be a major threat. Netflix's expansion to China, for example, is unlikely due to
the country's restrictions on foreign content.

Account Hacking - With the increase in daily users due to lockdown, the number of hacked Netflix user
accounts increased dramatically in Q1 and Q2 of 2020. If account hacking continues, disgruntled Netflix
customers may flock to competing services.

Piracy - Digital piracy is still at an all-time high, as thousands of people around the world seek out ways
to download media content to avoid paying high monthly fees. Netflix is also facing a significant threat.

VI. STRATEGIC ALTERNATIVES

A. PROPOSED GROWTH STRATEGY

We propose Concentric Diversification as a growth strategy for the firm's actions to expand its activities
under the horizontal diversification strategy. Netflix can use this strategy to develop new products that
fully utilize existing technologies and marketing systems.
ADVANTAGE:
 Expanding the product and service offerings to current markets.
 To the existing product or service line, add related products or markets.
 You are somewhat familiar with what you will offer because you can add related services to the
existing line.
 Set yourself apart from the competition.
 Investigate untapped markets.

DISADVANTAGE:

 Entering and investing in a new market can be costly.

 As a newcomer to a new market, there is a risk.

B. PROPOSED STABILITY STRATEGY

We propose the Profit Strategy as the firm's actions to make no changes at all to its current activities
under the stability strategy. In an escalating situation, Netflix has no choice but to act as if its problems
are only temporary.

ADVANTAGE:
 Solution to a problem that is less complicated
 Not that expensive
 When a company's sales are declining, artificially support profits.

DISADVANTAGE:
 Competitors can take advantage of the situation.
 A temporary solution to a possibly bigger problem

C. PROPOSED RETRENCHMENT STRATEGY

We propose the Captive Company Strategy under Retrenchment Strategies, which entails a firm's
actions to cut back or eventually divest when it has weak competitiveness in some or all of its product
lines, resulting in poor performance. It entails sacrificing independence in exchange for safety.

ADVANTAGE:
 Reduce the scope of some of the company's functional activities to save money.
 It keeps Netflix safe.
 Transparency has improved.

DISADVANTAGE:
 The company is under limited management.
 Service Quality Concerns
 Risky Business

VII. RECOMMENDATIONS
We recommend that Netflix Inc. use the Horizontal strategy's Concentric diversification. Netflix currently
employs both vertical and horizontal growth strategies, but we believe that concentric diversification
could help them expand their horizontal strategies. They can fully exploit the potential of existing
technologies and marketing systems to add related products or services to their existing offers because
they are an internet subscription service. The profit strategy and the captive company strategy are the
other two proposed strategies that are less appealing to choose from. For the time being, their current
stabilization and retrenchment strategies are working well for them.

VIII. IMPLEMENTATION PROGRAM

Netflix must implement Marketing Plan to successfully proposed the recommendations. If the
recommendation for Netflix is product expansion, the company would need to develop a marketing plan
to promote the new product effectively. Here's an outline of how Netflix could market the new product:

Market Research: Conduct thorough market research to identify the target audience for the new
product and understand their preferences, needs, and behaviors. This will help shape the marketing
strategy.

IX. MANAGEMENT LESSONS LEARNED

This case study aims to show students how Netflix, with 204 million subscribers, continues to be the
most popular streaming service app in the Asia Pacific, surpassing Amazon Prime with 150 million
subscribers and Disney Plus with 87 million viewers and is one of the world's most successful businesses.
Netflix's success has been fueled primarily by its commitment to continuous platform improvement
through innovation. Technology innovation is the most significant difference. While good content is
important for attracting a large audience, the overall user experience is also important. Netflix offers a
diverse selection of films and television series, which is why so many people prefer it to other streaming
services. With just a monthly subscription, you can watch and stream as many movies as you want
without incurring any additional fees.

X. BIBLIOGRAPHY

Netflix. (n.d.). Company Profile. Retrieved from https://ir.netflix.net/ir-overview/profile/default.aspx

Tseng, A. (2020, March 20). Why Netflix's Financial Position Is Strong and Getting Stronger.
Retrieved from https://www.fool.com/investing/2020/03/30/more-reasons-why-netflix-is-the-
perfectcoronaviru.aspx

FTLIU90. (2020, June 17). Porter's Five Forces Analysis of Netflix, Inc. Retrieved from
https://toughnickel.com/industries/Porters-five-forces-analysis-of-Netflix-Inc

S.K. Gupta (Sept 07, 2020) Netflix SWOT Analysis 2020 | SWOT Analysis of Netflix
https://bstrategyhub.com/swot-analysis-of-netflix-2019-netflix-swot-analysis/

Pratap, A. (2020) VRIO Analysis of Netflix

https://abhijeetpratap.medium.com/vrio- analysis-ofnetflix-2a67751f9408