Netflix Inc. the 2011 Branding/price Increase Debacle

NETFLIX, INC.

To:        Reed Hastings

From:        

Date:        October 12, 2016

SUBJECT:  NETFLIX STRATEGIC PLAN

This decision memo recommends Netflix, Inc.:

• Maintain both DVD and streaming services
• Create unique content
• Continue with international expansion

In an effort to maintain the company’s leading position in the market, it is recommended that Netflix implement a cost leadership and differentiation competitive strategy.  This will allow the company to reach a larger market with their price advantages and maintain a larger customer base with product differentiation.  This will increase subscriber base and improve profit margins.

BACKGROUND

Netflix was founded in1997 by Marc Randolph and Reed Hastings as an online DVD rental service.  By 2011 it was the largest online movie rental service known for its unlimited monthly rentals, no late fees, and remarkable selection of movies. (Wheelen, 2015).  Netflix expanded internationally in 2010 by offering streaming services to Canada.  By September 2012 Netflix had expanded into Mexico, Central and South America, Ireland, the United Kingdom, and the Caribbean. Netflix customer base grew strong and steady over the years with approximately 27 million customers by 2012. (Wheelen, 2015).

In September 2011 it was announced that Netflix was dividing their DVD and online streaming services.  In addition, a price increase from $10 per month to $16 per month was implemented. (Wheelen, 2015). These decisions were met with customer outrage. So much so that the decisions were rescinded just three weeks later.  Unfortunately, the damage was done.   Within five weeks, Netflix had lost over 800,000 customers and expected to lose many more as many customers found the changes unjustifiable. (Wheelen, 2015).

RECOMMENDATIONS

Our objective is to:

• Maintain both DVD and steaming services. Netflix is known as an online DVD retailer.  Gradually integrate streaming services to DVD customers.  Use data analytics to recommend streaming content to DVD subscribers.  Invest in a marketing campaign to increase awareness of streaming subscriptions.

(Action:  Kelly Bennet, Chief Marketing Officer – 1 month and ongoing)

• Create unique content.  Create and stream multiple genre programming options unique to Netflix to differentiate from competition.

(Action:  Ted Sarandos, Chief Content Officer – 3 months and ongoing)

• Continue with international expansion. Increase customer base via international expansion.  Strategic alliance with international organization might be necessary for political and/or legal purposes. Data analytics are required to ensure proper content is selected for international market.

(Action:  Greg Peters, International Development Officer – 2 months and ongoing)

BASIS FOR RECOMMENDATIONS

• Maintain both DVD and steaming services.  Providing both services ensure continued market share in all demographics.  Gradually implementing streaming in all demographics will ensure a smooth transition for those uncomfortable with the change.  This recommendation will initially reestablish and maintain customer base in DVD service but will eventually increase customer base for streaming service as customer’s transition.
• Create unique content.  Creating unique content will differentiate Netflix from its competition.  Introducing fresh content will also keep in line with changing customer preferences and build customer loyalty.  In addition, this may help abate some of the rising content costs associated with streaming licensed content.
• Continue with international expansion. Internet expansion has created a need for an international presence.  An increase in subscriber base and controlled costs will increase profit margins.

DISCUSSION:

• Keep Qwikster.  Not a viable option as customers have expressed dissatisfaction with rebranding.
• Use kiosks for DVD subscriptions in lieu of shipping and distribution centers.  Not a viable option as there is no differentiation from Redbox
• Joint venture with cable provider to offer Netflix service on cable box.  May not be a viable option as Netflix is in direct competition with cable’s video on demand services.

References

Whellen, Thomas L., Hunger, David J., Hoffman, Alan N., Bamford, Charles E., (2015).  Strategic Management and Business Policy, Globalization, Innovation and Sustainability.  Upper Saddle River: Pearson Eduction