Strategy and the Global Competitive Environment

Contents

Introduction.

Future scenario.

STP.

Segmentation.

Targeting.

Positioning.

Ansoff matrix.

Market development

Product development

Market penetration.

Diversification.

Value Proposition.

Research-Understanding the users.

Marketing mix.

Product

Price.

Promotion.

Place.

People.

Processes.

Physical evidence.

Conclusion.

Introduction to Strategy and the Global Competitive Environment

The most basic question every business has to deal with is; "what do you do?". This might appear a simple question but the way business decide reverberates throughout the organization, from its values to the way it executes its daily operations. This is where the concept of value proposition comes in. In its most basic form, the concept deals with the way services and products offered by a business benefit the customers (Payne, Forw & Eggert, 2017). It presents the compelling reasons why prospective buyers should become a customer and enunciates the features and benefits of the deliverables which set the business apart from various alternatives in the market. However, the simplicity of this concept is what makes it challenging, because most of the time it is quite hard for businesses to determine the value they are offering in a concise, interesting and distinct manner. Still, business spends considerable efforts to ascertain their value proposition cause not only it helps potential customers to quickly understand what is it exactly that the company is offering, but also creates a strong differential between the business and its market competitors.

In addition to this, a distinct and clear value proposition attract the right prospects and improve the quantity and quality of the prospective leads. But most importantly, a value proportion is important for a business as it improves the understanding and engagement of customers and provides clarity of messaging (Voigt, Buliga & Michl, 2017). This consultancy report presents the value proposition which Netflix can capitalize on for addressing the plausible future scenario for becoming a dominant player in the TV and video industry. In addition to this, the report also develops a range of strategic options for the company and recommends effective strategy which should be implemented by the company in the next 5-10 years for the same scenario. The report uses a variety of marketing and management tools to determine what makes Netflix different from its competitors and the market segment it serves.

Future Scenario

The highly dynamic nature of TV and video market is characterized by disruptive digital players, emerging new markets, and quickly changing customer demands. However, considering the key drivers behind the industry, the most probable future scenarios include the dominance of digital platforms, the dominance of large global content owners, the dominance of broadcasters or an industry with no dominant players. From the given plausible scenarios, this report deals with the scenario in which there are no dominant players and each content producer and broadcaster need to emphasize its strengths, and only appropriate investments and focused strategy will enable one to secure a strong market position. In this scenario, the entire industry has transformed into a diverse ecosystem with no dominating players. In its place, customers are served by different platforms. The main concern in this scenario is of protecting the local content; therefore, strong regulations are in place to do so.

STP

One of the most important steps in determining what the target market is. This helps to answer where the business should compete and the way it should do so. To determine the target audience for the marketing effort, STP is the most popular approach. Here, STP stands for segmentation, targeting and positioning (Perreault, 2018). This approach helps ascertain the audience that should be at the centre of marketing efforts and it realizes this by identifying the most valuable market segment for the business and then creating an effective marketing mix and product positioning strategy for the targeted segment.

Segmentation

The sector in which Netflix operates, i.e. TV and Video industry, is quite dynamic which results in constant change in market tastes and preferences. This is one of the reasons why Netflix takes an interesting approach to its audience. Rather than following the traditional approach and segmenting the market in big blocks of population, Netflix divides its more than 139 million global customers into small "taste communities". This means that Netflix is primarily concerned with the taste and preferences of its customer base (Jenner, 2018). There are approximately 1300 of these small communities and they also include niche categories like health-conscious food titles or a subset of anime which is characterized by titles like "Ajin” and “Fullmetal Alchemist”. The underlying driver behind this approach is that it allows the company to figure out proper recommendations for each segment, which ultimately drives the marketing efforts. Netflix uses these clusters to make connections between different tastes and preferences (O’Donnell & Huntington, 2020).

Moreover, as the spokesperson of Netflix mentioned it his public address, the place of birth, age, gender and other demographics are not relevant or indicative of the content one might enjoy and that time after time, what the customer demand transcends the stereotypical predictions. However, considering the scope of this analysis, it is important to divide the market into distinct strata according to the current practices of the company and its future progress (Aviles-Santiago, 2019). Therefore, the market segmentation of Netflix is based on age groups. The first age group is of children between 6 to 15-year-old, and the second one is of adults between 15 to 75-year-old. The reason that the segment is so vast and does not include key areas is as Netflix has itself found out; such factor does not contribute towards better marketing efforts (Fernandez Gomez & Martin Quevedo, 2018).

Targeting

Under the targeting section, the potential and commercial attractiveness of each segment are evaluated to facilitate the business decision making regarding product positioning. According to Jenner (2016), around half of Netflix members regularly watch kids’ TV shows or movies, and the segment has tremendous potential for long term growth. The financial viability of this market segment is evident by the fact that Netflix is spending around $5billion on TV and movies, and as Chief content officer of Netflix puts it, on “doubling down on kids and families”. Around 20 of the 70 new and upcoming original shows of Netflix are geared specifically for kids. Moreover, the rise of Netflix is also largely been supported by young viewers. This segment is becoming even more attractive considering that viewers of all ages are drowning in content to watch (Khan. 2020). Varadarajan (2020) suggested that kids are also shifting towards digital aggregation platforms which will hurt cable networks. Netflix launched its kids’ section in 2011, by acquitting a lot of cheap reruns. The move proved to be successful and the while its competitors like Nickelodeon, saw rating crumbling in subsequent years, Netflix’s viewership grew (Jenner, 2017).

The second market segment is of adults between 15 to 75 years old which is another growing segment as the potential customer is switching from cable tv to online streaming platforms. The online streaming market in was valued at $38.55 billion in 2018 and is projected to be a $150 billion industry by 2026 (Pirro, 2018). Cloud-based streaming services are becoming popular among the said customer base owing to improve data accessibility. Furthermore, North America and the Asia Pacific are the largest markets for such services (Johnson & Woodcock, 2019), given the popularity of over the top (OTT) solutions and the growing trend of mobile video streaming (Crawford, 2016). Considering the increasing growth in this segment that it is attracting new competitors which are ultimately eroding the current consumer base of Netflix. Netflix needs to address the increasing competition from Amazon, YouTube and Hulu to dominate the market (Kumar, 2018).

Positioning

Netflix is a prime example of a company which underwent a digital transformation successfully. Netflix transformed itself from a movie rental service to the dominant player in the video-on-demand market. Currently, Netflix is not only the biggest but also the most significant player in the industry in terms of distribution and production of new content. Regardless of such changes in the business strategy, the core value proposition of the company has also been more or less same for years, which is "movie enjoyment made easy" (Daidj & Egert, 2018). Netflix positions itself as a brand which makes it convenient for the customer to enjoy their favourite content and contributes towards better engagement of users. This implies an emphasis on great content along with the implementation of sophisticated algorithms to help people find the titles they are much more likely to enjoy (Burroughs, 2019).

Considering the same, Netflix should take a consumer-centric brand strategy to deliver high-quality content to the consumer. This strategy is also pertinent considering that apart from high-quality content, there is not much Netflix can use to differentiate itself, because price competition among players like Netflix and Amazon is not a sound long term strategy. It is recommended that the company should opt for quality-based brand positioning to differentiate itself from the market through the delivery of high-quality video content (Halprin, 2018). Therefore, differentiation is the most suitable approach for Netflix as compared to cost leadership.

Ansoff Matrix

If Netflix needs to grow in this ever-changing industry, the company must find new ways to increase customer-based and to increase profits. This is where the Ansoff matrix, also known as the Product/Market expansion grid can help. The said matrix is a tool to analyse the risks associate with different business growth strategies (Chen, Liu & Chiu, 2017). The Ansoff matrix analysis of Netflix is mentioned below.

Considering the available options, Netflix can choose from market development, diversification, market penetration or product development.

Market Development

Market development can support the future growth of the company, but only as a secondary intensive growth strategy. This strategy works by selling the current online streaming services and content of the company to new markets. For instance, by implementing this strategy, Netflix can enter into new countries that can serve as a new market for business growth. Here, a company can use a cost leadership strategy to makes its services more attractive in the new market as compared to others through affordability (Aviles-Santiago, 2019). In these new markets, Netflix must gain a competitive advantage to generate profits.

Product Development

This is another one of the growth strategies that can support the expansion and development of the company. The objective of this growth strategy is to develop and offer new products and services in the current market. Netflix can use this strategy to gain competitive advantage through the effective development of new content for its subscriber base, whose time spent on watching such content contributes towards profits of the company (Burroughs, 2019). This drive for novel content in entertainment is a part of the pipeline business model inside the overall business model of the company. Moreover, success in this strategy depends on the way Netflix’s organizational culture embraces the innovation and development process as this strategy is inherently development intensive (Crawford, 2016).

Market Penetration

Under this growth strategy, business opts for expansion and delivery of their products and services in the markets. This strategy involves the sale of online streaming services in the market in which the company currently operates. Market penetration strategy's objective is to improve market share and revenue depending on the way Netflix maintains competitiveness to retain and gain more customers (Daidi & Egert, 2018). Other marketing strategies also influence the way this growth strategy works. For instance, the marketing mix of the company and business tactics can be used for market penetration. Furthermore, while using this growth strategy, the company needs to strengthen its business to successfully penetrate the digital streaming market even though the industry is highly competitive. The business strengths analysed through SWOT analysis can be used to strengthen the business to gain a competitive advantage (Fernandez & Martin, 2018).

Diversification

This strategy is not suitable for Netflix future growth as it involves high risk in terms of strategic decision. This growth strategy aims to facilitate the growth of the business through new operations outside the current business of the company, which is original content production and online streaming. The strategy can result in the growth of the company however, this will require a restructuring of the current organizational structure (Halprin, 2018). Through this growth strategy, the company can venture into other businesses and industries related to online video streaming and TV and video industry.

Value Proposition

The main aim of Netflix is to provide their clients with entertainment, it is so important to Netflix that it has slowly converted into their core value. But the question that stands is that how to draw out value proposition from the core value of any organization? the answer to this question lies with the customer needs and desires. If they are fulfilled it is quite possible that the organization can easily derive value proposition from their core value (Voigt, Buliga & Michl, 2017).

Research-Understanding the Users

Randolph and Hastings have hired professionals who have been a part of the video rental industry for far too long, they have keenly observed consumers for more than ten thousand hours. both the individuals have started to identify the buying behaviour of an individual. For instance, that is the reason for choosing a particular title? What is the reason that they did not choose another movie? The reason behind watching the movie for the second time? what is the reason why people take so long to find a movie? What is the reason that might make the consumers unhappy? Etc. all these questions helped the individuals to determine the value proposition of that particular product (Labato, 2019).

It was identified that ion some stores finding popular movies was quite easy as compared to niche movies. Because of which the movie enthusiast that loved niche movies had trouble in these particular stores. In these particular stores, only popular movies were showcased in the prominent shelf. – in the case of Netflix, the organization did not have a high cash reserve and because of which they were not able to top afford popular movies (Payne, Frow & Eggert, 2017). So Netflix used another strategy, the organization provide their users with old movies, niche movies and movies that were related to some event. This played a major role in the success of the organization as it played the role of a differentiation factor for the company (Chen, Liu & Chiu, 2017).

Another problem that was prevalent in the stores was that the customers were not catered to and due to which they were not able to find the movies they were looking for. This gave Netflix the idea of "automated movie recommendation programme” this directly led to customer satisfaction (Venkatesan & Shively, 2017).

Every individual knows that time is precious, because of which they try to save as much time as they can save while performing any job. In the case of DVD rentals, the consumers have to physically go to the stores, identify the movie they would like to watch, then find it and do the billing for that particular movie. The biggest problem with this particular scenario was that of the consumer chose more than one movie he/she has to watch the movies in the allotted time which was quite a tedious task for the consumers. If the DVDs were not brought back in due time then the consumers had to pay heavy fines which were not at all pleasing for the consumers and was bad for rental businesses (Neuhuttler, Woyke & Ganz, 2017). Randolph was able to identify the inconvenience that was being faced by the consumers, so he came out with the prototype of Netflix which was quite a user friendly and the people do not have to go to any store. Also, the people can choose the movie as per the director, actor, actress and other filters that were provided by the organization. the best part about Netflix was there was no returning deadlines or heavy fines which were quite appealing to the consumers (Wang, Huang & Tai, 2017).

Simply put, Netflix provided the consumers with a tool from which they can craft their very own experience. Moreover, in this scenario, Netflix can leverage a direct consumer relationship to drive the competition. Moreover, to do so, the company must emphasize its strengths and as there are no dominant players in the market, only focused, the strong and appropriate investment will secure its existence.

Marketing Mix

After determining the audience on which the marketing efforts are to be concentrated upon, the 7ps approach is used to evaluate and revaluate business activities.

Product

Under the marketing mix, the product refers to the deliverables of the company, that is, what exactly the company is offering to its target audience. In the case of Netflix, the company offers video-on-demand services which include TV shows and movies of various genres. For the first target market of children from 7 to 15 years old, the company can offer child-friendly content which can include reruns of classics like Sesame street or original production of new content (Wang, Huang & Tai, 2017). Moreover, for the adult audience, the company can offer more mature content which is suitable for the respective age category. But the product of the company will mainly include online movies and Tv shows (Shams, 2018).

Price

The company should also make sure that its target consumer base is happy to pay for its services and that product represents good value for money. The more competitive the pricing the better the company can grow and increase its consumer base (Voigt, Buliga & Michl, 2017). Therefore, the company should opt for competitive pricing across its market to deal with the increasing competition. Netflix can also use different plans to deliver its services according to the needs of the consumer base, for instance, a separate plan for HD and UHD. This form of pricing strategy covers the needs of the targeted market segment by offering several different options. While there is no limit in terms of the content which can be accessed, the quality offered varies in each plan (Venkatesan & Shively, 2017).

Promotion

Netflix has become a familiar and popular throughout the world in terms of online entertainment. In addition to the wide variety of content it offers, the main source of its popularity is developing original content. The focus of the company on quality and customer experience has helped it to facilitate user engagement and made is distinct and outstanding. The company can use digital channels for promotion such as advertisement on YouTube and social media websites (Shams, 2018). However, continued focus on customer experiences and original content is an important source for strengthening its brand image and reputation.

Place

Netflix is headquartered in the USA, but given the nature of its business operations, the company offers its services in more than 185 countries across the globe. Furthermore, since all of the business is executed online, its targeted customer based can access the content from anywhere with an internet connection (Perreault, 2018). Therefore, for both of the targeted market segments, the place of interacting with the business and consuming its content is not limited to any physical location.

People

Netflix is an innovating organization and not only in terms of customer experience and products but also in terms of organizational culture and HR management. The company has a unique organizational culture with around 8600 employees which foster collaboration and inclusion (Payne, Frow & Eggert, 2017). The company can use different teams to cater to the needs of each targeted market segment. For instance, there can be a separate team for creating content for kids while another part of the organization can deal with content creation and delivery for adult consumers (Neuhuttler, Woyke & Ganz, 2017).

Processes

The company delivers its services through online medium and anyone with a Netflix subscription can stream content across many devices over the internet. Moreover, the company also allows saving shows and other content offline by downloading it. Everyone with a subscription and internet-enabled device such as a tablet, laptop or smartphone can stream the content (O’Donnell & Huntington, 2020). However, a 4G connection is required since buffering can be an issue on the 3G network which will negatively influence the customer experience.

Physical Evidence

Numerous companies provide their services online and the only type of physical evidence in such cases is the physical device customers are using to access the virtual content. This is true for all social media, gaming and streaming services. The targeted audience can purchase and consume a wide variety of services, however, since Netflix is an established brand name there is more trust among customers. Therefore, apart from the content customers download or access online on their devices, there is not quite much which counts as physical evidence, excluding the infrastructure of the organization (Johnson & Woodcock, 2019).

Conclusion on Strategy and the Global Competitive Environment

In conclusion, a distinct and clear value proposition attract the right prospects and improve the quantity and quality of the prospective leads. Considering the scenario in which there are no dominant players and each content producer and broadcaster need to emphasize its strengths, and only appropriate investments and focused strategy will enable one to secure a strong market position. the market segmentation of Netflix is based on age groups. The first age group is of children between 6 to 15-year-old, and the second one is of adults between 15 to 75-year-old. It is recommended that the company should take a consumer-centric brand strategy to deliver high-quality content to the consumer. This strategy is also pertinent considering that apart from high-quality content, there is not much Netflix can use to differentiate itself, because price competition among players like Netflix and Amazon is not a sound long term strategy. In terms of value proposition, Netflix can provide consumers with a tool from which they can craft their very own experience. Moreover, in this scenario, Netflix can leverage a direct consumer relationship to drive the competition. Moreover, to do so, the company must emphasize its strengths and as there are no dominant players in the market, only focused, the strong and appropriate investment will secure its existence

References for Strategy and the Global Competitive Environment

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