How to Analysis the Netflix Inc. With the Current Market

Analysis of Netflix Netflix is a US-based technology, media, and Entertainment Production Company. It was established in 1997 by Reed Hastings and Marc for sale and renting of DVDs. However, the company focused more on renting and later expanded to streaming services in 2007. As of April 2021, Netflix had over 208 million subscribers, with 74 million in the US and Canada (Katz 2021). Currently, Netflix's primary business involves film and television series streaming services based on subscriptions. Also, the company takes an active role as a film and TV series producer and offers various Netflix Original content through its platform. The company operates worldwide except in some countries where its use is restricted due to political reasons. The company also crossed to a market capitalization of $100 billion in 2018 and recorded an all-time high market capitalization of $255 billion in January 2021, making it the highest among its competitors in the industry (La Monica 2018; Poniano 2021). It has been ranked as the 164th company in the Fortune 500 with 25 billion in revenue and 2.8billion profit (Fortune 2021). Netflix has acquired a large subscriber base globally due to its popularity and its focus on customer experience. For instance, the company provides users with a range of original content, resulting in the growth and sale of popular shows like the Money Heist. The company has also focused on technology to improve customer experience and improve its competitiveness in the market. For instance, the company's streaming interface is user-friendly and allows users to stream across different devices, caters to varying tastes and customer preferences in terms of language, video quality, and a wide range of content. In addition, Netflix has changed how people watch televised content since the online platform allows users to watch shows at their pace, rather than waiting a week to week for TV episodes to air (Lapwosky 2014). This paper will discuss the PESTEL, Porter's five forces, and Netflix's marketing strategy and recommend reducing competitive pressure. A PESTEL Analysis The PESTEL analysis is a crucial tool that helps businesses conducts an external analysis of factors that influence the business environment of any industry (CFI, 2021). In this case, the results of a PESTEL analysis provide valuable data that can be used to develop effective strategies for the company to maneuver the business environment while improving its sustainability, profitability, and competitiveness. For instance, understanding the industry environment prevents the investors or entrepreneurs from engaging in risky ventures. Political Factors Political factors have a significant influence on media, entertainment, and technology companies globally. Companies in this industry face government scrutiny in regard to data collection and use. For instance, governments are taking a strict stance against firms that collect and use user data to ensure data privacy and regulate data use and distribution (Pratap, 2020). Government taxation also plays a crucial role in the operation of the companies in this industry. Or instance, tech and media businesses like Netflix face high taxation in the European countries, which could significantly increase tax liability, leading to reduced profits. Also, some of the technology and media companies from the US, such as Netflix and others, do not operate in all countries due to government restrictions and sanctions. For instance, Netflix has been restricted by the US government from operating in Crimea, North Korea, and Syria due to government sanctions on those countries. In the case of China, censorship is present, which prevents the company from operating in the country. This means that Netflix and other companies in the industry must tailor their services based on the regional and local needs of the various governments. Economic Factors The economic factors also play a critical role in ensuring the profitability of companies in the media and technology industry. For instance, high employment levels and increased economic activity results in increased spending on entertainment and leisure, and people spend more on Netflix and other streaming companies. However, this was different in 2020 since the spread of coronavirus, and while the economic activities declined, Netflix and other streaming services experienced a rise in membership and service use. However, low economic activity or an extended period could affect the business since people will cut down entertainment use to save (Pratap, 2020). Also, unemployment levels have increased, and people might start cutting down unnecessary costs. Currency fluctuation also affects the business, especially since Netflix operates in over 190 countries (Farooq, 2019). This means that a weak currency impacts the company's bottom line. The different tax laws in countries the company operates in also impact its pricing strategy and profitability. Social Factors Sociocultural factors are also significant in the media, tech, and entertainment industries since they influence companies' marketing and operational strategies. For instance, companies in this industry must consider their global audience to cater to their varying tastes and preferences. Most Netflix users come from varied cultures and societies, which means the company must tailor the content to suit all those cultures. For this reason, the company has a wide range of content that is suited for audiences of different ages, religions, and languages. This has helped the firm attract many users globally since everyone can find appropriate content. Also, it is crucial to understand that the demographic composition of the world population has changed, with the Millennials being the primary target for major streaming companies. In this case, firms must ensure their content is tailored to meet the needs and tastes of technologically savvy consumers. Technological Factors These are critical factors that drive the growth and competition in the industry. For instance, technology is at the core of streaming companies, and a lot of technological stuff goes on all the time. For instance, Netflix and other companies in the industry focus on improving customer experience by improving the user interface, providing a best-in-class experience for subscribers, and improving the viewing experience. In this case, Netflix's source of competitive advantage is mainly technology. The company uses machine learning algorithms to recommend movies and shows to subscribers and has an advanced filtering system to ensure users easily find what they need. Improving the quality of the videos is crucial for Netflix to give viewers a great viewing experience. Due to the rising competition from businesses in the technology, streaming, gaming, and social media industry, the company must continuously improve its technology to overcome the pressure. Environmental Factors These are relevant factors, especially for large companies, due to the impact international businesses have on the environment and the firm's brand image (Gustafsson et al. 2019). Considering that Netflix and other online streaming companies operate online, they have less impact on the environment. In this case, companies in this industry must understand their environmental significance to ensure they minimize negative impacts as much as possible. For instance, Netflix and other streaming companies are heavy consumers of electricity in their operations. For instance, Netflix used over 94,000megawatt-hours of electricity in 2019. In this case, the firm must consider renewable energy to ensure sustainable use of resources and ensure sustainability in office operations by reducing wastage and increasing efficiency (Gustafsson et al. 2019). Legal Factors These are crucial factors in any business operations since they influence how business is conducted. For instance, the technology and digital entertainment industry is still changing and advancing, and this means the legal framework is a work in progress to regulate the industry. Big technology and media companies such as Apple, Facebook, Amazon, and others have faced several litigations which impact their profitability and operations. Compliance with these laws and regulations impacts Netflix's bottom line, while non-compliance is associated with hefty fines and may cause significant damage to the company's reputation. A Porter's Five Forces Analysis This is a strategic management tool that is used for analyzing factors that impact industry profitability. Netflix can utilize this tool to understand how the five competitive forces proposed by Michael Porter influence the company's profitability to help develop an effective strategy to improve the company's competitiveness and profitability. The Threat of New Entrants This force becomes a threat when the industry dynamics support start-up businesses to become profitable and well established. The threat of new entrants in this industry is moderate. This is because technology up-gradation is still evolving, and Netflix has been able to continuously innovate and adapt to the changing technological trends in the media and entertainment industry. For instance, the company shifted its focus from DVD renting to movie and TV show streaming. New entrants are also constrained by the high cost of acquiring licenses and content distribution rights from production studios. However, there are many entrants in the industry, but their presence does not threaten Netflix's profitability due to the competitive edge it holds in the market. The force is also significantly higher for existing companies that are launching streaming services. For instance, companies like HBO, CBS, and Rogers, and Bell Media introduced streaming services that have a competitive advantage in terms of content they own. However, Netflix has an already established brand equity, reputation, significant market share, and domination. Bargaining Power of Buyers Buyers in the tech, media, and entertainment industry have a high bargaining power than the service providers. For instance, the revenue firms in this industry generate depend on the subscribers in different locations globally. Buyers choose which provider to use and how much to pay, which means they can negotiate prices or switch to firms offering low prices. The bargaining power of buyers exerts a strong force since the switching cost is low, enabling customers to cancel their subscriptions and seek alternative media providers. In this case, Netflix cannot charge high prices and must adapt its pricing to the needs and demands of customers. The high bargaining power of buyers also means that companies such as Netflix must maintain service quality based on consumer needs and preferences. Suppliers Bargaining Power Suppliers in the media industry have high bargaining power. This is because suppliers have an edge on negotiations regarding licensing and distribution rights. For instance, most of the suppliers in this industry are production companies, studios, networks, and distributors who have full control over the prices that the streaming first must pay to have rights over the video content. This means that companies such as Netflix must maintain a good relationship and secure contracts with popular studios and networks to keep their customers happy. Also, suppliers' bargaining power is high since most of the suppliers, such as Disney, HBO, and others, have their own streaming services and may be less willing to share content as they have also become competitors. The suppliers are also developing strategic alliances and partnerships with production companies to stream their content, making suppliers stronger. For instance, Hulu, a Netflix competitor, has developed a joint venture with Disney, NBC Universal Television, 21st Century Fox Companies, giving Hulu more flexibility over Netflix in terms of content. According to Hayes (2020), HBO also engaged in an alliance with Hulu, which offers Hulu subscribers access to HBO content. Such alliances and partnerships continue to strengthen suppliers' bargaining power. The threat of Substitute Services/Products The streaming companies compete with various players in the media and entertainment industry, which makes the threat of substitute services very high. For instance, users can subscribe to different service providers at once, making the switching cost minimal. For instance, subscribers can cancel their membership and replace the service provider with an alternative, which provides very similar content. In addition, substitutes for streaming content include satellite and cable TV, movie theatres, and DVDs. However, the popularity of traditional media such as cable and satellite TV and DVDs has declined significantly, lowering the threat of substitution. It is also crucial to understand that some viewers, especially older people, may be reluctant to adopt new technologies since they consider them to be user-unfriendly and costly and prefer television and movie theatre viewing. This means that Netflix must find ways to improve the experience of these people to widen its customer base. Competitive Rivalry The industry Netflix operates is associated with high competitive rivalry. For instance, Netflix faces high competition from other home entertaining companies, including videos on demand, traditional broadcasters, and satellite/cable television networks. Netflix's direct competitors include Amazon and Hulu since they stream TV shows and movies, and some also create their content. Other competitors include networks such as CBS and Fox that provide consumers streaming services to their content. On the other hand, the high competition in the industry is associated with low product/service differentiation among video streaming providers. For instance, these companies compete on the amount of content and quality. In this case, the firms must strive to ensure they provide users with the content they want to watch. Key Features of Netflix's Current Strategy: Online Marketing Netflix's marketing strategy is founded on the 4Ps marketing mix model and is associated with how the firm takes its new products/services to the market (Isorite 2016). This model helps the company define its marketing options in terms of the product, place, price, and promotion to ensure the marketing approach meets specific customer needs. Also, the model defines the product/service's strategic position in the market (Al Badi, 2015). Product Netflix's primary product is the TV shows and movie content that is provided in different languages. The company also provides DVD rental services to over 2.5 million consumers who have subscribed to the service in the US (Stoll 2021). The firm offers a large number of original shows and movies that are in demand in global markets. The company has continued to produce original content by streaming shows and films it produces rather than leasing those produced by others. This has differentiated the company from the others resulting in increased popularity. Place Netflix is a global company with headquarters in the US. However, the company provides services to users in more than 190 countries across the globe. Considering that Netflix offers its services and content online, the content is accessible on the Netflix website and apps across all devices connected to the internet. In this case, the company delivers its content to web users through a subscription service. Pricing strategy Pricing indicates the amount of money that a customer must pay for a service or product. In this case, Netflix pricing provides the amount of money a user pays to purchase the video content. Pricing is crucial in business since it affects growth and profitability. In this case, a more competitive pricing strategy is associated with faster growth, increased customer base, and market share (Isorite 2016). In this case, Netflix prices its services competitively to ensure most people worldwide access its services. For instance, the company provides a free trial policy in the first month where a user can access Netflix content for free. This aims to attract prospective customers and turn them into actual customers through subscription. For instance, the company offers basic, standard, and premium subscription plans. However, the prices vary with the region due to currency changes. Promotion Strategy Netflix has become a popular company globally due to the vast amount of content it provides and its ability to develop original content. Also, the company produces high-quality content to improve customer experience, which has helped increase its popularity making the company distinct. The company has also invested significantly in marketing and promotion. The company's marketing expenses have increased significantly from $1.44 billion in 2017 to $2.7 billion in 2019. For instance, Netflix uses mainly digital channels to promote its brand and engage with customers. It uses social media platforms such as Facebook, Instagram, YouTube, and Twitter for promotions and consumer engagement. In this case, Netflix's business model has been successful, and nothing can slow it down. For instance, the company experienced its highest revenue during Covid-19, and its subscription rate has increased by over 40 million since 2020 (Stoll 2021). However, the company still faces challenges. For instance, Netflix faces competition when it comes to producing unique content in a highly competitive environment. For instance, companies such as Disney have invested heavily in production, which forces Netflix to invest more in content to remain relevant. In addition, Netflix must mind the new entrants in the market that have the capability to produce high-quality content. The technology is changing rapidly, and Netflix must ensure it changes to adapt to the emerging trends. The company also faces censorship and restriction challenges that must be addressed to improve its position and market share globally. Future Strategy Recommendations for Netflix According to Galpin (2019), Ansoff offers four basic alternatives for closing the growth gap when faced with a growth challenge. This includes market development, product development, market penetration, and diversification strategy. In Netflix's case, the selected intensive growth strategies are market penetration and product development. Market Penetration Netflix should consider market penetration as its primary intensive growth strategy. This strategy involves expanding business operations within the existing market to increase market share and attract more customers from the competitors (Galpin 2019). In this case, Netflix needs to sell more of its streaming services to existing markets worldwide. This will result in increased revenues and market share. However, this depends on the company's ability to gain and retain more customers in these markets. Netflix's 4Ps marketing mix will play a crucial role in determining the company's tactics in market penetration. There are various customer retention strategies that Netflix would benefit from. This is because customer retention is a significant challenge for the company due to the fierce competition in the industry. For instance, Netflix could start a customer loyalty program. According to McEachern (2020), this is an excellent way of compelling customers to use your services and also acts as a customer retention strategy to ensure customers continue to reap more benefits from the program. Loyalty programs provide existing customers with incentives such as rewards, discounts, and other special offers for using the company's services. This allows the customers to gain more value for using the company's services. Netflix can benefit from increased customer loyalty through such a program. For instance, the company could provide redeemable loyalty points for every hour of watch time and each subscription renewed to ensure customers garner points they can use to subscribe for free. The other customer retention strategy could involve improving customer support services. This could involve improving communication and expanding the communication channels to collect customer feedback and provide instant feedback to customers (McEachern 2020). Improving the support system would ensure Netflix improves customer satisfaction resulting in increased retention. Product Development This involves developing new products to meet the existing market's needs (Durmaz and Ilhan 2015 p. 211). Netflix can apply this strategy as its secondary intensive growth strategy to develop new content for the current subscribers who watch Netflix's content. This could add to the company profits since popular shows and movies would attract more subscribers to the platform. In addition, investing more in production would support the firm's current production business since it is part of the company's pipeline business model. However, product development requires extensive market research and heavy investment in Rand D to promote creativity and innovations. Focusing on innovation would differentiate Netflix's services from its competitors and shield the company from the competitive pressure and force of new entrants in the industry. For instance, innovations will ensure subscribers see Netflix's products as unique, and this will also help increase the switching cost since subscribers may not find these benefits anywhere else. To adopt product development, Netflix must also conduct customer analysis to understand what customers want in terms of content quality, pricing, performance in delivery, and customer experience. As long as Netflix adopts the innovative strategy, it will be equipped to handle the competition. Strategic Alliances and Acquisitions This is an agreement between two or more parties for engaging in collaboration or pool their resources for a common objective. Netflix should partner with other multichannel television providers to offer content. This can help the company grow its subscriber base and increase market share. For instance, Hulu, a Netflix competitor, has been involved in various joint ventures with companies such as Walt Disney, NBC Universal Television Group, and over's for content streaming and production (Hayes 2020). Finally, Netflix can also acquire smaller companies that provide different content or services to help with the product development strategy. Conclusion Netflix is unarguably the leading provider of online streaming services globally, with over 207 subscribers. The company has played a crucial role in transforming how content is viewed by transforming from a DVD renting company to online video streaming of some of the most popular shows. For instance, the company has changed how people view televised content since the online streaming services allow users to view their favorite shows at their own time and pace as they do not have to wait for the next time the show will be aired. Also, the company has continued to enjoy faster growth due to a focus on customer experience which has improved Netflix's competitiveness in the market. The PESTLE analysis indicates that Netflix faces various challenges associated with political, economic, sociocultural, technological, environmental, and legal factors. Also, Porter's five force model shows that there exists fierce competition in the industry due to the new entrants, high substitution, and high buyers' and suppliers' bargaining power. This means the firm must adopt the recommended strategies to gain a competitive edge and improve its profitability. For instance, Netflix must devise ways to retain existing customers and attract new subscribers in the existing market. This is because Netflix has already expanded its global footprint, which means market development would not be a priority strategy. Also, the company must focus on product development to ensure subscribers have new content available to them every time they need it. This will ensure the firm attracts more subscribers and increase market share. Forming strategic alliances and engaging in acquisitions will also help Netflix improve its product and reach.