Netflix business model

Netflix business model
Netflix business model
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Netflix business model
Netflix
QUESTION 1
Kim and Mauborgne (2005) suggest that Blue Ocean Strategies are distinct from the
generic strategies introduced by Porter. Discuss whether Netflix’s original business model was
an example of a Blue Ocean Strategy or if it is better described in terms of one of the generic
strategies (as described in the textbook)
The original Netflix business model was one of the generic strategies because it out-
competed its competitor (Blockbuster) on the basis of differentiation offering a wider selection
of products(Teece, 2010). Netflix enters each new technology market immediately they are
available through utilization of technological superiority(Leitner&Güldenberg, 2010).
Differentiation; There are several firms in the movie industry that compete with Netflix offering
a wide variety of methods for the consumer to obtain a movie. This together with the large firms
in existence in the industry increases rivalry(Bordean et al. 2010). Therefore, consumers have
four methods to choose a movie from including; online selection and mail delivery, video on
demand or kiosk rental(Bordean et al. 2010). Netflix key competitors have very large capital
levels and achieved economies of scale. Low switching cost and low level of product
differentiation alsolead to competitive rivalry(Teece, 2010).
Cost leadership; Netflix enjoys a low threat of new entrants because of the high levels of
capital required by new entrants which result from stocking the needed products. Branding of
Netflix and its image makes it difficult for new entrants into the market(Leitner&Güldenberg,
2010). The main competitors of Netflix are Red Box, Hulu+ and Amazon Instant Video(Butler,

Netflix business model
2013). Therefore, new entrant would need to invest billions of money and carry out a lot of
advertising and marketing to become competitive.
There is a big threat of the substitute products in the industry which require a reduction in
prices to remain competitive. Substitutes to the movie rental industry are in various forms and
like surfing the web, physical attending to movies, watching live TV, or even playing video
games(Teece, 2010). Technology comes as a big threat to the substitute products as consumers
are surfing the net to compare prices, read reviews and find sales. Suppliers have moderately
high bargaining power as they have the power to increase prices of their products or instead
lower the quality of the products(Nandakumar, Ghobadian&O'Regan, 2011). For instance, in
2013, Netflix was obliged to remove Nickelodeon and MTV television shows when their
contract expired in their selection(Nandakumar, Ghobadian&O'Regan, 2011). In recent times, for
example, Netflix has tried to lower the supplier power by backward integration through the
creation of one popular series under the title ‘the house of cards.’Netflix has leverage in the
movie industry due to the large volume they demand and how large they are in the industry.
In almost all times buyers have viewed Netflix dimensions as unique and they perceive
online review more interesting more specifically because of series after series reviews. More
buyers can subscribe to differentiated products from Netflix even at slightly higher prices than
the competitor's normal rates due to its uniqueness in meeting customers’ needs. This slightly
added price is a reward for the unique serves it offers which equals a premium price.
Focus; Buyers also save time by ordering their favorite movies from the comfort of their
homes and can also watch the programs they want to see instantly(Nandakumar,
Ghobadian&O'Regan, 2011). All this has been made possible by Netflix unique line of focus.