Netflix Business Model and Strategy

Threat of Entry

Threat of entry is among the key forces in the home television entertainment and movie industry. This is because the industry is open and has minimal barriers of entry. Threat of entry has several facets attached o it. Among them is the capital requirement. A company that desires to join the industry must have a large funding base. Companies such as Netflix are making massive revenues hence it would become difficult to match on with them. In 2010, the company had made over $2billion dollars in term of revenue (Schermerhorn, 2012). Based on current operations the figures must have increased with regards to the current year. Such instances present stumbling blocks for new entrants hence minimizing the threat entry.

New entrants also provide some form of threat in the economies of scale enjoyed by existing companies. As new businesses come into existence, they tend to establish their own market share. This market share is derived from the existing companies like Netflix, Hulu and Blockbusters among others. In the long-run, it will mean that the market share of the existing companies will decline. As a result, the economies of scale being experienced will also decline.

New entry also comes along with the businesses entering trying to do what existing companies in the movie and television industry are doing. As a result, they end up producing similar products and services. This necessitates the aspect of differentiation in the company. Differentiation is associated with increased costs including the switching costs. Existing companies will be forced to change some of their brands, suppliers or products so as to meet the differentiation need that has been created. This reduces the profitability prospects of the company (Schermerhorn, 2012).

Netflix Strategy

Based on the case study, Netflix strategy seems to be that of consumer segmentation. The company is utilizing both the mail deliveries and online streaming. Through this strategy, the company has segmented its market into two categories. That is the youthful and the older generation. For the youths, most of them are more hyped with internet activities hence the streaming activities go very well with them. They are computer savvy and spend most of their free time online. This is a very good approach to expand the company base since they are likely to share with their colleagues once they see something interesting. It works as way of mouth advertising to Netflix. The older generation on most cases is receptive to change and most of them do not embrace internet usage (Schermerhorn, 2012). Using the mail services would be effective. The company is able to deliver faster and with minimum costs being incurred by the consumers.

The intangible resources supporting this strategy are technology and change in consumer preference. Technology is dynamic and keeps changing every time. Embracing online streaming is mandatory based on the technological aspects of the industry. Consumers changing their preference based on how the society is advancing creates and opportunity for Netflix. It will be easy for the company to introduce various changes while creating a competitive advantage at the same time.

Tangible resources include capital and availability of quality software. Netflix has been making profits since it was initiated hence has accumulated enough funds to help support any operations being conducted in the organization. Minimal capital limits segmentation since different approaches are used in every category. Availability of favorable software will also bring out a good venture into the online streaming business.


Work Cited

Schermerhorn, John R.. Exploring management. 3rd ed. Hoboken, NJ: Wiley, 2012. Print.

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