Question

Question 2: Outline the most important macro (demographic, economic, natural, technological, political and cultural), and micro (the company, suppliers, marketing intermediaries, competitors, publics, and customers) environment factors that impact on Netflix. (10 marks – allow ~15 minutes)

Netflix Case: Netflix Uses Technology to Change How We Watch Videos

When Netflix was founded in 1997 in the United States, the movie rental giant Blockbuster had thousands of stores from coast to coast, filled with video cassettes ready for immediate rental to customers (Pride et al., 2018). Netflix had a different vision from this well-established, well-financed competitor. Looking at the recent development of DVD technology, Netflix saw an opportunity to change the way consumers rent movies. The entrepreneurial company built its marketing strategy around the convenience and low cost of renting DVDs by mail, for one low monthly subscription fee.

Instead of going to a local store to pick out a movie, subscribers logged onto the Netflix website to browse the DVD offerings and click to rent. Within a day or two, the DVD would arrive in the customer’s mailbox, complete with a self-mailer to return the DVD. And, unlike any other movie rental service, Netflix customers were invited to rate each movie on the Netflix website, after which they’d see recommendations tailored to their individual interests (Pride et al., 2018).

Fast-forward to the 21^st century. Video cassettes are all but obsolete, and Blockbuster, once the dominant brand in movie rentals, has only one remaining shop in the US as consumer demand has shifted to digital distribution for entertainment (Porter, 2019). In Australia, both Blockbuster and Video Ezy still had a brand presence in 2018 (Pride et al., 2018). Since then, Blockbuster’s last Australian shop closed in March 2019 (Porter, 2019), and Video Ezy exists in the form of vending machines (kiosks) after its shops closed (Rosenberg, 2018).

Both brands have been prompted to reassess their distribution channels. You may notice more DVD rental kiosks such as “Video Ezy Express” popping up in convenient locations, including outside supermarkets and shopping complexes, in a bid to improve brand reach and accessibility. DVD rental kiosks, like online services, are accessible around the clock and reduce many store costs, including wages.

In contrast, by completely eliminating the need for brick-and-mortar stores or kiosks, Netflix has minimised its costs and extended its reach to any place that has postal service and Internet access (Pride et al., 2018). The company still rents DVDs by mail (Monahan & Griggs, 2019), but it has also taken advantage of changes in technology to add video streaming on demand.

Now, customers can stream movies and television programmes to computers, television sets, videogame consoles, DVD players, Smartphones, and other web-enabled devices. One advantage to the company is that streaming a movie costs Netflix less per customer than paying the postage to deliver and return a DVD to that customer.

Netflix’s Use of Technology: From Data-Tracking to Streaming

Netflix made technology a core competency from the very beginning. Because the business has always been web-based, it can electronically monitor its customers’ online activity and analyse everything that customers view or click on.

With this data, Netflix can fine-tune the website, determine which movies are most popular among which market segments, prepare for peak periods of online activity, and refine the recommendations it makes based on each individual’s viewing history and interests. The company also uses its technical know-how to be sure that the website looks good on any size screen, from a tiny Smartphone to a large-screen television.

A few years ago, planning for a significant rise in demand for streaming entertainment, Netflix decided against investing in expanded systems for this purpose. Instead, it arranged for Amazon Web Services to provide the networking power for streaming (Pride et al., 2018).

By 2018, on a typical night in the US, Netflix streaming occupied up to 20,000 servers in Amazon data centres (Pride et al., 2018). Demand was so strong by that time, in fact, that Netflix streaming accounted for about one-third of all internet traffic to North American homes during the evening (Pride et al., 2018). This percentage is only expected to increase. The Australian market, however, may pose technological hurdles, as the National Broadband Network is still being rolled out and is not available in all areas, meaning that accessibility may not be as straightforward as it is in America (Department of Infrastructure, Transport, Regional Development and Communications, n.d.).

Although Blockbuster and Video Ezy are no longer a competitive threat in their traditional form, Netflix does face competition from Amazon’s own video streaming service, Amazon Prime Video, which headed to Australia and New Zealand’s shores in 2017 (Pride et al., 2018).

Other direct competitors include well-established Hulu, YouTube, Nine Entertainment, and

Fairfax media’s joint-venture Stan, and Foxtel’s movie-streaming service Presto. It also competes with other entertainment providers, including cable, satellite, and broadcast television. Foxtel, for example, has dramatically reduced its basic cable packages in an effort to retain its share of the market in face of increasing competition from on-demand services (Pride et al., 2018).

Netflix Offers Exclusive Programming to Customers

To differentiate itself from its competitors, Netflix commissioned exclusive programming such as House of Cards, Arrested Development, and Orange is the New Black. The cost to produce such programs runs to hundreds of millions of dollars (Pride et al., 2018). Between May–December 2019, Netflix added 179 original programmes to its American streaming service, or an average of 30 new shows a month, or about one show per day (Fruhlinger, 2019). Netflix plans to continue pouring money into exclusive content because of the payoff in positioning, positive publicity, and customer retention.

The way that Netflix releases its exclusive programming reflects its in-depth knowledge of customer behaviour. The company found through its data analysis that customers often indulge in ‘binge watching’ for a series they like, viewing episodes one after another in a short time.

Based on this research, in 2013 Netflix launched all 13 episodes of the inaugural season of House of Cards at one time, an industry first (Pride et al., 2018). Executives gathered at headquarters to monitor the introduction, cheering as thousands of customers streamed episode after episode. By the end of the first weekend, many customers had watched the entire series and shared their excitement via social media, encouraging others to subscribe and watch. When Netflix won multiple Emmy Awards for House of Cards, it was another first—the first time any Internet company had been honoured for the quality of its original programming.

One key measure of Netflix’s growth is the strong increase in the number of monthly subscribers. In 2015, Netflix had about 70 million subscribers worldwide, of which 26 million were located outside the US (Pride et al., 2018). In 2019, Netflix had 151 million paid subscribers worldwide (158 million if free trials are included) (Kafka, 2019).

Despite the brand only launching in Australia in March 2015, it already has close to 2 million subscribers in 2018 (Pride, 2018). By July 2019, Netflix had more than 11.6 million subscribers in Australia, up 18% from the year prior (Gruenwedel, 2019) Its closest direct competitor, Stan, had 2.6 million subscribes in early 2019 (Knox, 2019).

Netflix will not say how many subscribers that it has in New Zealand, but a recent survey of 1,000 people, commissioned by the Office of Film and Literature Classification and carried out by UMR Research, found that 72% of respondents subscribed to Netflix. Of the same respondent sample, 77% said they watched television shows and movies using a paid online service (Kenny, 2019).

Keys to Netflix’s successful launch include offering free-trials and access to stripped-back free versions, as well as continued investment in original programming. It appears that streaming is the new broadcasting, and that ‘on-demand’ spells the demise of scheduled entertainment.

Answer 1

Netflix has been a renowned name in every household nowadays. It has brought a revolutionary change in the field of entertainment. Earlier there was very little scope of entertainment was available to people while sitting at home. But it has changed the whole scenario and gave the people the scope of entertainment at any place, where ever they are. Macro factors are the external factors that affect the business toa great extent. The Macro factors affecting Netflix are as follows-

1. Demographics- The demographic segment mainly categorized firstly based on gender. ie. whether their customers are male or female. It can be assumed that have more female customers as compared to a male since mainly females are more addicted to tv programs or movies or web series than that of male. Secondly, it can be categorized based on usage most frequently used, medium user, limited users. This categorization is done based on the frequency of the usage of Netflix. Thirdly, it can be categorized based on the age of the people using Netflix. It varies from teenagers to old people. This can have many subsegments of a teenager, middle age, old age. The type of program viewed by this segment also differs. Fourthly, it can be divided based on the educational qualification of the viewers. Lastly, It can also be segregated based on the income of the viewers.

2. Economic - The economic factor of a region also has a great impact on the success or failure of any product. It mainly gets affected by the type of economic condition of the country, the exchange rate of currency, the Role of government in the media used for entertainment, then the number of unemployed in the country, per head income of the citizens of the country, e.t.c.

3. Natural - It varies according to the geographical or natural areas also. People living in extreme climatic places or distant places may find it as a better source of entertainment. There are also some difficult places where net connectivity is very poor. These areas become a challenging area for Netflix to continue with its operation. The climate of a place has a great impact on the business of Netflix.

4.Technological - This is the most dynamic part that has to be dealt with since technology is constantly changing. They not only have to upgrade accordingly but also have to keep pace with the technological development of their competitors.

5. Political- Political stability is a supreme factor in determining the success of a product in a place. In a politically stable scenario. people become more inclined towards entertainment. If there is no peace in the country, people will be engaged in more other activities rather than thinking of watching a program on Netflix.

6. Cultural- If the people are culturally sound of a place, they may be engaged in many types of cultural programs, and people might think of finding something culturally rich programs in Netflix. The culture of a place also influences people's attitudes about spending their idle hours productively.

Micro factors are somewhat internal factors that affect the running of a business. The characteristics of the micro factors affecting the business are as follows-

The company- The company's goodwill and reputation in the market have an immense effect on the customer's buying attitude. Netflix has a very good reputation in the market as it has introduced a revolution in the entertainment industry and now people have a more advanced source of entertainment, which they can easily access at any time due to the company's innovation.

Suppliers- They are the main people who supply the contents to Netflix and can reap huge profits if the programs are liked by the viewers.

Marketing Intermediaries- These serves as assistant to help to reach the ultimate customers. They are the middle persons that help Netflix to reach their ultimate customers. They have to be dependable enough to have a smooth uninterrupted supply to the customers. If there is interruption , the customer dissatisfaction will increase, which will effect the overall business of Netflix.

Competitors- There are not many competitors for Netflix in this market as it is a new concept and it will take some time for the competitors to evolve. But the company has to be ready to face a fierce competition and has to continuously upgrade itself to innovate new ways for attracting and satisfying the customers.

Public - Common public has taken the initiative of Netflix in a very positive way and the general public is trying to accommodate this new system of entertainment.

Customers- They are the most important factors and customer satisfaction is the prime criterion for evaluating the success of a business. the more the customers are happy with the programs, the more successful the company will be.