Case Study – Netflix’s Evolving Strategy

Case Study – Netflix’s Evolving Strategy

Netflix is a leading movie and TV show streaming platform that has gained dominance in the entertainment industry over the past decade. The company was founded by Reed Hastings and Marc Randolph in 1997 as a movie rental company. Since then, the company has been adjusting its operating strategy to respond to customer needs and leverage the opportunities created by technological advancements. One of the factors that have played a vital role in the company’s strategy evolution is Reed Hastings’s leadership. This report discusses the evolution of Netflix’s strategy under Reed’s leadership through successive business plans, the causes of the changes in strategy, the decision-making approach during the strategy evolution, the differences between Netflix’s and Blockbuster’s business model, and the nature of Netflix’s strategy.

The Evolution of Hastings’ Strategy Through Successive Business Plans

Netflix’s growth is characterized by three strategy revisions aimed at increasing customer satisfaction and increasing competitive advantage. The first revision included moving to a prepaid subscription service. According to Shih & Kaufman (2014), Hastings decided to move Netflix to a prepaid subscription service to increase value for customers and take advantage of longer delivery times. The new strategy would include giving customers access to four movies at once and a maximum of four new films monthly. The new strategy also included changing the company’s pricing system. The company began offering unlimited rentals to customers and allowing subscribers to retain three movies at a time and frequently exchange them. However, the company was still experiencing a challenge in setting favourable subscription costs, thus creating a need for another strategy revision.

The second strategy revision included developing the proprietary recommendation system. This strategy included highlighting films weekly on the company’s website home page. This strategy increased the company’s sales because, according to Shih & Kaufman (2014), customers made a series of purchases even though they were unaware whether they liked the product. The company also experienced an increase in customer-generated ratings and a demand for more movies, which pushed the company to consider the third strategy revision, which included creating a movie library. The company partnered with studios to increase the variety of movies that customers could access. The company used a national inventory to satisfy various customers with different demands, leading to more growth and success.

Causes and Characteristics of Netflix’s Leadership to Make Each Shift

Netflix’s strategy shifts were made from the top. Hastings, the company CEO, initiated the shifts to increase competitive advantage and meet customer needs. The shifts were well-planned to meet the company’s goals and vision. According to Dhlamini (2022), a well-planned business strategy considers an organization’s environment, capabilities, and vision. Strategies are also influenced by various factors, such as competition (Sanad, 2018). Various factors caused Netflix’s leadership decision to shift the company’s strategy. One of the factors that influenced the shifts was the response to increased licensing costs. According to Shih & Kaufman (2014), Netflix developed the idea to generate original content after increased licensing costs. The use of original content was also a differentiation strategy used to increase competitive advantage. The second factor that caused the shifts was the need for personalization to improve user experience. Netflix changed its strategy to a proprietary recommendation system and built a movie library to personalize the user experience by giving customers access to movies that suited their preferences. The third factor that led to the shifts was the development of the company’s streaming infrastructure. According to Shih & Kaufman (2014), Netflix began developing its steaming infrastructure by leveraging its large IT operation with DVD distribution operations and member websites. The steaming infrastructure enabled the company to source movies from various studios to increase the variety of movies accessible to customers, leading to an increased competitive advantage.

Differences between Blockbuster’s and Netflix’s Business Models

A business model includes a plan demonstrating how a business uses resources, competes, structures its relationship with customers, and creates value. The main factors that influence an organization’s business model include culture and strategy, market pressure, technology, entrepreneurship, government policy, organizational capabilities and human resources (Tian et al., 2019). Netflix and Blockbuster have different business models that differentiate them from each other. The main difference between the business models is that Netflix operates by offering subscriptions to its customers. Consequently, Blockbuster relies on renting films to customers. Another difference is that Netflix uses an online shopping model while Blockbuster uses an in-store shopping model.

Nature of Netflix’s Strategy

Netflix’s strategy can be characterized as disruptive because of its impact on the operations of competitors such as Blockbuster. According to Vertakova et al. (2016), disruptive innovation strategies create a new technology cycle and a series of new business innovations. Although Netflix’s strategy shift boosted its success, its impact on competitors like Blockbuster indicates that the shift was disruptive. For instance, Blockbuster could not adopt the new technology used by Netflix to provide convenient streaming services to customers in different countries. Blockbuster was also unable to invest in streaming services because of the overdue fees that had accumulated from its rental services. The company also faced stiff competition from Netflix because of the late fees, unlimited rentals, and overreliance on renting films to customers in specific locations. Netflix also capitalized on Blockbuster’s weaknesses to implement its strategy successfully. Implementing new strategies in response to the opportunities and challenges in the market indicates that Netflix’s strategy was emergent. According to Weick (2012), an emergent change includes continuous adaptations, accommodations, and alterations that produce fundamental change without prior plans to do so. For instance, Netflix changed its strategy regularly without prior planning to respond to the changes in customer needs and adapt to technological advancements.

Conclusion

Netflix has experienced significant growth over the past decade. The growth is characterized by strategy revisions, including moving to a prepaid subscription service, developing the proprietary recommendation system, and creating a movie library. The shifts were made from the top and were influenced by various factors. The main factors included the response to increased licensing costs and the development of the company’s streaming infrastructure. The revisions were emergent and disruptive because they negatively impacted Blockbuster’s operations and success in the entertainment industry.

 References

Dhlamini, J. (2022). Strategy: An understanding of strategy for business and public policy settings. Journal of Contemporary Management, 19(2), 108–134. https://doi.org/10.35683/jcm21073.161

Sanad, S. (2018). An Overview of the Factors Influencing Strategy Implementation Process. Management Innovator, 11(1). https://doi.org/https://www.researchgate.net/publication/354321847_An_Overview_of_the_Factors_Influencing_Strategy_Implementation_Process.

Shih, W., & Kaufman, S. (2014). Netflix in 2011. Netflix in 2011 – Case – Faculty & Research – Harvard Business School. https://www.hbs.edu/faculty/Pages/item.aspx?num=47834

Tian, Q., Zhang, S., Yu, H., & Cao, G. (2019). Exploring the factors influencing business model innovation using grounded theory: The case of a Chinese high-end equipment manufacturer. Sustainability, 11(5), 1455. https://doi.org/10.3390/su11051455

Vertakova, Y., Olga, R., Shadrina, V., & Kobersy, I. (2016). Strategy of Disruptive Innovation in Emerging Regional Markets: Factors of Success and Failure. International Journal of Economics and Financial Issues, 6(6). https://doi.org/https://www.researchgate.net/publication/311558342_Strategy_of_Disruptive_Innovation_in_Emerging_Regional_Markets_Factors_of_Success_and_Failure

Weick, K. (2012). Emergent change as a universal in organizations. Making Sense of the Organization Volume 2, 223–241. https://doi.org/10.1002/9781119206453.ch13

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This assignment asks you to evaluate the strategic evolution of the Netflix company from 1994 to 2011, as described in the case study for this week. Although many new changes have occurred with Netflix since this case study was written, it covers a formative period in Netflix’s evolution. As you complete your essay, please respond to the questions according to the context of the years in which Netflix made these decisions.

Case Study – Netflix’s Evolving Strategy

• • Summarize the evolution of Hastings’ strategy through successive business plans. How many strategy revisions did the business have to make, and what were they?

• What caused Netflix’s leadership to make each shift?
• Were the shifts driven from the top or the bottom?
• How did they decide what to do next? Were the shifts well-planned or did they just “throw things against the wall to see what would stick”? Do the shifts in strategy seem well-planned or haphazard?
• How would you characterize the differences between Blockbuster’s and Netflix’s business models?
• Was Netflix disruptive? How? How would you evaluate Blockbuster’s response?
• Is Netflix’s strategy deliberate or emergent? How do you know?

Submission Requirements

• Written communication: Written communication is free of errors that detract from the overall message.
• APA formatting: Your paper should demonstrate proper APA formatting and style. You do not need to include a cover page or abstract, but be sure to include your name, assignment title, and page number in the running header of each page. Use meaningful section headings to clarify the organization and readability of your paper.
• The number of references: Include a minimum of six references from your week’s readings and assigned research; the sources should be appropriately cited throughout your paper and in your reference list.
• Suggested paper length:700–1000 words.
• Font and font size: Times New Roman, 12 points.