NETFLIX.COM, INC Harvard Case Solution & Analysis

NETFLIX.COM, INC Case Solution

Company Background & Problem Diagnosis

            Reed Hastings and Marc Randolph have founded one of the largest DVD rental company, NetFlix in the year 1997. The company has its headquarters in Los Gatos, California. The online rental business of the company had been started through the official website of the company NetFlix.com. The company generated its revenue by offering its customers par per DVD rental services via mail by delivering DVDs to them.

            Later in the year 1999, the company had replaced its pay per DVD rental model with a system of fixed fee per month which allowed the customers to rent up to 4 DVDs per month with no late fees or any due dates. In the February of 2000, the company launched a model under which the subscribers could have the possession of four DVDs for a fixed fee of $19.95. The website was highly user friendly and it also allowed its subscribers to form their queues and lists of the movies which they selected after browsing the website.

            As a result of the tremendous growth and success of the company, the board of directors of the company had decided to file S-1 filing for the initial public offering of the company. However, immediately after this filing the NASDAQ market had fallen by about 25% which created high uncertainty in the financial markets and made the success of the IPO more difficult. It is now July 2000 and the CEO of the company, Reed Hastings needs to make a final recommendation regarding the proposed IPO of the company. The market analysts have shown that if the company generated positive cash flows over the period of the next twelve months, then the IPO can be successful, however, the senior executives of the company were not sure that whether this goal could be achieved or not.

Analysis

Long Run Objectives & Performance to Date

            The long run objectives of NetFlix Company are to convert as many as possible free trial users to monthly paid users and retain these monthly paid users over the long term. The company has plans in place to achieve this long term objective by enhancing its current brand loyalty for its customers. Many features are offered by the company to encourage them to stay with the company for a longer period. The company can achieve this by providing its customers with one month free trials during which period the trial customers can rent as many DVDs as they want.

            As more and more new customers get free trials and experience, the company keeps the detailed track record of the movies rented by these customers and assesses their individual ratings for all the movies in the inventory of the company using the marquee queue system. This helps all the new subscribers to choose those movies which are preferred by them. Furthermore, the company also sends the movies on the queues of the customers as they return the DVDs which are in their possession. Along with these customer centric services, the no return dates, fast shipping, extensive DVD library and no late fees enhance the brand loyalty of the customers.

            In order to assess the performance to date of the company, we need to look at the conversion rate of the free trial users to monthly paid users and the retention rate of the paid users after a period of six months. If the conversion and the retention rates are high, then this would mean that the company is meeting its long run objectives. Along with this, the performance of the company could also be assessed by analyzing and calculating the NPV of the NetFlix subscriber and the total value of the company..................

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