Netflix: Designing the Netflix Prize (A) Harvard Case Solution & Analysis

Netflix: Designing the Netflix Prize (A) Case Solution

Key issues:

Netflix is known as the best entertainment distributor and has been operating globally with the strong customer base and market share. Although the company is performing well in terms of revenue, however, the main issue with its operations is regarding customer churn as the company is facing the problem of minimum number of renewals of subscriptions from its customers.

Netflix is currently using Cinematch, a software which provides recommendations to the customers about the movies on the basis of the record, however Cinematch proved to be a good move from the management.Currently, the technical department of the Netflix is considering that this is the right time to shift towards other options along with the improvement in the algorithm of Cinematch, which is the main reason behind the customer churn problem.

Analysis:

Porter’s five forces

In order to analyze the current market conditions, Porter’s model of five forces is used so as to help to measure the chances of success of the options, which the management of Netflix is considering utilizing in order to deal with the issue of decreasing subscription rate of customers.

Industry Rivalry: Netflix is a part of the US multinational entertainment industry. Netflix provides services in more than 90 countries with the products of streaming media, video on demand and media service provider. Netflix is operating in such an industry in which many players are operating along with significant market share. Therefore, the level of rivalry is high in the industry and in order to deal with this issue, the company should come up with more innovative and unique offerings as the customers are more sophisticated in this modern era of technology.

THREAT OF NEW ENTRANTS: Netflix is a part of such type of industry where the cost of entrance is high. Entertainment industry needs a large amount of capital as entertainment service providing companies have large startup cost such as licensing cost, legal cost, advertising, and marketing expenses, distribution, etc., whereas existing companies are working on their targeted segments with their certain specialization due to which, the threat of new entrants is low. The other main factor is the competition within the key players in the industry, which is also a significant barrier for the new entrants.

BARGAINING POWER OF SUPPLIERS:Few numbers of suppliers are available in the industry of entertainment, which has made them stronger in term of bargaining. The companiesrely on few suppliers since the product is technology based and this is the reason for which the company's dependency on the suppliers is increasing continuously.

BARGAINING POWER OF BUYERS: There are numerous players operating in the industry, therefore the switching cost for customers is low, which has made the bargaining power of the customers high. The customers have enough knowledge regarding the product and its available alternatives,thus the buyers are supposed to utilize their bargaining power in order to avail more discounts.

THREAT OF SUBSTITUTES: Many substitutes are available in the industry such as increasing popularity of tourism is a serious threat to the media industry. In addition to this, the customers have many other options for entertainment therefore, the threat of substitutes is also high.

Value Chain Analysis of Netflix

In order to analyze the current situation of the company, value chain analysis is performed which could help to analyze the strength of the current operations of the company. Analyzing current operations could also help to understand the potential strengths of the company to deal with the current facing problem, which is to reduce the customer churn rate.....................

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