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Group project for UC Berkeley Extension - Strategic Marketing class. Case from the Harvard Business Review, dated from 2007.
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Case Analysis
UC Berkeley Extension – Strategic Marke7ng Professor Jim Prost
• Byron Pi/am • Laura DellaGuardia • Lisandra Maioli • Ryan Shi • Svetlana Fedorova July 17th, 2013
Situation Audit
Company History q Founded in 1997 q Offered DVD home delivery via snail mail q Very li>le compeAAon for DVD rentals,
indirect compeAtors sAll ‘sold’ VHS q Due to complaints about high fees and slow
delivery, in 1999 the ‘no late fees policy was launched’
q Leap of faith during dotcom boom, subscripAon model put in place: § Unlimited rentals, § Keep 4 DVDs at home
q 2001 announced intenAon to create a VOD business
3 -‐ 38
Current Situation
q $1 billion business and almost $64 million in cash flow
q VOD, pay-‐per-‐view, and streaming are gaining in popularity
q LimitaAons in computer to TV connecAvity and in access to content, but evolving quickly with technology
q SubstanAal Investments in Video-‐on-‐Demand (VOD): 2006, $10 million, 2007 $40 million
(as of 2007)
4 -‐ 38
Mission Statement No mission statement, but they have an official
‘vision’ of Ne@lix’s future:
q Becoming the best global entertainment distribuAon service
q Licensing entertainment content around the world
q CreaAng markets that are accessible to film makers
q Helping content creators around the world to find a global audience
q Company values to guide employees’ everyday decisions :
§ Judgment § ProducAvity § CreaAvity
§ Intelligence § Honesty § CommunicaAon
§ Selflessness § Reliability § Passion
5 -‐ 38
NETFLIX Evolution
6 -‐ 38
SWOT ANALYSIS
q SubscripAon Model
q Unique RecommendaAon System
q Large DVD SelecAon for Online Rental
q Fast Delivery Times
Strengths
8 -‐ 38
Weaknesses
q DifficulAes providing enough copies of popular new releases to meet demand
q SubscripAon plan does not appeal to less frequent movie renters
q DVD’s may be damaged or lost in transit
q Only operaAng in the DVD segment at a Ame when there is so much potenAal in VOD
9 -‐ 38
SubscripAon Model Unlimited rentals No late fees Keep up to three movies at a Ame
Unique RecommendaAon System Largest collecAon of movie raAngs in the world increases recommendaAon accuracy RecommendaAons based on selected preferences and movie raAngs history Filters out items that were out of stock, reducing customer dissaAsfacAon
Large DVD SelecAon for Online Rental More opAons than walking into a rental local store Offers many lesser known and independent films
Fast Delivery Times 1 day delivery for 90+% of subscribers via 44 distribuAon centers Convenient
OPPORTUNITIES
q InternaAonal Expansion
q VOD Expansion
q Original Content
q New Product Lines such as video games or educaAonal materials
q Offer alternaAve SubscripAon opAons to appeal to less frequent movie renters
10 -‐ 38
SubscripAon Model Unlimited rentals No late fees Keep up to three movies at a Ame
Unique RecommendaAon System Largest collecAon of movie raAngs in the world increases recommendaAon accuracy RecommendaAons based on selected preferences and movie raAngs history Filters out items that were out of stock, reducing customer dissaAsfacAon
Large DVD SelecAon for Online Rental More opAons than walking into a rental local store Offers many lesser known and independent films
Fast Delivery Times 1 day delivery for 90+% of subscribers via 44 distribuAon centers Convenient
THREATs
q Blockbuster
q Other VOD CompeAtors including: § Vongo § CinemaNow § MovieBeam § MovieLink § TradiAonal cable/satellite providers
q VOD Content Prices and Availability § Limited VOD Content due to studios concerned about piraAng and affecAng DVD sales
11 -‐ 38
Target Customers
Target customer
q Males and Females ages 17-‐60; q $30,000 and up; q Different racial/ethnic groups; q Psychographics:
§ Busy people; § Movie lovers and frequent renters; § “All you can eat”; § Early adopters (DVD players).
13 -‐ 38
Competition
Competitors (as of 2007)
15 -‐ 38
Competitors (current)
16 -‐ 38
Positioning
q VALUE
q CONVENIENCE
q SELECTION
POSITIONING
18 -‐ 38
Pricing
PricING
Pay per movie
($4) + shipping and handling charge ($2) with late fees
Prepaid subscripLon
service (4 movies at a Ame and 4 new each month)
Unlimited rental
(3 movies at a Ame, unlimited
exchange)
20 -‐ 38
Promotion
Promotion
q Cross-‐promoAonal programs with the manufacturers and sellers of DVD players;
q Theater Ackets; q Commercial and radio spots; q Banners and popups; q Nellix affiliate program (free-‐trial promoAon);
q Word-‐of-‐the-‐mouth. 22 -‐ 38
Problem/ Decision Statement
What is the
best VOD model and marke7ng strategy for Ne?lix all while
keeping the company’s posiGon as a leader in the
home video market?
24 -‐ 38
Alternatives
Alternatives
Offer raAngs and recommendaAons system to cable companies
1
Offer online video streaming at no extra cost to exisAng customers 2
Create a standalone online video business 3
26 -‐ 38
Critical Issues
Critical Issues q Technology
§ VOD compeAAon
q Content acquisiAon & piraAng concerns
q User acquisiAon and adopAon
q Financial Investmen
q Employee’s role in dealing with 2 businesses
28 -‐ 38
Analysis
RelaLve Weights
OpLon 1
OpLon 2
OpLon 3
Technological Improvements 0.3 4 5 5 Emerging CompeAtors 0.2 2 5 4 Content AcquisiAon 0.2 3 5 4 User AdopAon 0.15 1 5 4 Financial PosiAon / Cost Basis 0.15 1 4 4
RelaAve Weight x RaAng 1 2.5 4.85 4.3
Ne@lix Summary Assessment AlternaAves (RaAng)
Analysis
30 -‐ 38
RECOMMENDATIONS
RECOMMENDATIONS
q Technology rapidly improving § Nellix needs to keep up with the Ames § ConnecAvity will be facilitated in the future
q Future Access to Content § Easier and cheaper (on the business and client side)
q For the business side of content acquisiAon § Ensure your technology is up to par so as to
reassure content providers of their copyrighted safety
Offer Online Video Streaming at No Extra Cost to ExisLng Customers
32 -‐ 38
RECOMMENDATIONS
q CompeAtors also doing this, don’t want to be lep behind
q DVD’s becoming obsolete
q Use strong exisAng customer base and internet savvy forward-‐thinkers from website
Offer Online Video Streaming at No Extra Cost to ExisLng Customers
33 -‐ 38
RECOMMENDATIONS
q Investment in technology
q Appeal and promote to exisAng users
q Offer one month free trial for VOD
q Maintain industry leading suggesAon engine
How We Recommend ImplemenLng
34 -‐ 38
RECOMMENDATIONS Budget Plan
q Invest money in service § Online service & mail-‐order speed
q Technological improvements § Cloud-‐based opAons
q ConAnue working with media outlets § Improve cost per watch § Increase library
q RecommendaAon engine § Steer viewers towards cheaper programs
35 -‐ 38
Future
Future strategy q Improve smartphone app q Technology PenetraAon
§ Package with TV’s, Game Consoles, DVR’s q Original Content
§ Movies § TV Shows
q Increase internaAonal presence q Different pricing policies
q Invent iPad 37 -‐ 38
Questions?
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