Strategic Management Analysis of Netflix using PESTEL and Porter’s Five Forces Model

This report analyzes the strategic management of Netflix using PESTEL and Porter’s Five Forces Model. It identifies the different strategic capabilities of the company and the risks and threats that can influence its growth. It also discusses the business level strategies of Netflix and its strategic intent.

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Executive Summary
The report has assisted in the analysis of strategic management analysis of Netflix with the
help of the both PESTEL and Porter’s Five Forces Model Investigation. The different
strategic capabilities of the company Netflix have been identified that helped in
understanding the different risks and threats which can influence the growth of company in
positive or negative manner. Furthermore, the business level strategies of the company have
been able to improve their brand image of the company in a positive manner.

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Table of Contents
Introduction and Background of Study......................................................................................3
Netflix’s External Environment.................................................................................................3
Five Forces Analysis of Netflix.................................................................................................5
Business Level Analysis of Netflix............................................................................................6
Strategic Intent of Netflix...........................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction and Background of Study
The report throws light on understanding the different external and internal
environmental factors which affects the growth of firm in both positive or negative manner.
The case study of Netflix will be helpful in analyzing the business level analysis along with
strategic intent of Netflix to improve their condition in the market.
Netflix is one of the multi-billion-dollar subscription organizations which was
founded in the year 1997 by Marc Randolph and Reed Hastings in California, United States
of America. Netflix operated as the flat rate rental of DVD through shipping by mail and the
company used the data mining aspect as to identify the diverse wants of the clienteles along
with providing the different suggestions which will be based on the sales data of the
customers (Netflix.com 2019). In the current scenario, the company is serving forty-five
million subscribers wherein there is more than 1 billion hours of content generated per
month. Presently, the company is operating and transitioned themselves as the most popular
online streaming platform for their customers.
Netflix’s External Environment
With the application of PESTEL analysis, the various types of external environmental
factors are analyzed that will be helpful in identifying the opportunities and threats in
operating in the respective business environment.
Political Aspects- In the United States of America, there are different kinds of
restrictions from the government as the Federal Commissions have insisted on the stricter
usage rules and regulations wherein prices of internet could go high and it will be a threat for
Netflix in streaming the different online services. Furthermore, Netflix needs to work on the

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different content related restrictions which will allow the same TV shows and films are
available in each and every country (Sheehan and Bruni-Bossio 2015).
Economic Aspects- As per the year 2016, Netflix has more than 100 million
subscribers in assessment of service in the global aspect. The fluctuation in exchange rate can
impact revenues negatively and the main issue which will be affecting expansion of Netflix is
the issue related to rate of exchange. Furthermore, the organization aims regarding pricing at
US's $10 fee and it moves them in the luxury market and it affects the attracting of the price
conscious segment (Patrutiu-Baltes 2016).
Social Aspects- As per the social trends, it can be identified that the different
customers in the UK market are moving towards the online streaming videos in comparison
to traditional larger screens (Pan, Chen and Zhan 2018).
Technological Aspects- The improvement in techniques related to compression will
be improving the quality of streaming with the relatively less amount of data. The main focus
of Netflix is not on streaming of video quality along with improving experience related to the
process of delivery and convenient payment (Noe et al. 2017).
Legal Aspects- In 2016, Netflix have agonized costly PR mistake over the lawsuit of
consumers. During the starting of the respective year, the respective company has proclaimed
that they will be rising the fees related to subscription and therefore, in such scenario, Netflix
was issued with class action related lawsuit from the different customers who were not
satisfied and there were different criticisms from media (Hitt, Ireland and Hoskisson 2012).
Environmental Aspects- For streaming the different services such as Netflix, the
proper admittance to the data servers created high kind of pressure on the entire environment.
Netflix books for one third of the traffic related to internet in North America and there have

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been different environmental campaigns which helped Netflix in reducing carbon footprints
(Namada 2018).
Five Forces Analysis of Netflix
Bargaining Power of Buyers- It is high in nature as there is availability of the
different other substitutes such as Amazon or Hotstar which can lead them to cancel their
subscription wit h Netflix. Due to the similar pressure, Netflix cannot charge high prices from
customers (Kauškale and Geipele 2017).
Threats from Substitutes- It is high in nature as there are other companies which
provide similar kind of services such as DVD along with online streaming. The customers
can engage themselves in the other kinds of online streaming videos aspects which are less
costly and it will be threat for Netflix. The company needs to engage themselves in marketing
to maintain profitability (Morgan et al. 2019).
Bargaining Power of Suppliers- It is high as there are few entities which produces
entertainment and media-based contents. As Netflix is competing against the other
competitors such as Hotstar and Amazon, it shows greater flexibility in agreement while
dealing in the DVD and online streaming business and Netflix faces high degree of influence
from suppliers (Kauškale and Geipele 2017).
Threats from New Entrants- It is moderate in nature as there is evolving kind of
technology along with changes which emerge as the result of technology upgradation.
Furthermore, the business model is easy to replicate, however in developing competitiveness
like Netflix, competitors need to invest capital and contracts with suppliers which can be
difficult (Jarzabkowski and Kaplan 2017).

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Competitive Rivalry- There is severe level of competition faced by Netflix wherein
Amazon is the direct competitor and there are other alternate online channels which will be
accessing of media contents which creates stiff competition (Hult and Ketchen 2017).
Business Level Analysis of Netflix
Netflix is utilizing the cost-leadership strategy which serves the customers at lowest
monthly fees along with low cost related to rental. Furthermore, Netflix uses the
diversification strategy when they will be expanding their business in China market along
with markets of India (Hitt, Ireland and Hoskisson 2012). Furthermore, in order to deal with
the different customers from the various countries, it is the requirement of Netflix that they
need to diversify the business which is inclusive of various subsidiaries (Ansoff et al. 2018).
The cost leadership strategy of Netflix acts as the competitive advantage as they are the
originator along with longest organization in streaming the media business and they can beat
the other competitors who are present in the market such as Amazon and Hotstar which
streams online video aspects.
Strategic Intent of Netflix
As commented by Hitt, Ireland and Hoskisson (2012), the strategic alliance is the
agreement between the two parties as to pursue a set of agreed upon objectives which are
required while remaining the independent organization. The most important aspect of
strategic alliance of a company is that the company will be gaining knowledge on the
resources of the other companies which will be forming economies of scale as well
(Netflix.com 2019).
In case of Netflix, the company has been involved in various kinds of strategic
alliances wherein firstly, they have formed strategic alliance with Google wherein the main

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purpose is to defend net neutrality. The main purpose is to make sure that Netflix have
sufficient bandwidth for the different companies those are bandwidth intensive (Pan, Chen
and Zhan 2018). Furthermore, it has been noticed that Netflix have been exploiting the
economies of scale through partnering with the different kinds of companies which are
technologically advanced such as Xbox, Apple along with PlayStation which have the power
to stream the movies along with the television shows of Netflix. The cost which is included in
the same is very low and the overall partnership helps in allowing marketing leverage for
each and every company (Netflix.com 2019).
In addition, Google and Netflix have both done strategic alliance wherein both the
companies come together as to fight with the different recent trends of ISP from charging
higher fees for increased bandwidth using the streaming of videos (Jarzabkowski and Kaplan
2017). Additionally, Google has started rolling out fiber in various cities which allows
Netflix to freely access without any kind of additional fees.
Conclusion
Therefore, it can be concluded that Netflix is the United States Leader in the online
video streaming and the main emphasis of the company is on the satisfaction of the
customers, ubiquity of the device along with dedication to provide excellent services to the
clients present in the market. As the online streaming develops, Netflix will need to acquire
the new ways to spread to the different group of audiences with more and better content while
becoming more innovative than the other competitors such as Hotstar and Amazon which
provides similar kinds of online streaming video contents and services.

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References
Ansoff, H.I., Kipley, D., Lewis, A.O., Helm-Stevens, R. and Ansoff, R., 2018. Implanting
strategic management. Springer.
Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases:
competitiveness and globalization. Cengage Learning.
Hult, G.T.M. and Ketchen, D.J., 2017. Disruptive marketing strategy. AMS Review, 7(1-2),
pp.20-25.
Jarzabkowski, P. and Kaplan, S., 2015. Strategy tools‐in‐use: A framework for understanding
“technologies of rationality” in practice. Strategic Management Journal, 36(4), pp.537-558.
Kauškale, L. and Geipele, I., 2017. Integrated approach of real estate market analysis in
sustainable development context for decision making. Procedia Engineering, 172, pp.505-
512.
Morgan, N.A., Whitler, K.A., Feng, H. and Chari, S., 2019. Research in marketing
strategy. Journal of the Academy of Marketing Science, 47(1), pp.4-29.
Namada, J.M., 2018. Organizational learning and competitive advantage. In Handbook of
Research on Knowledge Management for Contemporary Business Environments (pp. 86-
104). IGI Global.
Netflix.com 2019 Netflix - Watch TV Shows Online, Watch Movies Online (online)
Retrieved from https://www.netflix.com/ [Accessed on 20th May 2019]
Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M., 2017. Human resource
management: Gaining a competitive advantage. New York, NY: McGraw-Hill Education.

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Pan, W., Chen, L. and Zhan, W., 2018. PESTEL analysis of construction productivity
enhancement strategies: A case study of three economies. Journal of Management in
Engineering, 35(1), p.05018013.
Patrutiu-Baltes, L., 2016. Inbound Marketing-the most important digital marketing
strategy. Bulletin of the Transilvania University of Brasov. Economic Sciences. Series
V, 9(2), p.61.
Sheehan, N.T. and Bruni-Bossio, V., 2015. Strategic value curve analysis: Diagnosing and
improving customer value propositions. Business Horizons, 58(3), pp.317-324.