CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
15-12
c. A major operations concern for Netflix is the
vulnerabilities that it faces from natural disasters, as
well as the limitation of resources from suppliers:
i. A significant natural disaster could wipe out
distribution centers (for physical disks) and server
farms (that control their online data streaming
ii. The limitation of resources from suppliers is
probably one of the most significant threats that
Netflix faces. In its case, the resources in question
would be the rights to the movies, TV shows, and
other media that it distributes through its various
d. Support staff to professionals—N/A
e. Relative to competitors, Netflix has had a very significant
advantage given that it was a first–mover into the online
streaming distribution segment. Competition in this segment
has increased at a very quick pace over the few years since
their online streaming service was launched. The most
significant trend that has emerged is that, while the
customer base is getting larger, there are significant
numbers of competitors entering the market with the
intention of getting these new customers, as well as
current Netflix customers:
i. The result of this new competition will inevitably be
decreased prices within the segment, although this
ii. This trending lends support to Netflix’s past
strategies of investing heavily in R&D activities for
developing new distribution channels. If Netflix was
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
f. Their operations have provided them a competitive advantage
in that they perfected their operations methodology before
g. Operations managers—N/A
h. The operations process has not had to make significant
adjustments to operating in foreign countries, as it
5. Human Resources Management
a. Netflix’s current HR objectives are relatively clearly
stated: to hire and retain the best personnel that they can
acquire. Their entire business model has evolved into
6. Information Systems
a. IS objectives, strategies, policies, programs—N/A
b. Database, internet access—N/A
D. Summary of Internal Factors—see IFAS table
1. The strengths of Netflix that are presently most important are
the large user base, adaptability, and no outsourcing. In the
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
15-14
competition, and eroding margin all pose risks in both current
and future competitive market.
V. ANALYSIS OF STRATEGIC FACTORS
A. Situational Analysis—see SFAS table
1. Current economic conditions
2. Availability of broadband
3. Pricing
B. Review of Mission and Objectives
1. The mission and objectives are relevant in light of the strategic
factors. By addressing these issues in the situational analysis
Netflix will continue to evolve as the best entertainment
VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY
A. Strategic Alternatives
a. Current objectives can be met by more careful examination of the
domestic and especially global marketplace.
b. An alternative strategy for Netflix, in light of the direction of
the evolution of the industry and the Qwikster initiative, would
be to provide tiered levels of media. This would allow Netflix to
continue to provide their low–cost streaming and mail service
while providing those who want access to the latest content at a
B. Recommended Strategy
a. In terms of this strategy, it would really only impact the
business strategies, and the need to create new business units to
address entertainment needs above and below the current, all–
inclusive single price point option.
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
VII. IMPLEMENTATION
A. To implement this strategy, the company will need to define distinct
offshoots responsible for each service level. These will need to be
B. These programs are financially feasible given the current profit and
investment into R & D. Timelines and priorities should be defined,
VIII. EVALUATION
ION AND CONTROL
A. The current IS has the capacity for this implementation, and for
measuring results and deliverables.
B. Stronger control measures will need to be developed to implement and
define the different units within the organization.
a. Standards and measures will reflect those already in place.
b. Current reward systems are based on stock performance, which will
allow for the market to decide if this has been a success. All
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
15-16
EXTERNAL FACTOR ANALYSIS SUMMARY
Key External
Factor
Weight
Rating
Weighted
Score
Comments
Opportunities
1. Economic
Downturn
.10
3
0.30
Demand for movie
rentals should
increase.
4. The Mobility
of Internet
Access
.25
5
1.25
The mobility of
internet access has
increased with the
uses of tablets,
smartphones,
laptops, and e-
readers, in
addition to
televisions and
desktops.
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
Total Scores
1
3.80
EXTERNAL FACTOR ANALYSIS SUMMARY
Key External
Factor
Weight
Rating
Weighted
Score
Comments
Threats
1. Economic
Downturn
.10
4
0.40
People will tend to
spend less on
nonessential goods and
services, such as
movie rentals.
3. Suppliers
.20
5
1.00
Have to have access to
all major movie
studios; there cannot
be any gaps in your
offering.
4. Vertical
Integration
.15
2
0.30
There is also a major
potential threat that
suppliers (movie
companies) could enter
the market by
integrating vertically
and offer streaming
directly to consumers.
INTERNAL FACTOR ANALYSIS SUMMARY
Weight
Rating
Weighted
Score
Comments
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
15-18
0.20
4
0.80
With 270 million
broadband users
globally, there is
vast potential for
growth, especially
internationally where
only 3 percent of
Netflix customers are.
0.30
5
1.50
Netflix increased its
investment in R&D 60
percent in FY2011. In
a technology driven
industry, this
increase in R & D is
imperative to maintain
a competitive
advantage.
1
INTERNAL FACTOR ANALYSIS SUMMARY
Key Internal Factor
Weight
Rating
Weighted
Score
Comments
Weaknesses
1. Dependence on
Content Rights
.30
4
1.20
Content providers
have options with
whom to license
their content to.
HBO is one of
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
example which is not
featured on Netflix.
million broadband
3. Low Entrance
Barriers for
Competitors
.25
4
1.00
Structurally, there
are virtually no
barriers to entering
the streaming
content service.
Broadband is easily
accessible.
5. Eroding Margin
.20
2
0.40
In keeping prices
low, Netflix is
facing increasing
pressure to maintain
margin, estimated to
drop from $11.56 per
user as costs
increase
Total Scores
1
3.35
STRATEGIC FACTOR ANALYSIS SUMMARY
Key Strategic Factor
Weight
Rating
Weighted
Score
Duration
S I L
Comments
1. Current
Economic
Conditions
0.05
3
0.15
X
The current
conditions pose
a unique
situation. With
less disposable
income spending
is decreasing;
however, with
the low-cost of
content through
Netflix, they
have the
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
15-20
opportunity to
capitalize on
lower-cost
entertainment.
3. Pricing
0.20
2
0.40
X
Keeping with
Netflix low-
price is putting
increasing
pressure on
their margin,
which is
declining with
increasing
content and
associated
costs.
Continued
5. R & D
0.10
4
0.40
X
In a technology–
driven industry,
increasing
capabilities
including movie
recommendations
and
accessibility
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
become
paramount.
7. Vertical
Integration
.05
1
.05
X
Vertical
integration can
be a solution to
the pressure of
suppliers and
low entrance
barriers.
9. Branding
0.15
4
0.60
X
The Qwikster
debacle eroded
part of Netflix
user base and
image. In the
future, Netflix
will need to
increase prices
CASE 15
Netflix, Inc.: The 2011 Rebranding/Price Increase Debacle
15-22
management
Total Scores
1
3.05
FINANCIAL RATIO ANALYSIS
2011
2010
1. Liquidity Ratios
Current Ratio
1.49
1.64
Cash Ratio
0.41
0.50
2. Profitability Ratios
Net Profit Margin
7.06
7.44
7.37
Return on Equity (ROE)
3. Activity Ratios
Networking Capital Ratio
5.29
8.70
Asset Turnover
1.04
2.20
Fixed Asset Turnover
Days of Cash
4. Leverage Ratios
Debt to Asset Ratio
Debt to Equity Ratio