Netflix: Designing the Netflix Prize Harvard Case Solution & Analysis

Netflix: Designing the Netflix Prize Case Study Solution

Internal analysis

Swot analysis

Strengths

One of the significant strength of the company is regular purchases and high customer loyalty among existing customer base. Netflix has become influential brand for the online streaming content all across the globe.

Another strength is that the company has been engaged in producing the original content with the highest quality over the years. The pricing strategy provides leverage to company over market rivals. The designed plans reasonable and offer exclusive value to customers. Various technologies have been adapted by company via providing streaming on all internet connected devices such as mobile, iPad, Personal computers, and televisions.

Weaknesses

It is to notify that though the original content provided competitive edge to Netflix over its competitors, the cost of movies and shows is growing on consistent basis to support the content. The limited copyright is one of the major weaknesses of the company, since most of original programming are not owned by Netflix,which in turn has negatively influenced the company.

Also, the company offers diversified content to customer all around the world, which tends to require huge amount of money.Due to this purpose the company has decided to take debt to fund its new content. The company hasn’t utilized the renewable energy and it hasn’t created the business model, which promotes the environmental sustainability. The lack of green energy utilization has lasted significant negative impact on Netflix’s brand image.

Opportunities

With the existing customer base; the company can exploit the market opportunities by expanding the business operations in global markets. The company needs to find the joint venture for the purpose of capitalizing the massive customer base in China.

Another opportunity available to Netflix is the partnership in Europe, where the company could partner with the Canal plus and BBC in order to have access to the wealth of native language European content as well as having an opportunity to increase the customers in local arenas. It can partner with several telecom providers, and it can also offer bundle deals and packages in different or untapped markets. The company can also produce region specific content in the local languages and increase bottom-line through niche marketing.

Threats

One of the notable threat to the success of the company is the competitive pressure. The competitor base and their dominance have been consistently increasing, Amazon, HBO, AT&T, Hulu and Youtube are competing in same industry with Netflix by providing the repeated access to the original and new content to their subscribers.

Another threat for the company is strict governmental regulations in many countries. For instance; the expansion of Netflix in Chinese market would be unlikely due to the governmental strict regulations and restriction on the foreign content.(Martin, 2014).

Alternatives

As the company has been facing the issues of the customer churn rate;there are various  alternatives proposed to the company in an attempt to address the emerging issues. The alternatives are as follows:

Acquiring new content

The company could acquire new and quality content at higher price, due to the fact that the company would most likely invest in greater entertainment for the customers and improves the Netflix experience as a whole for the customers’ benefit.

Since, the company has been investing heavily in the original content been accessing the rights to the popular content, but it always comes at a considerable cost. So, the company needs to raise billions of dollars in debt for the purpose of acquiring new and quality content.

The increase of couple of dollar in price would allow the company to generate billions of additional profit margins year by year. The company can increase its prices on the basic business plan. The new customer base would be subjected to the company and the existing customers would likely see the increase in price in the upcoming months.

There is a likelihood that the customers or subscribers would not be happy to pay additional price for the quality content, but the shareholders would seem to back the decision of the company. It is assumed that the numbers of cancellation would not be high, so that the company could seize the market share and bolster the profit returns.It is due to the fact that the high price is equivalent to high revenues. The company would be able to roll out the new customer base through new pricing structure.

improvement on Cinematch

The company can improve the accuracy of Cinematch recommendation by 10 percent, which means that the system would most likely get 10 percent better in estimating what a user or customer would think about the movie, on the basis of the prior movie preferences of the users.

The company can also ask the customers or users to rank the movie it recommends i.e. on the scale of the one to five stars. By doing so, the company could easily increase the efficiency of the system or software.

The company could edit the rating scale for the purpose of getting more information on what customers like and dislike about the movie, to help with preferences, movie rating and trends for the subscribers. It is important for the company to improve the movie intelligence on the basis of the trends and preferences.

Additionally, the company can replace the five start rating with the new thumbs up or down feedback model for the higher satisfaction of members. It would also improve the personalization.

Improving the Cinematch recommendation model by 10 percent would allow the company to create better outcomes for the users or subscribers, in case the user wants different or similar movie than previous movies they have already watched. The results from the winning would surely be 10 percent more effective and accurate than what the previous result.

Recommendation

After taking into consideration the evaluation of the alternatives, it is to recommend that the company should acquire new and quality content. To acquire new subscribers and retain the existing ones, the company needs to spend on acquiring new and quality content to satisfy users.

This would also attract new customer base and retain the existing one, hence they would be willing to pay additional amount in response to the quality content. A little increase in the price would allow the company to proceed its aggressive spending on content. Although, there is a threat associated with the price hike that the users would probably cancel their subscriptions, but the company would still be committed to provide better and original content to its users. There would be more cost required for the creation of original content, but the company would be able to differentiate itself from the competitors in the streaming service market.The key factor would be the quality of content.

In case the company seizes the market share on the basis of the original contents’ popularity and spreading the cost of creation over the increasing number of subscribers, the company would gain success in the long run. The success of original content of Netflix would improve the perception of the viewers of overall brand.

The company should attract new customers by heavily spending on the creation of  original content library in order to drive its valuation and address its customer churn rate problem.(Team, 2015)

Appendix A – Porter Five Forces Model

Bargaining power of buyersBargaining power of suppliersExtent of competitionThreat of substitutesThreat of new entrants
      Low cost of switching

Increased customer demand

      Few number of suppliers

Technology based products increases dependency over suppliers

      Offers services at affordable or reasonable prices

offers on demand videos, traditional broadcaster and retailers selling DVDs

      Competitors offers similar services via online streaming & rental DVDs

Traditional media content provider

Customer engage in leisure activities & source of information

      Huge amount of capital required including Legal cost, marketing expense, distribution cost  and licensing cost

Intense market competition

Evolving technology and trends in the media industry

Appendix B – SWOT Framework

StrengthsWeaknessesOpportunitiesThreats
      Repeat purchases

High customer loyalty

Influential brand for the online streaming content

Highest quality original content producer

Offers affordable and exclusive value

      Increasing cost of movies and shows

Limited copyright

Increasing debt

Lack of utilization of green energy

      Expand business in international markets

Niche marketing

Partnership in Europe

      Fierce competition

Strict governmental regulations

 

 

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