Netflix 5 Porter's Model

Earl John A. Marasigan                                                                April 18, 2017

AT4C - Buspoli

Diagnosing the Netflix Problem

1. The strategy developed by Hastings for Netflix is to separate the subscription for DVD rentals and online streaming because he believed that DVDs are a technology of the past. Also with these strategy he aims to shift Netflix into a streaming centered business. During the implementation of this strategy Netflix needed to separate DVD rentals and streaming that would increase the price of subscription by 60%. This strategy of Netflix could be considered as a weak strategy. Even though they can focus their business in streaming their decision in separating the subscriptions also have its disadvantages. A lot of their subscribers were angry at the dual subscription. Different companies also increased the fees for licensing their movies for streaming. Also, Netflix wasn’t able to acquire the rights of certain titles and lost contract with other companies for their streaming service.

1. There are different ways in which Netflix implemented their strategy. One of it is the separation of the subscriptions. I can say that it wasn’t executed very well because not only that they lost a lot of costumers and partner companies but also all of it happened so fast. The company was split into two, Netflix and DVD Co. The company’s share also declined. They could have just focused more on attracting customers to the combined mailing and streaming plans than on offering separate subscription with higher prices.

1. The five forces model of Michael Porter could be used in order to judge the formulation and implementation better. First is the rivalry among the competitors under these model Netflix is facing a high rivalry among its competitors. There are different companies that are in the same industry. Also there are many ways that a consumer can obtain a certain movie that also increases the rivalry among them. Next is the threat of new entrants, it is hard for a new company to enter this industry. The threat for new entrant could be considered moderately low because of high cost and capital requirements. If ever there will be a new company, it would be hard for them to penetrate the market since there are different known companies in the same industry that could cause them a lot in marketing and advertising their brand. Another is the threat of a substitute product that could be considered high. It is because the costs should be low in order to be competitive in the market. With these low cost substitutes the costumers can easily change products and services. There are also different ways in to substitute this kind of product like movie theaters and watch televisions. Under this industry, technology also helped to increase the threat of substitute products. Next is the bargaining power of buyers that is considered high. It is considered high because there are different low cost substitutes that could compete with the price being offered by Netflix. Also, there are little or sometimes no switching costs in order to choose from different options. Lastly is the bargaining power of suppliers, which could be considered as moderately high. It is because the suppliers have the decision to continue providing the companies like Netflix their license or rights to show their movies or series. An example of this is the increase of price and lost of contract with different companies. Netflix however can decrease this factor if they were able to produce their own movies or series, like things that they did in that past years providing their own series like 13 Reasons Why. These five factors could be used in order to assess and judge better the formulation and implementation of strategy made by Netflix.

1. The strategy formulation and strategy implementation of the Netflix situation in 2011 are both weak. The strategy formulation and implementation of Netflix happened quickly that the company which is once known for DVD rentals turned into a streaming business. Both is considered weak because after formulating and implementing the strategy of Netflix their revenue declined and lost many subscribers. They also lost some partner companies. Netflix also tried to introduce Qwikster that is formerly named as DVD Co. and still they lost a lot of subscribers. Their employees were also affected with their decision and many of them lost their jobs during the process. Netflix tried to improve their strategy but still the programs failed because they can’t execute it very well that is why Netflix’s strategy formulation and implementation are considered weak.