Marketing presentation on Netflix

1. Jules Boletis
Gera Lenssen
Lotte Huisingh
Joost Verbakel
Ann-Kathrin Beiderwellen

2. Full Balance
• “We care for you and we are here to serve you!”
• Netflix takes care of the quality procedure to serve the customers
needs.
• New activities are introduced to satisfy the customers with a DVD
delivery service.
Fundamental Core Activities:
Online DVD rental
• Shipped through postal services
Subscription instead of pay per view
• No late fees
Large movie assortment including old movies
• Unlimmited shelf space
Movie recommendation
• Data base

3. End Value
“Freedom” “Convenience”
Enjoyment of
movie variation
Unlimmited Postal
No late fee Data base
shelf space services
Consequences
Up to 5 Customer
movies input
Large movie Online DVD
assortiment rental
Movie
Subscription recommen-
Attributes dation
All core processes of Netflix result in satisfying the customer
in their needs around freedom and convenience when looking
at movie rental. Next to that the actions, consequences and
end values are all results of the Full Balance strategy of
Martin‟s Quality Model.

4.  Value innovation is created when Netflix‟s actions affect both its
cost structure and its value proposition to buyers.
 Due to `revenue-sharing agreements with the major studios´
Netflix could rearrange its cost structure so that the company
could offer lower rental prices per movie. However, the actual
price was higher than those of competitors as
Blockbuster, because Netflix offered subscriptions. In addition to
that more cost savings were made by eliminating and reducing
certain factors the rental movie industry competes on. (Please
find those factors in step 2.)
 Netflix lifted up buyer´s value by raising and creating elements
the industry has never offered; as for example raising rental
periods and creating customer´s awareness of unknown movies.
(Please find more factors Netflix created or raised in step 2.)
When looking at the criteria Value Innovation it is to conclude that
Netflix creates a Blue Ocean !

5. Eliminate Raise
 `Bait and Switch` perceptions  Actual prices (subscriptions)
(recommendation system)  National Network
 Stores with part-time employees  Amounts of movies rented
 Sales of `old` movies  Duration of rental
 Claiming late fees  Inventory selection
 Advertising of the newest movie  Facilitating movie rental (home service)
Reduce Create
 Ability to obtain a movie quickly (movie night)  Data Base of al subscriptions
 Importance of location choice  Recommendation System based on data Base
 Share position of newest movies  Demand for `old` movies
 Price per movie rented  Home Service by internet order
 Level of difficulty to cancel subscription  Automatical replacement based on
recommendation system (if a movie returned a new
one is going to the client)
Based on the Four Actions Model regarding Netflix´s activities you
can say that those activities change the standard of competing
factors. Netflix eliminates; reduces; raises; and creates new
competing factors inside the movie rental industry. For that
reason it is valid to say the company is creating a Blue Ocean !

6. By making use of the Strategy Canvas it is easier to determine in
what the competition is currently investing, on what factors the
industry currently competes and what customers receive from
the existing competitive offerings on the market.
The horizontal axis captures the range of factors the industry
competes on and invests in.
The vertical axis captures the offering level that buyers receive
across all these key competing factors.
The value curve then provides a graphic depiction of a
company‟s relative performance across its industry‟s factors of
competition.

7. We decided to take BlockBusters as suitable example for the movie rental
industry: Netflix BlockBusters
Strategy Canvas
Eliminating Raise Reduce Create
12
10
Offering Level
8
6
4
2
0

8. The Strategy Canvas clearly visualizes that Netflix is operating on a
different offering level than the other companies; especially
BlockBusters.
The gradient of those curves indicates that Netflix is creating a Blue
Ocean Strategy comparing to the other companies in the industry!
Summarized you can state that Netflix is creating a Blue Ocean
Strategy
However, BlockBuster already adopted several of its operation
activities so that the Blue Ocean of Netflix already starts turning into
a Red Ocean. Due to the fact that the Blue Ocean of Netflix is
already attacked by other companies of the industry it is to say that
the Blue Ocean Netflix created is not that sustainable.

9. This schema is based on Netflix before the VOD market.
 Unique pricing system  Netflix offers an attractive pricing system. Customers
are able to rent unlimited amount of movies with a fixed price; „All you can eat
model‟. There are also no late fees and costumers can rent an unlimited amount
of movies.
 Convenience  Home delivery service. Customers can rent an unlimited amount
of movies, receive them within 24 hours and have an on time delivery; all is
included in the subscription. Netflix offers the customer help with choosing a
movie, this thanks to their software database.
 Efficient & customized  Netflix offers a database which shows
recommendations to customers. This database is based on the interests of the
customer. Furthermore, Netflix offers an automatic replacement system. This
means that when a customer sends back the movie, they will automatically
receive the next movie of their preference list.
 Image  Pro-active, Netflix knows which movies are interesting for the
customer. Trustworthy, on time delivery is essential for Netflix and this requests
trust of the customer.

10. Unlimited
Subscriptions No late fee
rentals
Unique
Convenien
pricing
ce
model
Automatic On-time
Software
replacement delivery
database
Efficient &
customize Image
d
Unique Home Online
offering delivery ordering

11. This schema is based on Netflix before the VOD market.
Customer Value is core to competitive advantage, if it is distinctive and relevant.
 Unique pricing system  Netflix offers an attractive pricing system. Customers are able
to rent unlimited amount of movies with a fixed price; „All you can eat model‟.
 Personalized  Netflix offers a database which shows recommendations to customers.
This database is based on the interests of the customer. Furthermore, Netflix offers an
automatic replacement system. This means that when a customer sends back the
movie, they will automatically receive the next movie of their preference list.
 Image  Pro-active, Netflix knows which movies are interesting for the customer.
Trustworthy, on time delivery is essential for Netflix and this requests trust of the
customer.
 Assortment  Netflix promoted old movies and owns the rights for independent
movies. „Netflix hoped to enhance it‟s reputation as the highest quality source of
independent films, a designation that contributed to its popularity‟.

12. Unlimited
Subscriptions
rentals
Unique
pricing Assortment
model Independent
movies
Software
database Old movies
Personalized Image
Automatic
replacement

13. Before the entrance of Blockbuster, Netflix had an unique value
proposition. This because they offered a total new dimension of
renting a video. They had many competitive advantages towards
their competition; e.g. „ No late fees‟ , „Database‟, „Home-delivery‟
and „ Subscriptions‟.
After the entrance of Blockbuster, many of Netflix‟s competitive
advantages weren‟t so competitive anymore. Blockbuster offered
e.g. also „ No late fee‟, „ Home –delivery‟ and „ Online ordering‟.
Fortunately, according to us, Netflix still has a value proposition on
which they can compete, e.g.; „Database‟, „Automatic
replacement‟, „Assortment‟. In the second enabler scheme you will
find their current value proposition.
Distinctive: Even though the value proposition decreased, they still
have strong competitive advantages as is visible in the enabler
scheme after blockbusters entrance.

14.  Durable demand  Looking 10 years from now, we think the
demand for movies will shift to online demand in stead of
renting a tangible movie. We do not think the demand of renting
tangible movies is durable.
 Inimitability  It is not difficult to imitate the core business of
Netflix, this shows by the entrance of Blockbuster and the many
competitors of Netflix (movie rent stores). But the full database
of Netflix is hard to imitate. This because of the strong
relationship between Netflix and the studios. Concluding, the
inimitability of Netflix is medium. Because of their database
Netflix is able to distinguish itself.
 Non-substitutability  There are substitutes for renting a
tangible movie with home delivery. E.g.; Downloading and
renting a movie in a physical store.

15.  Operational efficiency Netflix has a very strong operational efficiency.
Blokbusters „suffered from significant operation loses‟ while Netflix
reported a profit in 2006.
 Appropriability Netflix came up with the this new dimension of renting
a video. Blockbuster copied parts of this new dimension but is not as
successful as Netflix. This could be the case because they are a starting
company (Netflix also had problems during the beginning phase) or
because Netflix is a to strong competitor. To conclude whether or not
Netflix has a strong appropriability, these two factors are important. We
choose for the second one; Netflix is a to strong competitor. This by
looking at the second enabler scheme, Netflix still has many competitive
advantages towards Blockbusters and other competitors. So Netflix has a
strong Appropriability.
 Resource superiority  Also this factor you can approach on two
different manners. First; Netflix offers movies, this product not rare and
it is not difficult to offer this products. The second one; Netflix offers
unique movies. Movies of independent movies and old rare movies. It is
difficult to purchase these movies because you need a strong relation
with the suppliers. Looking at the second manner and the competitive
advantage of Netflix, we think the resources of Netflix are rare. So they
have a high superiority.

16.  Based on the previous mentioned six constituents of
sustainability, a high value @company is clearly visible through
the database and the high operational efficiency.
 The value@customer is mixed as Netflix offers superior products
but the demand is not durable as there is big competition from
VOD services.
 Barrier@competition it is not difficult to imitate and the product
Netflix offers has strong substitutes. So the barrier competition
is low.
 Conclusion: Looking at the future (popularity of downloading and
watching movies on the PC is increasing), Netflix does not have a
sustainable product, even though at the moment they do have
strong competitive advantages.

17. Options Low risk Profit (20%) Sustainability Customer Total
criteria (20%) (30%) acceptance
Netflix (30%)
License 5 2 4 5 4.1
Integrate 3 5 3 4 3.7
Stand-alone 2 3 4 5 3.7
Do not enter 5 1 2 3 2.7
Ranking where 1 is low, 5 is high.
Not entering the market would bear a low risk and would not effect the Netflix
brand but has also no future value. Stand-alone business would bear high risk but
would be sustainable in the future without potential of effecting the main brand.
The integration of VOD in the Netflix business would have high profit and the
assumption is that the customer would see this as a added value.
License strategy has proven to be most valuable to Netflix when
implemented. This has been ranked by looking at the risk level, where low
risk is in favor of Netflix. When looking at profit, sustainability and customer
acceptance the higher the ranking the better results are expected on the
long-term. This is why the License strategy is recommended.