College of Business Administration
Marketing Principles
BUSI 3323
Case Study (20%)
Names & IDs:
Abrar AL-Saif
200800389
Areej AL-Husaini
201001473
Mizna AL-Zamil
2001002228
Fatimah Al-Jishi
200801136
Zainab Al-Mubark
200800810
Instructor Name: KumarashvariSubramaniam
Summer Semester 2011- 2012
Executive Summary
Netflix is a company that provides online DVD rentals service for a monthly fee. Movies are
revived by customers through per-addressed envelopes. Customers can select movies by
adding them to their wish list that called “Rental queue.” The renting policy requires neither
late fee nor due dates which allow the customers to keep the rentals as long as they need. The
number of movies a customer can rent depends on his/ her subscription level. However, the
customer must retain one of the previous rented movies in order to be eligible for renting a
new one. Although Netflix is considered to be the leader in the online DVD rentals service,
the company is facing a hard competition not only form traditional rental stores, but also
form other online rental-by-mail stores. One of the strong competitors to Netflix is the largest
rental video chain in United States which is Blockbuster. Blockbuster's marketing strategy is
similar to Netflix. It offers online video rentals services, but it also gives the customers the
chance to receive a movie by the mail and then return it to the store. When returning the
movie to the store, the next movie in the customer's wish list will be shipped immediately and
the customer will get a free in store rental. However, Blockbuster's renting strategy has
changed in the past few. The chance of receiving a free in store rental was eliminated and the
next movie in the customer’s queue list will not be shipped until the customer returns the
rented movie to the store. The backward steps of blockbuster and the ability of Netflix to
reduce costs and attract more customers are the major factors that help Netflix to sustain a
competitive advantage in the online DVD rentals service. Although Netflix is also facing a
tough competition from companies that provide Video-on-Demand (VoD) services, the
company can take the chance and turn this threat into one of the best business growth
strategies that will allow Netflix to grow its business and hold a unique position in the
market.
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2. Table of Content
1.Executive Summary ........................................................................................................ i
2.Table of Content............................................................................................................. ii
3.Introduction .....................................................................................................................1
4. Explain Netflix’ Marketing Strategy?Can it sustain its Competitive Advantage?
Why or Why Not? ..........................................................................................................2, 3
6. Perform a SWOT analysis for Netflix. What are its biggest threats? Which
opportunities should it pursue? ........................................................................................8
7.What is the Best Way for Netflix to grow its business? Justify your answer ..........14
8.Conclusion .....................................................................................................................17
9.Bibolgraphy ...................................................................................................................18
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Introduction
Netflix is one of the prominent organizations, which is known currently as the
largest online DVD rental company. It was established in 1997 by Wilmont Reed in
United States. The idea of establishing the rental-by-email service came up when
Wilmont was forced to pay an amount of late fee after returning an overdue videotape.
Thus, he came up with idea of paying a monthly fee for watching as many video rentals
as the person wants. Two years after establishment, the subscription service was lunched
and the company started to be recognized as the online superposition-based DVD rental
company. Four years later, Netflix's popularity reached almost one million subscribers
and at the beginning of 2009, the number of subscribers expanded to reach almost 12
million subscribers (Shih, 2008).
Since the inception, Netflix has established a set of values for its management,
directors and employees in order to promote ethical behaviors and maintain ethical
standards throughout its marketing strategy, which have positively impacted the goodwill
and the performance of the organization. Based on this, special discourse rules have been
setting in order to ensure that information about the company will be always disclosed in
an accurate and timely basis. Also, other procedures have been designed for reporting and
investigating violation acts (Shih, 2008).
The main focus of Netflix's business model is providing services with higher
quality & lower costs comparing to the services provided by their competitors. In
addition, technological advances that help in eliminating time have been always
considered an essential part of the company’s strategy. Furthermore, Netflix has taken a
weighted effort and other costs in designing a database system which allow customers to
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return their previous rentals and which provide each customer with rentals
recommendations that suit his/her preferences (Shih, 2008).
Since Netflix provides the services and products via Internet, it can be classified
as an e-commerce company. Although they are various types of e-commerce; in Netflix's
case, the type of the e-commerce is known as business to consumer e-commerce. It has
helped the company in building powerful relationships and attracting many customers
(Shih, 2008).
This research paper will discuss the subsequent 3 points: Netflix’s current
marketing strategy, SWOT analysis of the company and the best for Netflix to grow its
business.
Q1- Explain Netflix’ Marketing Strategy?
Since the first steps of Netflix's journey, there has been a constant focus on
shaping a competitive marketing strategy that is highly profitable for the company,
suitable for the market requirements, and valuable to the customers and stockholders.
Netflix’s marketing strategy is highly intensive based on a simple idea of using mails to
deliver DVDs to the customers. The online DVD rental plan has been the solely area that
Netflix had chosen for its marketing plan and by which it has succeed in providing the
convenient access to movies that fulfills customers’ expectations. The whole process
starts with getting a subscription account for a fee, which must be paid online before the
account creation through the website. After the account has been created, the customer
can start selecting and adding movies to his/ her “Wish” list and he/she can get a list of
recommendations based on the preferences. By paying a specific monthly fee, customers
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will be allowed to rent up to eight movies out at a time and keep them as long as
preferred. Netflix's renting policy requires neither late fees nor due dates, however, an
extra amount will be charged for Blu-Ray which is a disc format that has competitive
characteristics comparing to the general DVDs. The DVDs are sent to customers using
United States Postal Service “USPS” and since there is no required due date, customers
can return the rented movies whenever they want using a postage pre-paid or preaddressed return envelope. Netflix does not offer any aired television shows, however, it
has succeed in developing programs to grow its delivery to many areas such as Nintendo
Wii, PlayStation 3, Xbox 360 and TiVo. All of these have an impact in expanding
Netflix's members especially the Wii; it has succeeded in expanding members by 30
million users (Netflix, 2008).
The Stockholders of Netflix's marketing strategy can be classified into three
groups: the DVD distributors who serve as the suppliers for Netflix, the customers and
the USPS. The success of Netflix's marketing strategy mostly depends on balancing the
three components using a way that will have a positive impact in reducing costs and
improving customers’ satisfaction (Netflix, 2008).
Q1-Can it sustain its Competitive Advantage? Why or Why Not?
Although the DVD rental market is extremely competitive, Netflix can improve
profitability and sustain a competitive advantage in the market by having the ability to
reduce costs, attract more customers and reduce risks associated with content licensing
(Netflix, 2008)
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→ First, Netflix can identify the costs drivers and then design strategies to reduce the
costs. For example, marketing costs can be reduced by replacing TV & radio
advertisements with online advertising. Nowadays using social media such as Twitter and
Facebook has become an integral part of our daily lives. Therefore, using online
advertising especially social media will defiantly have a great impact on reducing
costs.Also, creating efficiency in customer service and spreading expenses over a large
number of subscriptions will help in achieving resources and reducing costs (Netflix,
2008).
→ Second, identifying customers wants, designing strategies to fulfill these wants and
therefore attracting more customers (Netflix, 2008).
(Netflix, 2008)
(Netflix, 2008)
→ Third, identifying negative outcomes and reducing risks.This step consists of two
essential stages which areidentifying negative outcomes and thenplanning to reduce them
(Netflix, 2008).
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(Netflix, 2008)
(Netflix, 2008)
*This diagram bellow represents and clarifies how marketing strategy works and how
companies must organize their strategies.
Competitors
Supplier
Marketing Analysis
marketing edu.
/CA
Product
promotion
Segmenting
targeting
Customer
value &
relationships
Positioning
differentiation
Price
Marketing planning
place
jjkkkkkkk
managing
implementation
d
Marketer
o
intermediaries
Public
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First thing Netflix looks for is gaining customer value and creating relationships
with customers that they continuously go back to them and get movies one more time
over and over. Next, they should decide which customer will serves by segmentation,
targeting, differentiation, and positioning. Regions in U.S. and Canada. It's for ages from
18-59. Social classes are working class, middle class, upper middles, and lower uppers.
Occasions are special occasions, holiday, and seasonal. Then, the 4ps of Netflix; price, it
has unlimited and limited plans. For unlimited plans which are unlimited DVDs with
unlimited streaming;
8 DVDs out at-a-time for 47.99$
7 DVDs out at-a-time for 41.99$
6 DVDs out at-a-time for $35.99
5 DVDs out at-a-time for $29.99
4 DVDs out at-a-time for $23.99
3 DVDs out at-a-time for $16.99
2 DVDs out at-a-time for $13.99
1 DVD out at-a-time for $8.99
However, for limited plans; 1 DVD out at-a-time for 4.99$ - limit 2 DVDs each month
with streaming of 2 hours on their PC. This plan doesn’t allow members to stream movies
to their TV via Netflix ready device (Horwath, 2009)
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Netflix's main products are DVD and Blu-ray discs of new releases, classics from
all genres and time periods, and TV series. Anytime of a variety of new releases, classic
movies, and TV series, directly to your computer, television, or gaming consol. Also,
Netflix is continuously working with studios to add more titles, including the deal with
Warner Bros., which will increase the number of titles Netflix has to offer. The third P is
promotion. Netflix started with a wide advertising campaign in many different mediums.
They advertized in TVs, newspaper or magazines advertising, and online networks
advertising. The place of Netflix is primarily a US and Canada business. Recently in
2010, Netflix has announced that they are planning for moving into the European market
as a streaming only service (Horwath, 2009).
Marketing management reflects the management of Netflix itself. Managing the
marketing process requires the four functions of marketing management; analysis,
planning, implementation, and control. All of that to get its goals which is mission says
"our appeal and success are built on providing the most expansive selection of DVDs; an
easy way to choose movies; and fast, free delivery" (Topix.com)
Netflix competitors are Wal-Mart, Best Buy, Amazon.com, Blockbuster, Comcast, Time
Warner Cable, and Apple iTunes. Netflix has 5% market share in the overall industry. Its
primary competitors are Blockbuster and Comcast. These two companies have online and
cable "video-on-demand" capabilities making them threatening entities in terms of video
rentals that can be viewed immediately. When Netflix was first founded, its purpose was
to offer customers an old product (rentable movies) in a new format. Instead of having to
take the time to drive to a physical location and browse through a selection of titles,
customers could browse through titles online and then receive DVDs through the mail,
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often in just one business day. So Netflix can sustain its competitive advantage, because
it’s working and successful (Horwath, 2009).
Q2- Perform a SWOT analysis for Netflix. What are its biggest threats? Which opportunities
should it pursue?
Strengths
Weaknesses
- Large selection of movies
- Due to mailing process, DVD’s could
- Strong brand reorganization
arrive broken or scratched
- Low overhead costs
- Lack of updating movie content
- Reasonable pricing
- Problems providing copies of good or
- Customer satisfaction
well-liked movie theaters
Opportunities
Threats
- Full integration platform across mobile
- Other companies offer video-game rentals
devices
- Bigger competition in the video market
- Growth in demand for game rentals
- Other companies offer similar services for
- Expand downloadable movie offerings
better prices and promotions
- Expand partnership with third party
businesses
The strengths of Netflix are its brand recognition since it is a company that
entered the market in 1997. This might not seem long but considering the fact that
Facebook only started in 2004 Netflix is an old established company in the online
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business. With it being an older brand name it also opens itself to competition from many
different sources. This makes it have to adjust itself to the demanding market. This leads
us into consumer satisfaction. To keep a business online in this day and age you need a
very good consumer base. When Netflix recently raised their prices to 19.95 dollars
causing many of its consumers to drop their services, thus causing the company to take a
close look at its overhead and lower its prices to keep its consumer base. The only way
for Netflix to keep doing well is to provide its consumers with the latest movies at the
best prices. Moving into more countries like the Spanish and European markets in the
past year will give it a larger market to draw from allowing it to provide the company
with increased revenue and marketing appeal (Flippo, 2007).
Weaknesses arising in Netflix have been the damage or possibility of some kind
of damage from DVDs being sent through the mail. They have fixed this problem by
using the internet on demand streaming to replace sending physical products out by mail.
Many people now use the internet to do most of their daily functions so why not take
advantage of the new trend. Well one problem that can occur is that not all people can
afford to subscribe to an internet package and the added costs of a monthly package for
watching movies online, especially considering the current economic situation. Along
with the problem that not all internets is the same meaning that not everyone has the best
of reception when it comes to internet access can make having something like Netflix an
impossible option for watching movies. Other problems that can occur are that the titles
available on Netfix may not be the title you want at the time you want. Not all people
want to watch a movie one to two months after it comes out at the box office. Patients are
not most people virtue unfortunately. Netflix has although been doing its best to acquire
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movie rights with many of the movie companies to get the rights to put popular movies
online within 28 days of its release at the theater. This is of course depending on its
demand at the box office. A plus to all of this is that independent movie producers are
capable of getting their movies seen quickly without high overhead by getting companies
like Netflix to put their movies online quickly for people to see and enjoy (Flippo, 2007).
Netflix has made deals with many of the most popular online devices making it
easy to use whenever and wherever you are and whatever your needs may be. Companies
such as Apple, Micro soft , Sony, Philips and even Nintendo and Wii are all compatible
with the Netflix application. In being so versatile, Netflix has been able to open itself up
to the huge younger generation of viewers and users of the gaming community. With this
being one of the fastest growing demographics Netflix would be wise to keep its self in
the touch with this ever-growing market (Flippo, 2007).
Netflix is not a company that hasn’t had its share of struggles though. The online
streaming market has of course become one of the most popular markets to date and with
that fact everyone has wanted to get a piece of the ever growing pie. Companies such as
Wal-Mart, Blockbuster and Red box to name a few have challenged the prices of Netflix.
With an ever-growing market price wars have of course emerged, thus forcing companies
such as Netflix to lower their prices to keep their customer base (Flippo, 2007).
As long as Netflix remembers their costumers needs, keeps their overhead down
and works on quality of product they should be a force to be recorded with in the future
of the internet streaming market (Flippo, 2007).
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*Strengths, (Netflix, 2008)
 Since it was the first in this sector it got the credibility and everyone knows
that it is the best in delivering movies to home within short period.
 Netflix product now can be used with any device which is a good feature it
can be used on the Xbox and Wii and as well as the PlayStation regardless
from TVs and DVD players.
 And it affordable with a monthly payment. Costing 8.9$ a month in your
house is better than going to the cinema and purchase a ticket and buy
popcorn and drinks considering the fuel as well.
 Cheaper than subscribing in TV channel.
 Good history since it has a long time so it did experience a lot of customer and
know how to satisfy different desires and face different problems as well.
 Other feature is that you can watch anything with no time, just choose and
watch.
 The price I affordable with no fees.
 Trusted name in which you pay safely with no fear.
 Always getting the newest stuff because of the good relationship between
other studios. By sharing the revenue.
 Flexibility in returning and in choosing.
 The biggest strength they’ve got more than 12billion subscribers.
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 Effective marketing adds.
 Can sign in from anywhere have an internet connection and watch whatever
you want.
 A comfortable option is included as they watch your taste they put you a
recommendation movies that matches your taste in a way they make your
selection easier. Build upon on your monthly selection.
Weaknesses, (Netflix, 2008)
 The price is considered as a weakness since there is other shops or websites
offers the same content with less price.
 In some cases they need to follow the American postal office schedule for
delivering movies in which people are limited in. and its limits the flexibility.
 When dealing with any movies providers there is no copyrights or stuff which
let the customer or other competitors reach it with the same way.
 Lack of movies from the company that provides for them will let them face a
lack of movies problem.
 Dependent on the suppliers may lead to a really big problem in the future.
 Dependent on the internet if the connection is lost the customer cannot
continue the thing.
Opportunities, (Netflix, 2008)
 It could be a big brand name that has everything.
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 Since it is well known in USA it can introduce itself globally and have
branches everywhere or deliver globally.
 These days there is a high demand on online TV shows and movies so the
ranking will be high and it may be getting the highest among the others.

Demand of having it in devices and designing an application for the devices
Threats, (Netflix, 2008)
 Hulu is new company in this sector and provides the same content of Netflix
with little bit different if people favor Hulu on Netflix, Netflix will face
serious problem and probably will lose.
 YouTube and other movies and TV shows providers are also considered as a
threat.
 The normal everyday popping website are also a threat by using different
website that provide different content with free online service it will take
place on Netflix
 When buying a movie or anything or a device the customer should pay the
shipping price as well as the thing he or she bought.
 If Netflix didn’t go on technology and follow up what happening it will lose a
lot because nowadays everything is depending on technology.
 If someday in somehow the suppliers got a better offer and shift to another
competitors.
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Q3- What is the Best Way for Netflix to grow its business? Justify your answer.
There are many opportunities by which Netflix can advance its current marketing
strategy, grow its business and maintain a distinguished standard within the competitive
industry. One of the great opportunities that will not only have a positive impact on the
company reputation, but will also open new doors to success is entering the Video-onDemand market (VoD). Over the past view years, video streaming technologies have
been developing intensely. One of these impressive technologies is the Video-onDemand service. VoD enables users to view videos, films and some television programs
over a network as an integral part of highly interactive television system. This service is
not only expected to become a norm in the market, but also a threat to Netflix's current
marketing strategy and to its ability in sustaining a competitive advantage in the industry.
Based on this, entering the VoD market will not be only a great chance to grow Netflix's
business, but will also turn its threat to a considerable chance (Tombes, 2007).
The decision of entering the VoD market should not be taken as a replacement of
the current marketing strategy, but it should be taking as a subsidiary focus that advances
Netflix's current business model. The secondary focus on VoD is intended to eliminate
confusion among customers regarding the primary goals of the organization, where it is
standing and what it is planning to achieve. This partial focus will also be beneficial in
protecting the company and its goodwill in case the VoD service failed to reach the
expected attraction and growth. Also, the DVD rental business is undergoing continuous
development so Netflix should not completely shift its focus to the VoD service (Tombes,
2007).
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Finding a business growth strategy does not guarantee that the business will run at
its best; planning and searching for the best tools that suit the strategy are what secure the
business in the long- run, move it forward and ensure profitability. Based on that, Netflix
should make the most effective and efficient choices that will result in a systematic and
smooth process. Entering the VoD market requires working with professionals to allow
videos to be streamed directly to TV. So, Netflix should choose hardware manufacturers
who will provide them with best quality and low cost. Also, the process required working
with companies that provide high definition programs. There are various companies
specialized in this service such Cable and Telcos. However, Netflix should select
working with Telco companies since they provide adequate bandwidth through some new
technological services that are not provided by Cable Companies. In addition, Netflix
should work to provide Cinematch recommendation system which will allow the
company to provide the best recommendations of enjoyable movies, which will be an
additional source of profit. Furthermore, working with telcos companies and having
satisfactory bandwidth through Internal Protocol Television (IPTV) will open a new
opportunity for several forms of advertising especially targeted advertisements (Tombes,
2007).
Entering the new business Market, the VoD, will require a new marketing strategy
that is similar to the current business model. However, the USPS will be replaced by the
telcos companies. The business model of the VoD will help Netflix growing its business
by providing three main sources of profit, which are: first, customers of VoD; although
the company will not receive the full amount since a percentage of it will be assigned as a
commission to telcos, customers are still considered as a primary stream of revenue. The
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second source is the Cinematch recommendation system and finally targeted
advertisements that can be provided through the high bandwidth of (IPTV). So, taking the
first steps toward this growth business strategy will defiantly lead to new growth chances
(Tombes, 2007).
*Although a big company successful company such as Netflix is already popular
and international, but there are many ways for the company to grow in business to satisfy
all tastes around the world. For example, Netflix Company provides subscription for
interested people and they can subscribe and get only eight movies in one month
according to their subscription; and I think this is not fair really! What if the customer
wants to watch more than eight movies or only one or two movies in a month, he still has
to be for eight movies. So, I think that Netflix is smart enough to meet with customer
needs and suggestions, like providing rental per movie which will be fair and everyone
will be satisfied. Additionally, Netflix is popular company yes but it still has black-out
period required, which means that there is a twenty eight days black-out on the new
movies. This is a disadvantage of such a company and disappointing as well, the solution
is to take the same step DirectTv has taken and negotiate contracts with the major movie
studios that will allow taking off the black-out period. Big problem for those who
demand great streaming quality, which is that Netflix streaming quality is not so good!
So for Netflix to grow its business and respond to the customers who are not very
satisfies of the quality of streaming, they must improve the quality to even compete with
other good quality streaming providers such as DirectTv. Comcast Corp. caple company
provides a great offer for the customers which is the increasing of titles and advertising.
Another thing they provide is a remote control that the customer uses to rent a movie.
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Unfortunately, Netflix does not offer any of that! So, for Netflix to again improve and
grow in business is to provide more titles and to offer a remote control for renting movies
or subscribing instead of going through email and wait or driving to a video store. And
finally, Netflix cannot afford, or the content providers will not sell enough current, in
demand content to Netflix to keep customers engaged enough to retain their subscriptions
(Tim, 2012).
Conclusion
The various changes in the technological streams have a big role in the
development of the movie rentals industry. Recent researches have shown that the DVD
rental industry is expected to face a sharp decrease as a result of the dramatic increase of
different innovations of new technological services such as the VoD services and the
IPTV. Based on that, Netflix must search for new business growth strategies to have the
ability to survive with the new innovations of technology. However, searching for new
business opportunities does not mean that Netflix should change completely its current
marketing strategy. The constant customers’ growth indicates that Netflix's customers are
satisfied with its current marketing model. Based on that, business growth strategies
should be implemented as a subsidiary focus not a primary. In simple terms, it can be
concluded that Netflix will continue to be the leader in the DVD rentals industry as long
as it sustains a competitive advantage over its competitions such as Blcokbuster (Shih,
2008).
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Bibliography
Flippo. (2007). Netflix Case study.Retrieved July 2, 2012 from:
http://www.slideshare.net/only1kiku/techindnetflix
Horwath, R. (2009, November 3). Netflix: Differentiate of Destruct, Step Three in
Resource Allocation. Strategy Espresso Blog. Retrieved July 1, 2012, from:
http://richhorwath.wordpress.com/tag/netflix/
Netflix. (2008). Browse Selection. Retrieved July 6, 2012 from:
http//www.netflix.com/browseselection
Shih, W. (November 12, 2008). Netflix.Harvard Business review.p.11.
Tim, P. (2012). The Netflix Long Term Business Plan May Actually Work. Retrieved 2 July,
2012 from:
http://seekingalpha.com/article/442701-the-netflix-long-term-business-plan-may-actually-work
Tombes, J. (December 1, 2007). Video on Demand: update, Trends and Cases.
Communications Technology.Vol.24, Issue 12.
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Dear Mrs. Aushvarie
I know u will Not be happy with this work. Reading and evaluating the paper will require
much time and effort from u, but I really hope that u take into consideration that I have
tried my best searching, modifying and trying to coordinate the group. It seems like I
failed to be a good leader, but at least I tried. Motivating ppl who always claim that they
have no time to work is hard. Most students have the skills, but they never utilize them
and when they get a bad grade, they never carry the responsibility and the instructor will
be always the unfair person. Anyway, I just want u to know that have tried my best :)
Have a nice day 
Zainab
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