Question

Apply Michael Porter's Five Forces framework to Netflix for the years 1999 (when they started out) and 2020. What are the main differences?

Answer 1

Porters five forces model would allow to gain insight into the industry of Nefflix, identifying the magnitude of each of the five forces which affect the companys business strategy and profitability.

• Threat of New Entrants

The presence of new entrants becomes a threat when the industry has dynamics that support the business to become well-established and profitable. Netflix is a part of the media and entertainment industry, where the threat of new entrants is moderate. The moderate level of threat is created due to the evolving technology and changes that emerge as a result of technology up gradation. Netflix has been able to adapt with the changing technology and trends in the media industry by shifting its focus from in store DVD rentals to online streaming and

dispatching the rented DVDs through post increasing the ease of gaining access of the customers. This business model is easier to replicate, but what provides an edge to Netffix is the range of content available at the company and convenience (Sonenshine, 2018). Developing this competitive advantage requires capital investment, supplier contracts and networking in the industry which can be difficult to follow by a new entrant. Corporations interested in using Porters model may consider the model a good starting point. The model will allow some industry analysis. For a business to be truly successful, it will have to work at adapting Porter's model to accommodate the changing face of competition in today's marketplace.

Competition is ever present and existent, but more and more companies are creating networks and partnerships to facilitate productivity and change in the global marketplace. Consumers are no longer limited to static organizations or local services to acquire services; rather they have the ability to shop from a global marketplace that can offer anything and everything. Thus corporations should consider the possibilities inherent in global partnerships.Porter's model was hailed as the crowing achievement of his time. His model is still useful as a tool for understanding the concept of business strategy and lying the foundation for analysis for corporations today. However it should not necessarily be utilized as a single generic approach to business success, as the global marketplace and technological advances have changed the nature and scope of business, making it anything but generic in nature. The marketplace of today is at minimum complex and diverse and nature, and a model need take into consideration these factors

There are many economic theorists and researchers that are working on new synopsis of the marketplace that include analysis of the uses of technology. Downes (1997) has just begun to broach the subject of digitalization and globalization as well as deregulation in the global marketplace. Porter himself has recently acknowledged that technology is now a considerable force to be reckoned with in the global marketplace (Downes, 1997). The business model of the future will likely rely less on examining competitive strategy (though this will always be a critical factor in business success) and more on the relevance of business networks and information technology/knowledge sharing as factors in marketing.

• Bargaining Power of Buyers

The media and entertainment industry dynamics allow the customers to have a high level of bargaining power over the service providers. The sales and revenue generated by the company is dependent on the subscribers who are located in different regions across the globe. Within the US, the company also caters to the need of the customers getting rented DVDs through mail, adding to the customer base (Netffix, Inc., 2018). However, the low switching cost allows the customers with the option to cancel their subscription with Nettlix and seek other media providers increasing the business threat to the company. Due to this pressure, Netffix can't charge high prices from the customers and needs to keep the pricing strategy according to the demand of the customers, with minimal price increase. Moreover, high bargaining power from customers results in maintaining service quality that is in accordance to the customer needs and preference.

• Bargaining Power of Suppliers

The suppliers of Nefflix can be viewed as holding high bargaining power. This high degree of influence on pricing is due to the few number of entities producing media and entertainment based content. Obtaining a contract and acquiring the license to distribute the content involves negotiation on pricing, where the suppliers have an edge. Since Netflix is competing against traditional media distributors, it has to show greater flexibility in agreement than the traditional businesses. Likewise, the suppliers have a weaker bargaining power while dealing with the traditional broadcasting businesses, but online distributors like Nefflix face a higher degree of influence from the suppliers (Netflix, Inc., 2018). Shuen (2018) has examined how Netflix had to lower its profits to maintain contract with the suppliers in order to establish customer base, highlighting the high bargaining power of its suppliers.

• Threat of Substitute Products

The substitute products pose moderate level of risk in the media and entertainment industry. Nefflix faces threat from substitute service which are offering similar products through rental DVDs and online streaming. In addition, the traditional media content providers constitute another example of substitute product. Customers can also engage in other sources of entertainment and leisure activities than online streaming and watching media content. To handle the high level of threat from these substitutes, Nefflix has to update its content library by adding the TV shows, movies etc. which are in demand by the customer base. The company also has to engage in marketing to maintain the profitability and further expand the customer base.

• Competitive Rivalry

The media and entertainment industry has intense level of competitive rivalry, pressurizing the companies to strive to retain customers through offering affordable prices. Nethix is facing severe competition from traditional broadcasters, rival companies providing videos on demand and retailers selling DVDs (Nefflix, Inc., 2018). Amazon is the main direct competitor of Nefflix as both of the companies are providing DVDs on rent, thus competing for the similar target market in this domain. Apart from Amazon, there are alternate online channels that provide access to media content such as Hulu, creating stiff competition for acquiring right to display the content (Williams, 2015).

• Five Forces Analysis Porter 1980

Five forces' analysis (Porter 1980) Five Forces Analysis of Competitive Structure Michael Porters Five Forces Analysis of Competitive Structure is a paradigm for competitive position, which states that overall a company's profitability may be determined as a measure of the industry it is competing in and its strategic position within that industry (Strategy4u, 2004). According to the model some industries by nature will have a higher profit potential than others, primarily because

• Porter Five Forces Analysis

The Bargaining Power of Buyers is also an area that Apple has significant control over, as it has built up one of the most loyal and cost-insensitive customer bases there are in technology. Customers willingly pay over $500 for new iPads and will wait in line for days to buy them (Apple Investor Relations, 2012). The next factor of New Market Entrants is an area of much activity globally today, as

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