Case Study: The Netflix Business Model

Decent Essays
Netflix is an entertainment company with a business model that was centered on convenience, value, and selection. One of the key problems I identified was that Netflix experienced a large amount of subscription cancellations from its customers and had lengthy delivery times. Due to higher costs and limited available content, studios were unable to reach Netflix's needs for DVDs. Lastly, an opportunity I identified was to offer more new releases to become comparable to the entertainment industry. In 2006, Netflix only had 30% of total rentals that were new releases, while traditional video rental outlets had 70% of total rentals that were new releases (Shih & Kaufman, 2011). Looking ahead, it is pertinent that Netflix finds a balance to …show more content…
Based on the Transaction-Cost Theory, transactions are frequent and because they are so costly, it may be more beneficial for the firm to purchase the vendor (Williamson, 1987). Netflix currently performs frequent transactions with the post office and packaging team because the current business model requires the company to package each DVD and deliver them to the customers. Frequent transactions cost a lot of time, resources, and money. Additionally, credible shipping services are unique because not many competitors exist against the USPS. By bringing the vendor as an in-house vendor, the Netflix management team can request to develop a packaging envelope and mailer that fits the product (DVD) perfectly. This recommendation to customize the packaging will be cost-effective because the process to package the DVDs will most likely be faster and require fewer resources. However, after analyzing Netflix’s competitors, I noticed that the entertainment industry was moving away from physical DVD and towards online streaming. As a result, I chose my recommendations (above) over this alternative recommendation because Netflix should not exhibit marketing myopia and ignore trends of customers’ interests. By moving towards a less physical option, the frequency of transactions with the packaging and shipping services will decrease. Ultimately, the value-added from the recommendation of adding in-house shipping and packing services will also decrease. Another alternative that I considered was to offer new product lines such as video games. However, introducing a new product, but not considering the principals’ needs will not be in Netflix’s best

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