Netflix and Movie Rental Industry Case Questions and Answers
Netflixand Movie Rental Industry Case Questions and Answers
Perform a five forces model of competition analysis on the Movie Rental Industry today
Competitive:High. The switching cost among brands is very low due to the factthey offer products that are not differentiated. Competitors are alsomany and its numbers are continually growing.
Bargainingpower of customers:High. The number of sellers is high and their products are notdifferentiated. Hence, customers can simply switch easily from onebrand to another.
BargainingPower of Suppliers:Medium. There a lot of possible suppliers within the industry. Suchallows the business like Netflix to simply switch to another supplierwhen the latter makes a demand which is not pleasant to the business.
Threatof substitute products:Medium. The cost of DVD rental is relatively higher than streaming.Nevertheless, piracy and the existence of alternative freeentertainment proliferate the internet.
Threatsof new entrants:High. Setting up a movie rental business is easy especially streamingmovie rental because of the high accessibility of the internet. Thereis also less pressure in capital to start such business and customersare highly accessible.
Insummary, it can be concluded that it is the movie rental industry isnot conducive for small companies who can only compete locally formaking profits. This is because of the extensiveness of competitionthat the smaller companies would have to lower their prices. The keyfactor to stay competitive in this industry is being able to lowerprice while at the same time improve quality. This can only be doneby securing contracts with different movies providers, which is hardto do when larger companies have already secured one. Nevertheless,when it comes to expenses in hiring staff and maintenance, thecurrent rental industry is conducive for profits. This is because arental business will no longer need to hire many people to servecustomers, they would only need few people to manage the data baseand only orders. 2.The movie rental industry changing. A.What is changing about where and how we get our movie rentals?
“Movierentals” is shifting from the traditional DVDs to internet basedmovie rentals. This shift allows us to obtain movies at a faster rateand with broader choices to select our movies from.
B.What are the movie rental industry’s driving forces of change andhow are they changing the industry. (read about driving forces inchapter 3). Explain and discuss what is going on here. Describe 3-4and be as specific as you can about what you mean.
Thereare many driving forces of change in the movie rentals industry. Thefirst is the shift in customers’ preference from renting DVDs torenting streaming movies through the internet due to the latter’sconvenience and relatively low cost (monetary and time). Anotherdriving force is technology. The invention of the internet allows thestreaming of movies from one database to the personal computers ofclients. The number of people watching the same movie can be almostlimitless and is now dependent on the capacity of the business’server, not on the number of its staff or the number of DVD copies.The further improvement in the internet speed, such as the use offiber optics, or its improving accessibility, such as the inventionof wireless fidelity technology (Wifi) are also major driving forces.The shift in customer behavior is also a driving force. Todays,lifestyle gives very little time for people to work on entertainmentstuff, hence they would definitely favor faster more efficient waysof obtaining entertainment – which is what the internet allows.3.What do you think the movie rental industry of the future of will belike? How will it be different than today? How will this affect howcompanies compete and try and make profits renting movies?
Definitely,the future movie rental industry will offer way low prices comparedtoday. It will also definitely engage in providing movie rentals onhand held devices as the trend in the number of using hand heldcomputing devices such as the smartphones, which are capable ofaccessing the internet, is increasing. The future movie rentalindustry will also be dominated by large companies – in otherwords, there will a shift to oligopoly. This will be the case due tothe fact that local competition will easily kill smaller companies,and those who have the capacity to venture to international marketscan easily survive. The securing of contracts with major suppliers ofmovies can also be a problem for smaller companies. Companies mayeven engage in the later part of the competition to piracy just tolower the price of rentals. This can be easily done today especiallydue to the insufficient inter security and activity monitoring.Moreover, the large companies who dominate the competition will beattracting customers with the number of streamlined movies and thespeed and quality of the rentals which they will provide. 4.Whatdo you think will be the keys to competing successfully in thisindustry in the future (what will companies have to be able to do inorder to compete?) Read about Key Success Factors in chapter 3Describe 3-5 KSFs for the movie rental industry specifically. (KSFsare different for each industry)
Thefirst Key success factor in competing in the movie rental industry is“Securing Deals with Suppliers.” One company must be able tosecure a contract with different suppliers which will minimize thesesuppliers from making contracts with other companies. In other words,existing companies should make stronger new entrants barrier. Thesecond key success factor is a competitive, cheap customer packagethat will increase customer loyalty. It is very important to maintainand increase customer loyalty in order to increase switching cost,considering the fact that there are numerous competitors in theindustry. The third key success factor is technology. The businessshould be able to provide fast, reliable, high quality movie streamsvia the internet and accessible to different gadgets such as handheld computers, PCs, and televisions. 5.Summarize the strategic change that Netflix made when they changedhow customers rent and pay for DVDs vs. Streaming. What changes didNetflix make, and what was the result? Explain what happened here andwhy.
Insummary, the strategic change which Netflix did was separating therates or charges for DVD rentals and movie streams. Such strategy didnot work, in fact it made the company perform worse. The main reasonfor this is that a customer could only watch one movie at a time. Inother words, the customer cannot watch a DVD while watching anothermovie (under normal conditions, of course) from an internet stream.Hence a customer can only watch limited amounts of movies due to timeand physical constraints. Charging differently for DVD and streams ismaking the customer pay for things he cannot consume. The nextstrategy that Netflix did was unlimited movies for a singlesubscription. This seemed to work a little, due to the fact that acustomer can only watch one movie at one time. Having an unlimitedoption does not mean you can choose them all.
Patton,J. (2013). Management Strategy. Retrieved from:<http://online.vitalsource.com/#/books/9781121897199/pages/0>.