Netflix's Strategic Management: Business Model Innovation and Analysis

This essay provides a comprehensive analysis of Netflix's business model and strategic management, highlighting its evolution from a DVD rental service to a global streaming giant. It delves into Netflix's early adoption of the blue ocean strategy, contrasting it with Blockbuster's traditional brick-and-mortar approach. The essay examines key innovations such as monthly subscriptions, the Cinematch recommendation system, and the leveraging of technology to enhance convenience and accessibility for consumers. Furthermore, it emphasizes Netflix's ability to create new markets by understanding consumer needs and preferences, ultimately establishing a competitive edge through strategic differentiation and innovative value propositions. The analysis is supported by various academic sources, providing a well-rounded perspective on Netflix's strategic decisions and their impact on the company's success.

Strategic Management 1
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Strategic Management 2
Strategic Management
Question One:
A business model is an essential strategy for the success of any business. The model
implicitly and explicitly describes the architecture or the design of the value creation, capture
mechanism and delivery system employed by an organization (Kim and Mauborgne, 2005).
Netflix is an American media company started in 1997 by Reed Hastings and Marc Randolph
(Teece, 2010). The company was founded to offer rental by mail services for film and
television programs. It was started at the advent of the DVD and therefore took advantage of
the compactness of the disc and its portability to maximize on a market that never existed.
The founders wanted to maximize on a market that did not previously exist in the
rental by mail services. It is evident that they employed the blue ocean strategies to create a
new market. Before the company was founded video rental service were dominated by
Blockbuster which preferred offering the service from a brick and mortar stores across the
United States (Giesen, Berman, Bell and Blitz, 2007). Blockbuster preferred customers
walking into its store and renting a VCR tape. The company was very successfully in the late
80’s and the 90’s. Its success rose from the high cost of buying a VCR tape which ranged
around $50 leading to more people to prefer renting (Osterwalder and Pigneur, 2010). The
numerous stores opened by Blockbuster were a clear sign of the rise in the popularity of the
rental business. The company had been busy buying off other video renting companies.
The founders of Netflix had been inspired by Amazon.com. The company had
achieved huge success in shipping books and other commodities through the postal service to
its customer. Hastings is recorded saying they wanted to create an Amazon.com for movies
and films. Exploring rental by mail was proved to be blue Ocean (Adhikari et al., 2012). No
company was interested in the avenue as mode of products distribution. Blockbuster was
preoccupied with opening brick and mortar stores to satisfy its growing customers. If the
company was able to offer the video by mail without affecting the package it would be a
lucrative marketing to explore since no other company was doing it (McCord, 2014). The
advent of the DVD which was more compact and easily portable than the VCR was another
avenue in which the company would explore.
The mail the company would be able to reach more people than through a physical
store. The cost of renting the video via mail is relatively lower than when customer visit the
store. It was possible for customer’s to rent movies and films from the comfort of their home
using a phone or a computer (Bell and Koren, 2007). The business model was more
convenient than Blockbuster’s. It was pegged on new technology which was bound to propel
the company further (Jenner, 2016). The model offered creative value proposition which were
bound to be attractive to the clients over time. The company offered its rental service in an
affordable price that was below Blockbuster’s. It was able to offer its service at a lower price
due to its ability to reduce the overhead costs.
Accessibility was another selling point for the business model. The company
developed an attractive website through which its customers would view movies and films
and make an order. This was pioneer idea that many other companies had ignore (Casadesus-
Masanell and Ricart, 2010. Although that at the beginning there was less traffic since few
people had access to the internet, the number were bound to grow with time. The website
provided convenient access to a variety of movies and films to clients to choose from
(Hallinan and Striphas, 2016). It was better appealing and easier to navigate than heading to a

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brick and mortar store. The website had the potential of reaching more customers since it was
not limited by physical space (Ryan, 2013).
Understanding the consumers that a company is serving is essential for any firm to
prosper in creating more markets. The blue ocean strategies advocate for company to explore
ways on creating a new market rather than fighting for a crowded market (Kim and
Mauborgne, 2005). In 1999 Netflix took a different turn different form other video rental
companies. It introduced monthly subscriptions for its unlimited movies that customer would
order within the month. This was a game change and anew market that other companies had
ignore (Aguiar and Waldfogel, 2018). Unlimited movies offered customer variety of movies
and films that unshackled them form the high cost of renting individual movies. Netflix on
the other hand would have more client and more orders as client made more orders (Mithas
and Lucas, 2010). The company would save on the cost of shipping as it was possible to post
several movies for single customers. The company leveraged on the fact that not all monthly
subscribers were able order many movies every month.
Monthly subscription was new concept in video rental and the company had chance of
having a head start before other companies switching from brick and mortar stores (Matrix,
2014). Unlimited movies for monthly subscription was an offer many customer were willing
to take up as it was more cost effective. The ability of a company to clearly study the needs of
the customer is the avenue which companies are able to invent new markets. Netflix
developed a rating platform named Cinematch where customer left their review of the movies
they had watched (Gomez-Uribe and Hunt, 2016). The platform helped the company to know
understand most watched movies as well as consumer behavior. Form the ratings the
company would be able to develop database that would make it easier form the company to
recommended new movies depending on the past history of a consumer (Weinman and
Euchner, 2015). No other company had such an infrastructure to analyze the behavior of their
consumers.
Creation of new markets involves offering different approaches in which products and
services are offered in an already existing market. Tweaking the distribution channels system
or combining it with new technologies will lead to the creation of new markets (Aguiar and
Waldfogel, 2018). Companies’ ought to investigate the variety of ways in which the current
product and services can be distributed to the consumers. The consumer will always
appreciate convenience and accessibility.

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