Netflix Case Study

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In order to assess the attractiveness of the video rental business, the industry necessitates an evaluation through the analytical lens of the five contending forces of competition. First, there is a significantly low threat of new entrants mainly due to high barriers of entry and economies of scale. For example, there are substantial capital requirements in construction of fixed facilities in strategic locations in order to distribute DVDs; there are also unrecoverable expenditures in up-front R&D and advertising costs, both of which are emphasized in order to differentiate service and build brand equity. There are also government policies to reinforce the barrier. For example, in addition to its red envelops, Netflix has patents to…show more content…
The number one reason for churn was customers believing they were not watching enough movies to justify the expense of the service. As Netflix subscribers rented more movies per month than the average population, Netflix always stocked sufficient levels of new releases, as well as rare titles unavailable to mainstream outlets, due to great relationship independent movie distributors. Furthermore, through programs such as CineMatch and Friends, a networking tool between users to share film reviews and ratings, Netflix always provides subscribers with endless options to continue renting. In addition, there are links between CineMatch and Netflix’s inventory, thus ensuring that CineMatch would never suggest out-of-stock films. When compared to Netflix, neither Wal-Mart nor Blockbuster offered the diversified selection beyond recently released mainstream movies and select classics within a limited timeframe. The second element of the Netflix strategy is to implement a superior distribution strategy to improve accuracy and reduce delivery time of DVDs to subscribers. By February 2005, Netflix’s 35 domestic distribution centers essentially guaranteed overnight delivery within a nearly

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