Netflix Case Study

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Netflix in 2012: Can It Recover from Its Strategy Missteps? Executive summary: Netflix employs a subscription-based business model and subscribers can chose from a variety of subscription plans. The business model consists of two parts; the DVD-by-Mail option, and the streaming option, which launched in January 2007. Both options were bundled together until July 2011 when Reed Hastings announced the separation of the two services. Before the announcement Netflix recorded tremendous financial results, which increased significantly during 2010 and the first half of 2011. The number of domestic subscribers surged as well. However, the announcement of new pricing plans created negative consumer and investor reactions. As a…show more content…
Overall the number of Netflix domestic subscribers dropped by a net of 810,000 during the third quarter of 2011, resulting in an operating profit, net income and earnings per share well below Wall Street estimates, and investors’ expectations. Despite the financial losses and the loss in number of subscribers in the last quarter of 2011, Netflix announced international expansion to United Kingdom and New Zealand. The expansion to Europe seemed rushed, but again was a strategy aimed at ensuring Netflix was the first mover into the market. Other expansion strategies, such as the entry into the Caribbean market in 2011,have yet to result in recovery of high start-up expenses or reversal of contribution losses (though Netflix does estimate a two year time frame from initial launch in a new market before attaining a large enough customer base required to generate a profit). 1.2 Current Strategy Netflix is using best-cost provider strategy by giving buyers more value for their money. Netflix is targeting customers that are looking for an alternative to paying for expensive pay-per-view movies, while providing customers with a wide selection of movies to rent. Netflix customers are able to rent movies while they are at home without the need to visit the store. Netflix offers several plans ranging from a $4.99 limited plan (maximum of 2 DVD rentals per month),

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