MGT 3830 - Exam 2 Cases
What happened in 2013? Get familiar with the 3 primary issues
3 Primary issues: 1.) Growth Projections were too optimistic -ON failed revenue projection by 20% 2.)Market segment was small (professional runners) 3.)Production showed higher percentage of defects that that of their incumbbents.
Apply the concept Emergent Strategy to this case. Discuss how market feedback shaped management's views and operational choices. Use details from the case to support your answer.
Applying the emergent strategy to this case is fairly easy to do due to the fact that Netflix pretty much experimented, learned, and adapted throughout its entire journey. At first Netflix experimented with its initial business model by offering DVD by mail where customers rented one movie at a time and charged late fees and shipping, which was later dropped as they weren't profiting from it and their consumers were giving them some resistance. Then they realized that streaming might be the sector where they may hit it big as technology was developing and their consumers might want to stream. so they decided to experiment and they received some consumer feedback and adapted as they went. Netflix's management demonstrated an emergent strategy by staying attuned to market feedback, consumer preferences, and changing industry dynamics. They were agile in their response, adapting their business model, content strategy, pricing, and distribution to align with emerging trends and customer demands. This adaptability was a key factor in Netflix's success, as it allowed them to stay ahead of the competition and remain relevant in a rapidly evolving industry.
Why did Netflix succeed, and why did Blockbuster fail? Apply the concept of Internal Barriers to Response to the fall of Blockbuster. Include all relevant considerations.
In summary, Blockbuster failed due to internal barriers to response, including a reluctance to adapt to technological changes, a rigid business model, resistance to innovation, and a failure to evolve its customer-centric approach. Netflix succeeded by embracing innovation, adopting a customer-centric approach, overcoming internal resistance, and staying flexible in its business model and strategies. These differences in response to internal barriers ultimately led to Netflix's success and Blockbuster's downfall in the entertainment rental industry.
Analyze the evolution of Pricing strategy at Netflix over time. What was the strategic logic behind the various decisions to raise prices throughout the timeline? How was Netflix able to raise prices without destroying much demand? What does this case tell us about both (a) creating (b) capturing value?
In the beginning, Netflix was focused on bringing at home media entertainment to its customers, something that was very limited at the time. Netflix saw the lack of at home media entertainment in the industry and came in ready to disrupt the industry in a modern way. Because Netflix had the "first-mover" status they were able to price their services at competitive prices. Netflix then went on to transform itself into a video-streaming service that came with high streaming and licensing costs. Years later, Netflix started producing its own content, again increasing costs. The strategic logic behind the various decisions to raise prices throughout the timeline comes from the company's decision to give away consumer surplus at Time A to capture more value at Time B. Netflix was able to raise prices without destroying demand because of the surplus they gave to consumers. As new competition rose and demands changed, they kept adapting and evolving at a faster rate than competitors. Their ability to raise prices is proof of the competitive advantage they had in the industry. The increase in prices also allowed to increase their content mix. This case illustrates that creating value allows a firm to capture value on the back end. But creating value can be a costly investment and for a firm posing several financial risks. For a firm needs to ensure that they can at least break even or make a profit they will need to be the most appealing to the consumer.
Describe the strategy scenario facing Netflix at the beginning/end of the case. How would you address the questions about pricing strategy at the end of the case?
In the beginning, Netflix was focused on providing users with a way to have an at home entertainment service, which was very limited at the time. The goal was to offer online DVD rentals for a fee. Some of the challenges Netflix faced at the beginning of the case were how to price their services and how to gain a higher volume of subscribers to ensure they would be able to pay costs such as streaming and licensing. When Netflix was first started, they used a pricing strategy like those of brick-and-mortar rental stores. They offered 7-day rentals at $4 per DVD plus a $2 shipping fee and potential a late fee. This pricing strategy was unable to attract customers and failed shortly after. They shifted their business model and pricing strategy to a subscription model where subscribers would pay a monthly fee did away with late fees. When the demand for streaming content over the internet increased Netflix was forced to change their business model in response. This posed a new challenge of how Netflix was going to acquire the high-cost streaming content. Netflix has been able to stick with the pricing strategy is because they have continued to provide customers with a surplus, driving up their willingness-to-pay. They also use a backward integration strategy regarding their original content. Towards the end of the case, we see Netflix faced with the challenge of how they will be able to compete with the competitors such as Hulu and Disney+. The fixed costs for content continue to rise, so Netflix has continued to institute increases in their prices. Their prices are close to those of competitors, but the content library is what enables them to increase customers willingness-to-pay. If Netflix is unable to produce good original content and provide a wide variety of content to their customers, they will not be able to continue using this pricing strategy.
Describe the landscape of competition in the streaming video industry. Who are the primary competitors? How have the recent new entrants shaken up the landscape? a. Bargaining Power of Suppliers b. Threat of Substitutes c. Opportunity of Complements? Or Threat of Complements in this case? d. Bargaining Power of Buyers
The competition in the streaming video industry is very competitive. There are multiple competitors that offer similar content for similar or cheaper prices. The Primary competitors in the streaming video industry are Hulu, Amazon, and YouTube with new entrants such as Disney +, HBO Max, and others that now offer exclusive content only available on their specific platform. This has made many customers switch streaming services for their preference of shows and for cheaper prices for the consumer. a.)The bargaining power of suppliers remains high, but many streaming services are combatting that by creating their own content such as Netflix with their Netflix originals. The make vs. buy decision remains a large part of many of the major players business models. b.)The Threat of substitutes remains very high with substitutes such as video games, cable, music streaming, social media, and movie theaters. c.) Compliments are asymmetric threats to the streaming industry. The compliments consist of Wi-Fi, 5g data, iPhone, Smart TVs, and Rokus. d.)The bargaining power of buyers revolves around their pricing strategies and price sensitivities. They offer surplus to customers which drives up their Willingness To Pay, but low switching costs allows customers to change services very easily which drives down the Buying Power of buyers.
Describe and analyze the evolution of the Netflix content acquisition strategy: a. Apply the primary concepts of the "make versus buy" decision to this case. b. Describe the logic of backward vertical integration (into the studio business). c. What were (are) the potential risks/disadvantages of moving into original content?
a.) The " make versus buy " decision applies to the Netflix case because Netflix has to decide to " make " in house films and use it s own firm to own and organize the critical input resource . By making rather than buying , Netflix would add internal transaction costs ( ITC ) , and reduce external transaction costs ( ETC ) , which would entice them to vertically integrate . If Netflix were to " buy versus make " , Netflix would use contracts and licenses to acquire rights to TV shows and films from outside suppliers , for their TV and film library . Buying rather than making adds ETCs and lowers ITCs . Essentially , Netflix must decide whether they are to use their own inhouse TV shows and films or buy from outside sources and use their TV shows and films in their platform . b.)Netflix decided to start producing original content with House of Cards to expand its streaming library. Demand for streaming content remained high, and Netflix wanted to add its own original film to supply the demand. Netflix's production of House of Cards deemed successful and attracted high viewership and critical acclaim. Producing their own films in house required higher upfront costs, but it also lowered external transaction costs. By deciding to produce original content with House of Cards, Netflix was also able to compete with paid cable channels, like HBO Max. Hulu even started to create their own television shows and films to compete with the growing industry. By producing their own original content, Netflix also gained formal ownership to their own films, reduced exposure to "holdup", reduced the bargaining power of suppliers, and external transaction costs c.)Potential risks of moving into original content include increased internal transaction costs which increases the chances of experiencing Slack, it could lower powered entrepreneurial incentives, it is difficult to revert to a "buying" strategy, there are opportunity costs, and the risk of losing the core focus of their business. Potential Advantages include creating and capturing more value by increasing customers Willingness to Pay and decreases external costs. This also gives Netflix more control and allows them to manage their own intellectual property. It also d
Identify some notable trends in financial (income statement) performance, particularly Revenues, Net Profit, and Net Profit Margin. What does this tell us about creating/capturing value? Are there any warning signs on the balance sheet?
based off of the financial statements Netflix continues to grow and continue to bringing in millions and millions of dollars in profit. They continue to grow revenues in 2019 was at 20,100 (in millions) compared to 3.2 in 2011. This tells us that the more they invested in creating original content, expanding their library, and technology the more value they captured. Some warning signs i saw on their balance sheet are that they have huge liabilities and the amounts are too close to their assets. For example, speaking on 2019, their total assets are 33,900 and their total liabilities are 26,300. Their current assets are 6,100 and current liabilities are 6,800.
Could one of Netflix's new initiatives, in particular creating an ad-supported tier, turn around its performance? Or should Netflix plan to implement yet another rate hike for its existing tiers instead?
i think ad-suported tier would help out netflix's performance and take a bit of weight of from its customers with another prick hike.
Discuss the reason behind the IPO in 2021?
promote brand awareness, to access financial resources that would fuel future projects, intensify activities in china, open flagship stores, expand into new segments, and maintain innovation.
