Netflix : A Case Study By Sayan C.e. Carroll And David Spencer
1519 WordsJan 15, 20167 Pages
A summary of the case study by Sayan C.E. Carroll and David Spencer
In late February 2005, Netflix, the pioneer of the video rental business, faced a threat when Wal-Mart and Blockbuster attempted to copy their business model by launching their own online DVD rental service.
The Netflix business model provided an online library of DVD titles that could be selected and rented by monthly subscribers. Once ordered, the DVDs were physically delivered at no additional cost and could then be returned in a prepaid envelope provided by Netflix. This model proved valuable, and the distribution volume soon exceeded one million DVDs per day.
Hastings, a Stanford Master’s graduate in Computer Science,…show more content…
Through internal research, Netflix estimated rentals and sales revenues at $11.3 billion for the first half of 2004; $7.2 billion for sales as opposed to $4.2 billion for rental. DVD sales proved the most popular, equalling 92% of the total $7.2 billion in sales. It was thus evident that customers were more inclined to purchase a DVD, possibly due to price reductions, as opposed to renting. However, while the overall market for video rentals declined, the DVD rental portion was still growing, indicating increasing popularity of DVDs at the expense of videocassettes. JPMorgan and Associates predicted a 27.2 percent growth rate in 2004 versus a 51 percent growth in 2003, which was expected, as market penetration began to plateau while customers continued purchasing DVDs. The movie-rental market share of Internet-based companies increased from 8.3 percent in 2003, to 13.3 percent in mid-2004, with Netflix enjoying the commanding share. Since the cost of outings to a multiplex cinema was rising, more customers preferred alternatives, which placed Netflix in a market with significant growth potential.
Marketing and Distribution
Firstly, as an online retailer, Netflix required that customers have access to the Internet and felt comfortable transacting online. In addition, targeted customers had to have access to a DVD player. Netflix then segmented