Tuesday, February 26, 2013

Netflix: Positioning and Marketing

By Lisa Bauman, Nina Deal, Peter Ishak, and Steven Johnson

In this report our group will show current market characteristics that Netflix competes in and explore segments in the market that would most benefit from Netflix’s services. We will define Netflix’s target market. Then, using a perceptual map, we will show how Netflix is currently positioned in the market and make any suggestions, if needed, for repositioning.
The Market
Market Characteristics
Netflix operates within the highly competitive media streaming market that has been forecasted to increase tenfold from $1.3 billion in 2007 to $12.5 billion in 2017. It offers physical media rentals which are being phased out due of lack of demand that has been occurring since 2012. Netflix holds the lead in program memberships and since Comcast, its closest competitor, experienced a net loss of more than 260,000 subscribers in Q4 of 2012, Netflix shows potential to keep the lead (Rosen).
In 2011 competitors began aggressively marketing to compete with the streaming leader. Blockbuster offered lower pricing and less wait time for new releases. Pay TV companies like DirecTV and Comcast Xfinity ran ads to appeal to people interested in early release dates. Redbox gained customers with low prices and free movie rentals through Facebook and Twitter. Hulu Plus offered access to Gamefly. Amazon Instant Video and Wal-Mart entered the market. Dish offered access to media through the Blockbuster Movie Pass and Verizon and Redbox partnered to offer streaming services. (Digital Movie Sales; Holleran). Despite these aggressive competitors, Netflix holds the lead with over 30% market share (Thomas).
Segments Available
            Geographic and Geodemographic
The United States geographically has the most widespread availability to access and use than any other country and contains the majority of Netflix patrons. Netflix depends on this segment to maintain its continued success (Online Streaming Video). The global market poses a tremendous opportunity for growth with new customers as technology advances and more countries have internet and device capabilities. Still, expansion is costly and Netflix’s plans for international expansion have been slowed to help reduce the financial burdens (Wilhelm). In all countries the geodemographic locations that are most likely to benefit from Netflix services are urban environments that support the technological streaming requirements and supply devices for streaming to populations with the income to afford them.
            Demographic, Psychographic, Benefits, and Behavioral
Both 18-24 year old males and females exhibit the greatest use of online and streaming; approximately 3.7 hours of video content per a week (Online Streaming Video; Appendix B). People in this age range represent millions of potential customers. This demographic demonstrates phychographic qualities in lifestyle habits such as more disposable income, time, technological capabilities and interest (Lenhart et al.). Also, this age bracket tends to live at home; creating a market for families. This is likely why Netflix's advertising in 2011 depicted families viewing Netflix in modest suburban homes and in 2012 Netflix began offering children's programming and video games (Digital Movie Sales; Holleran.
Target Market
Netflix’s target market should be US customers because these customers have the technological capabilities and earn the income needed to purchase Netflix’s service (USA QuickFacts; Lenhart et al.). Additionally, Netflix spends less to market to a local, loyal customer base that will tend to spread marketing information by word-of-mouth. Even though the age bracket of 18-24 exhibits the largest benefiter of the service, the demographic tends to be lower earning or even income dependent on families and parents. For this reason we will expand our age bracket to the average parenting ages of 19 - 40; representing a potential market share increase due to its high percentage in the US population (USA QuickFacts, Appendix A). Although the US is a time-poor society, strategic marketing that utilizes customer needs will prove successful. This target market is very reachable as most have access to internet and media devices. Also, since customers have limited time to leave the house for entertainment, streaming has become in high demand. Although we suggest this target market, we want to emphasize that as technology in the global market expands, Netflix will need to move more aggressively to keep its position. This target market will need to expand over time including the international customer.    
Competitive Positioning
Fig 1 by Steven Johnson
To understand Netflix's competitive position we have created a perceptual map (Fig. 1). Here Netflix’s most similar competitors are shown: Comcast Xfinity, Amazon Prime, Redbox Instant, Hulu Plus, and Crackle. This group of competitors offers one common service: at-home streaming of movies and television programs in broad ranges of formats. In this diagram competitors are evaluated for media and devise availability and value (or price relative to offering).

Crackle is the outlier in the group because it offers only about 250 movies and 50 TV shows, but they are available on most devices for free (Bertucci). Comcast Xfinity falls at the opposite end of the map. It is bundled with cable and internet and offered at a significantly higher price point. Additionally, customers are limited because most media must be enjoyed on a Comcast cable box (Rosen). Amazon Prime is offered on a wide range of platforms, but the majority of content must be rented or purchased rather than available by subscription (Bensinger). Hulu Plus is the most similar service, offering many fewer titles but providing more current programming than Netflix and at the same price. Still, value is diminished because subscribers are required to watch commercials and customers are limited to computer viewing for many popular programs (Rosen). Redbox Instant is a wild card. Currently in beta testing, its 10,000 members receive a similar service that includes a small number of DVD rentals for only $6 per month. This value is diminished since Redbox Instant only offers approximately 4,200 streaming movies and no television programs. Redbox's service is also limited by exclusive contracts with specific platforms, like XBox, that limit use on other devices (Cheng).

Among the competitors Netflix can boast the highest echelon of availability; offering DVD or Blu-ray Disc shipping, streaming on nearly all smartphones, tablets, computers, web TVs, gaming consoles, and internet-connected home theater devices (Bertucci). Netflix ranks very high on the value scale. The company provides more than 100,000 DVD and Blu-ray programs and approximately 100,000 programs via streaming starting at $7.99 per month (Rosen; Bertucci). Although services like Hulu Plus can offer some media sooner than Netflix, the company leverages its value with a high-tech movie suggestion service unlike any competitor.
Strategy and Recommendations
Our team agrees with Netflix’s strategy. To attract international customers and keep current customers from switching to services that offer fresh media, Netflix is producing and licensing more content at the same low price point. Netflix's positioning strategy is to expand availability first in the US by maximizing the diverse devices that Netflix media can be utilized on and second by moving to international markets. Netflix founders stated intent to provide “the very best new and original content on their already robust platform to an expanding international audience;” a strategy that will allow them to remain the pacesetter in value and availability for the foreseeable future (Segal).
Conclusion
We found that Netflix competes in a highly aggressive market. We suggested that its target market is 18-40 year old US adults, but we caution that energy should still be motivated to target international customers. We found that Netflix has pinpointed the strategy and positioning that we suggest by investing on producing and licensing new content and expanding to international markets. For this reason we suggest that Netflix does not require repositioning at this time.
APPENDIX A
 




SOURCES CITED
Bensinger, Greg. "Amazon Vs. Netflix: Streaming Battle Heats Up." Wall Street Journal (Online): n/a. Feb 01 2013. The Wall Street Journal. Web. 10 Feb 2013. <http://search.proquest.com.proxy.lib.pdx.edu/docview/1283379956/13C379DD4844BA46A2C/1?accountid=13265>
Bertucci, Kristie. "Netflix vs Crackle (Comparison)." Gadget Review. Feb 07 2013. Web. 9 Feb 2013. <http://www.gadgetreview.com/2012/02/netflix-vs-crackle.html>.
Cheng, Roger. "Redbox Instant is no Netflix Killer." C|NET. Jan 09 2013. CBS Interactive Inc. Web. 09 Feb 2013. <http://ces.cnet.com/8301-34435_1-57563123/redbox-instant-is-no-netflix-killer/>
Holleran, Joan. “Movie Consumption at Home-US-May 2011”. Mintel 2011. Web. 09 Feb. 2013.
Hulkower, Billy. “Digital Movie Sales and Rentals-US-August 2012”. Mintel 2012. Web. 09 Feb. 2013.
---. “Online Streaming Video-US-November 2012”. Mintel 2012. Web. 09 Feb. 2013.
Lenhart, Amanda, Kristen Purcell, Aaron Smith, and Kathryn Zickuhr. "Social Media and Young Adults." Part 1: Internet Adoption and Trends: Who's Online. Pew Internet & American Life Project, 3 Feb. 2010. Web. 14 Feb. 2013.
Rosen, Jared. "2013 Showdown: Netflix vs. Hulu Plus." Information Space. Jan 07 2013. Syracuse University School of Information Studies. Web. 09 Feb 2013. <http://infospace.ischool.syr.edu/2013/01/07/2013-netflix-vs-hulu-plus/>
Segal, David. "The Netflix Fix." The New York Times Style Magazine. Feb 08 2013. The New York Times Company. Web. 10 Feb 2013. <http://tmagazine.blogs.nytimes.com/2013/02/08/the-netflix-fix/>
Thomas, Owen. "Online Video Piracy Is Fading Away, Thanks To Netflix." Business Insider. Business Insider Inc., 07 Nov 2012. Web. 1 Feb 2013. <http://www.businessinsider.com/netflix-bittorrent-sandvine-report-2012-11>.
"USA QuickFacts from the US Census Bureau." USA QuickFacts from the US Census Bureau. United States Census Bureau, nod. Web. 12 Feb. 2013.
Wilhelm, Alex. "Despite ‘very successful’ Nordic launch, Netflix plans slow international expansion in 2013." TNW: The Next Web. The Next Web Inc., 23 Jan 2013. Web. 14 Feb 2013. <http://thenextweb.com/insider/2013/01/23/despite-very-successful-nordic-launch-netflix-plans-on-cooling-its-international-expansion-in-2013/>.

** For BA311, Marketing Management, Portland State University, Winter Term, 2013

Sunday, February 3, 2013

Netflix Environmental Scan /SWOT Analysis


By Lisa Bauman, Nina Deal, Peter Ishak, and Steven Johnson

      In this document we will discuss in detail the threats, weakness, opportunities, and strengths that will affect Netflix within the next 18 months. We will examine Netflix's competition and discover who its strongest competitors are. We will also look at how Netflix is responding to this information in the market.

Environmental Scan
Opportunities
The environmental scan has shown three main opportunities for Netflix's continued success both demographically and technologically (Fig. 1).  Analysts suggest that the greatest opportunity Netflix possesses is its ability to expand into in-house, Netflix-owned, original programming.  Netflix's second opportunity goes hand-in-hand with the first: in-house content gives way to potential expansion into international markets (Stelter). And lastly, as Bob Cringely predicted in 2011, crossover from broadcast TV to internet TV is increasing due to cost and widespread availability. All of these opportunities, when acted on, will create a competitive edge that will differentiate Netflix from competitors and allow expansion both locally and internationally.
Opportunities
Threats
International Growth
Greater Competition
Original In-House Programming
Discrimination From ISP's

Fig. 1: By Nina Deal and Lisa Bauman
Demand for Internet TV






Threats
The legal and economic environment that the firm operates in shows its greatest threats. Netflix may face discriminatory restrictions from Internet Service Providers (ISPs). In 2012 Marcia Clemmitt explained that "ISPs might consider it their financial interest to slow content traffic to ... competitors [like Netflix] to gain an edge over them." The second threat is strong competition from competitors such as Coinstar and Dish Network. Analysts believe that to gain independence from pre-existing, licensed material, Netflix may need to begin diversification of their own content quickly. Since most major studios and television networks are owned by overarching companies, competitors such as Hulu and Amazon may have the opportunity to license the same content and offer services more competitively to price-savvy customers (Weinman).

Strengths and Weaknesses
Strengths
Netflix enjoys a very well known national brand name; servicing more than 30 million patrons (Company Timeline). Its combination of loyal subscribers and diversity of streaming programs represent Netflix's greatest strength.  Competitors are either less widespread, like Hulu, who is only available in the United States and Japan or limited by a smaller selection of programming, such as Redbox Instant, that launches less than a tenth of the titles that Netflix offers on fewer devices (Will Redbox Instant, International).
Weaknesses
      Netflix's  physical media delivery service is its greatest weakness. More than two years ago Hastings predicted that the market for DVD and Blu-ray Discs would decline and he was right (Roettgers). Since that announcement Netflix has focused entirely on it streaming service, value adding features, and partnerships (Nakashima).
SWOT Summary (Fig. 2)
Netflix has a critical combination of membership, brand awareness, and accessibility that allows them to be competitive with similar streaming content providers.  To cope with the threats they face, Netflix must redirect resources from its delivery services to enhance strengths.  Providing ever-expanding streaming content will enable Netflix to serve and attract an even wider base of customers.

Competitive Landscape
      Since its first start on 1997, Netflix has been the leader of the video streaming business. The company gained more than 25% of market share within its first ten years and it now enjoys more than 32% of the current market (Thomas, Netflix Revenue). Netflix's success has motivated big competitors to get in the game by providing similar services. These direct competitors (Fig. 3) have lead to the decline in Netflix's market share since the beginning of 2012.
      In addition, aggressive growth in communication technology has lead to an increase in indirect competitors. The two main indirect competitors are Youtube and video piracy file-sharing websites like BitTorrent and BearShare. Consumers turn to these services because video streaming is available without subscription fees; an attractive option in a struggling economy where consumers continue to seek cheap and free sources of home entertainment (Thomas).
Direct Competitors
Indirect Competitors
Coin Star
Youtube
Dish Network
Video Piracy File-Sharing
Amazon's Amazon Prime

Hulu

Comcast's Xfinity


Fig. 3 by Peter Ishak and Lisa Bauman



Gauging Competition
There is little or at least level threat across the board for restrictions on data streaming in the entertainment streaming industry. Public and private positions both agree that restrictions are a bad idea. Netflix's general counsel David Hyman explains that "bandwidth is cheap and plentiful and will only grow more so with time, there is no good reason for bandwidth caps and fees to take root (Dampier)."
      It is true that pirating cites take customers away from Netflix, but they do not pose as great of a threat as Amazon and Comcast. Because of Netflix's "wide selection, relatively low monthly price compared to cable-TV subscriptions, and speed of delivery, few people opt to wrestle with the complexity and delay of [pirated] file downloads (Thomas)."
      Amazon has posed the largest threat since 2011 when it began offering streaming as a part of its Amazon Prime service designed to provide free shipping to its subscribers. Although Amazon appears to stay committed to offer this streaming service mainly as a way to attract new customers, its deep pockets and base of loyal customers should have Netflix concerned. In 2012 content growth increased by 70% and Amazon prime had between 3 to 5 million subscribers. Additionally the company plans to attract 5 million additional subscribers by mid 2013 (The U.S. Netflix Story).
      Although Comcast's Xfinity service offers less content than its competitor Netflix, it is priced much lower and is more motivated to compete directly with Netflix. Worst of all, Comcast possesses established relationships with media companies that will soon gain the leverage needed to gain access to licensing rights that allow content to mimic its competitor (The U.S. Netflix Story).

Conclusion
Netflix is taking its competitors and SWOT analysis seriously. The company plans to capitalize on internet TV popularity both internationally and within US by focusing on internet streaming services and especially expanding and producing its own content. This strategy will slowly phase out its weak performing physical media delivery service and keep Netflix ahead of competition. 

SOURCES CITED 
Clemmitt, Marcia. “Internet Regulation.” CQ Researcher 13 Apr. 2012: 325-48. Web. 30 Jan. 2013.
Cringely, Bob X. "Internet Television Will Replace Cable Television." Popular Culture. Ed. David Haugen and Susan Musser. Detroit: Greenhaven Press, 2011. Opposing Viewpoints. Rpt. from "The Future of Television (Part II)." I, Cringely: Cringely on Technology. 2009. Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.
Dampier, Phillip. "Netflix: “Cost of Providing 1GB of Data is Less Than One Cent, and Falling"." Stop the Cap!: Promoting Better Broadband, Fighting Data Caps, Usage-Based Billing, & Other Internet Overcharging Schemes. STOP THE CAP!, 8 Mar 2012. Web. 1 Feb 2013. .
"Netflix Revenue." Macro Axis: Simple Personalized Investing. Macroaxis.Inc. Web. 26 Jan 2013. .
Stelter, Brian. "A Resurgent Netflix Beats Projections, Even Its Own." New York Times 23 Jan. 2013: B1(L). Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.
"The U.S. Netflix Story: Evolving Competition Threatens Growth." Trefis: What's Driving the Stock. Trefis, 16 Oct 2012. Web. 1 Feb 2013. .
Thomas, Owen. "Online Video Piracy Is Fading Away, Thanks To Netflix." Business Insider. Business Insider Inc., 07 Nov 2012. Web. 1 Feb 2013. .
Weinman, Jaime J. "A fix for Netflix: its subscriber base is unrivalled, but without its own hit shows, can the video-streaming service survive?" Maclean's 26 Nov. 2012: 54. Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.
Yu, Roger. "New customers boost Netflix." USA Today 24 Jan. 2013: 01B. Gale Opposing Viewpoints In Context. Web. 30 Jan. 2013.

** For BA311, Marketing Management, Portland State University, Winter Term, 2013