International marketing - moon

Module: NBS8507 – International MarketingTutor: Dr.NimaHeiratiName: kezhangStudent No.: 14000815Word Count: 2,996Date: 05/05/2015Table of ContentsList of Tables (2)List of Figures (3)1. Executive summary (3)2. Situational analyses (4)2.1 General environment analysis (4)2.2 The customer environment (6)2.3 The competitor environment (10)2.3.1 The strengths and weaknesses of competitors (10)2.3.2 Industry and competitors analysis (13)2.4 Market attractiveness (19)2.5 Review of current marketing strategy and performance (20)2.6 SWOT analysis (21)2.7 Conclusion (23)3. Problem statement (25)4. Alternative strategies and alternative evaluation (27)4.1 Alternative evaluation (27)5. Implementation plan (31)List of TablesTable 1: PEST-DG analysis 4 Table 2: Primary customer (1997-2007) 7 Table 3: Primary customer (2007-2012) 8 Table 4: Secondary customer (2007-2012) 8 Table 5: The strengths and weaknesses of Netflix’s competitors 10Table 6: Porter’s five forces for DVDs rental 13Table 7: Porter’s five forces for online streaming16 Table 8: SWOT analysis for Netflix 21Table 9: Missing information and assumptions 24 Table 10: The main problems and challenges statements for Netflix 26 Table 11: Alternative strategies for Netflix 27 Table 12: Alternative evaluation for problem 1 27 Table 13: Alternative evaluation for problem 2 29 Table 14: Proposed actions for strategy 2 32Table 15: Gantt chart for strategy 2 34Table 16: Proposed actions for strategy 3 35Table 17: Gantt chart for strategy 3 37Table 18: Proposed actions for strategy 538Table 19: Gantt chart for strategy 5 39List of FiguresFigure 1: Key competitors of Netflix 10 Figure 2: Porter’s generic competitive strategies for Netflix201. Executive summaryThe report is based on the case study of Netflix that the movie rentals company operate in both DVDs rentals and online streaming market. The case introduces the changing market and competitors’ environment since Netflix found. Also, the case describes the stage of Netflix growth and development to become the most competitive company within the market. The report is aiming to identify the problems and challenges that Netflix faced and provide the strategies for address these based on the situational analysis.The situational analysis indicates the increasing competition and changing external and internal environments regarding to customers and competitors. Based on the situational analysis, the report will identify the problems that Netflix faced referring to the changing customers’ preference and increasing competitive advantages from competitor causing the problems of declining market share on DVDs rental and intensive competition in online streaming. Aiming to address these problems, three strategies will be developed in both short and long term through increasing products and services differentiations, and low cost. Then, the implementation of strategy will consider the importance of internal marketing and four sectors’ activities, and conduct both one-year and three-year timelines.2. Situational analysesThe situational analysis will be conducted by five analytic methods to identify and evaluate the macro-environment, customers and competition situations, and current marketing strategy and both internal and external environment of Netflix. The analyses will aid the further analysis of problems and suggested strategies for Netflix.2.1 General environment analysisTable 1: PEST-DG analysisIt is clear that the globalisation and the development of Internet and wireless service form the basis for the adoption of American culture and motivate the growth of Netflix. The cost reduction and high availability of DVD caused by the development of DVD technology shift the customer demand from few households own DVD player to quickly adaption of DVD to replace VHS that help the Netflix to successfully start the business in the early stage. The further development of Internet and wireless technology formed the basis for innovation in online environment. The innovation of these technologies drive another movement from physical to online environment. The study from some organisation indicated the increasing customer demand for these new formats of technologies and then the growth of market. Alongside, the case stated the increasing demand for home entertainment that all support the strong growth of home entertainment market. All these were the factors that drive the repositioning and changing strategy of Netflix.The customer backlash against the spinning off Qwikster in 2011 and the successful factor of Redbox of wide coverage of kiosk in U.S. indicated the customers’ preference of accessing service in convenient basis. Also, the economic recession caused by financial crisis in 2008 was the underlying factor that affect the customers’ preference of choosing low price movie rental alternatives and decline DVD sales.2.2 The customer environmentGenerally, Netflix targeted the customer who had Internet access and a penchant for movies. Before Netflix introduced streaming services in 2007, theprimary customer was mainly DVD users (Table 2). As the repositioning of Netflix, there were two main target customers including primary customer of online streaming users (Table 3) and secondary customer of DVD users (Table 4).In 1997, few American households owned DVD players due high cost and limited movie titles that caused a big challenge for Netflix to expand the business. The successful positioning of Netflix and the development of technology shift the customers’ preferences on increasing demand on DVD rental and home entertainment. Then, the successful strategy of Netflix that fitted custome rs’ preferences (expedited delivery, no hassle ‘time-extensions’,and low cost etc.) drive the fast growth of Netflix in early stage with 6.3 million members in 2007.During this period, Netflix suffered a loss of 405,000 paid subscribers in a matter of weeks in 2011 and a decrease of 1.7 percent paid subscriptions in third quarter of 2012 due to failure repositioning of spinning off Qwikster. The main reason behind thi s was that the strategy conflict with customers’ basis preference of convenient accessibility. For both customers, the privacy issue and moving preference on low cost alternatives due to economic recession were the important customers’ basis requirement.As for primary customers, the innovation of Internet and wireless, and globalisation allow Netflix to successfully reach wider customer coverage in the global stage with 26 million subscribers and 61 percent market share. Also, it influence customers’ pref erence of demanding availability of title amount and multi-platform streaming service to reach the viewing flexibility. It is worth to be mentioned that some customer still require original cable television programs that can become the potential opportunity for Netflix.The market for secondary customers was showing a decline phase with decreasing sales of 43.9 percent from 2009 to 2012. During this period, except the preferences listed in previous period, customers started to more concerned about convenient access to location and mobile applications. The result of Netflix’s repositioning could be directly indicated from this customer segment with only 30 percent market share in physical rental.2.3 The competitor environmentAlthough, the strong competition of Netflix take down the original industry giant –Blockbuster, Netflix had received more competition from other strongly growing competitors in both physical and digital rental service. Then the current key competitors of Netflix can be divided into two segment (Figure 1).Figure 1: Key competitors of Netflix2.3.1 The strengths and weaknesses of competitorsKey competitor inDVDs rental andonline streamingKey competitors inonlinestreamingThe wide coverage of Redbox’s kiosks, availability of online reservation and mobile applications provided the maximum convenience for customers to rent and return the DVDs. Alongside, the low price strategy successfully attract the customers during economic recession. Conversely, Redbox showed a relatively narrowly focusing on DVDs rental may lose its competitive power in fast growing online streaming market that could become the problem for its future growth.In fully digital side, Netflix received an intensive competition from fast growth of competitors. However, none of Netflix’s competitors yet had multi-platform streaming capability. Apple, Amazon, and Google used their exciting customer basis successfully entry the market with strong growth trend. Downloadable service, high-definition formats, seamless connection, and strong partnership bring competitive advantages for Apple. However, Apple’s service can only be accessed via its own products and service might bring inconvenience for customers. Unlike Apple, Amazon introduced its online streaming with additional service, low price, and varied devices accessibility that became its strength to earn market share from Netflix. Then, Hulu’s free service, varied devices accessibility, and large number of contents is the main factors that help the firm to compete strongly. However, both Amazon and Hulu cannot provide downloadable service that might become their shortcoming. Except this, the limitation of accessing free Hulu via website and advertisement replacement might annoy customers that weak Hulu’s competition. Lastly, the one-stop entertainment shop and varied devices accessibility of Google Play bring much more convenience for customers that might challenge Netflix’s market share. However, the limited partnership with film studios of Google Play bring the weakness that cannot have high amount of movie titles.2.3.2 Industry and competitors analysisThe industry and competitors analysis employs Porter’s five forces to evaluate two markets including DVDs rental (Table 6) and online streaming (Table 7).2.4 Market attractivenessIn DVDs rental market, market showed a declining phase due to the availability of new relatively convenient and low cost alternative –online streaming. Customers showed a decreasing demand for DVDs rental with a decrease sales of 43.9 percent. According to P orter’s five force analysis, the high threat from substitutes was mainly drove by the increasing competition of online streaming. The high bargaining power of suppliers and buyers, high intensity of competitive rivalry, and low threat of new entrants make the market low attractiveness for new entrants. However, for established firms, the low threat of new entrants might become the advantage for them to compete freely. However, the decreasing trend of DVDs rental could downgrade the market attractiveness. Then, it showed a moderate attractiveness for established firms.As for online streaming marketing, the innovation of Internet and wireless technology made the online streaming became a low cost and convenient way to access rental service. Customers showed an increasing demand and usage of online streaming that make the market more attractiveness. Based on Porter’s five force analysis, relative lower entry barriers made a moderate threat of new entrants, which combined with low threat of substitutes thatupgrade the market attractiveness. However, high bargaining power of suppliers and buyers, and high intensity of competitive rivalry make online streaming market a moderate attractiveness for small and medium new entrant firms, but high attractiveness for large new entrant firms and established firms.2.5 Review of current marketing strategy and performanceFigure 2: Porter’s generic competitive strategies for NetflixHybrid StrategyBased on the case study, Netflix owned the advantage of relative low cost and multi-platform flexibility that offered it a strong power to affect consumer decisions. Netflix operated in both DVD rental and online streaming market that can be seen as one of the element for broad differentiation as fewestablished firms did. The successful partnership with varied suppliers and large amount investment allowed Netflix to contain large amount of movie and program titles to achieve broad differentiation in both markets. The preference tracking software, multi-platform flexibility, and the global operation even more benefit its differentiation strategy to bring more convenience and benefit for customers. The wide coverage of distribution warehouses and expedited delivery of DVDs, and the constant innovation of online technology gave Netflix benefit of broad low-cost leadership. According to this, Netflix can be identified as using hybrid strategy that mixed overall low-cost and broad differentiation strategy.2.6 SWOT analysisNetflix used its wide coverage of warehouses, unlimited subscription service and convenient and expedited way of rent and return the DVD to successfully attract the customer and fit the customers’ need in th e early stage. These were also the key elements that allow Netflix to compete more stronglythrough differentiation. The strong partnership with varied studios allow Netflix to contain large amount of titles to outperform its competitors to better serve the different customers’ needs. Then, the multi-platform streaming capability and original programming allow Netflix even more differentia from competitors and fit customers’ needs.As for weaknesses,no physical stores or kiosks made the firm to lose part of customers who prefer the rental from physical stores. Furthermore, during economic recession, no rent-by-title service and no downloadable movie rentalservice did n ot fit the customers’ preferences on low cost and differentiated services. These brought negative effect for the firm’s competition that led to lose of market share.The market showed a fast innovation trend from VHS to DVD to Online streaming that was mainly drove by customers’ needs. Netflix successfully took the opportunities in this changing market environment. The increasing demand of home entertainment (video game etc.) and digital downloadable service reflected the customers’ changing preference in the very short period.The main treat for the market was the financial crisis in 2008 that changed custome rs’ preference in long term basis to low price rental service and decreasing phase in the movie rental industry. Then, the rising cost of content licensing further challenge the firm to earning more customers as the demand for differentiated titles. The increasing competition could provide customers more alternatives, but pressure for Netflix.2.7 ConclusionAccording to the analysis, Netflix had already made its most of its strengths to fit the opportunities. The differentiated DVD rental and online streaming service showed the highly match to the opportunities of increasing demand of DVDs and online streaming, and quickly replacing trend. Netflix showed its high product and service differentiation or product leadership and innovation and development of str engths based on customers’ needs. Aiming to reach the opportunities of demand for downloadable service and video game, Netflix can use its existing fast distribution channel, well developed partnership strategy, and multi-platform streaming capability to form the basis to covert its weaknesses into strengths. Aiming to achieve higher competition, it is relatively easy to improve its privacy management and marketing research that can better understand customers’ needs and better server customers.The threat of financial crisis led to several effects on customers’ preference on considering low price rent-by-title service that caused the decreasing trend in movie rental industry. However, the changing customers’ preference could also become the opportunity for Netflix to reopen the rent-by-title service that covert the weakness into strength to fit customers’ needs. Even though, Netflix still faced some liabilities and limitations including low market share in DVDs rentals, increasing competition, and rising cost of content licensing. Indeed, Netflix could constantly innovate its strategies and services to gain superior competitive advantage in intensive competition environment. Further, the firm could repositioning its DVDs rental through cost reduction, differentiated services to fit customers’ need and earn more market share in this declining but still profitable market.Aiming to make suggestions and strategies for Netflix’s problems or challenges, Table 9 will list the missing information and realistic assumption to support the further evaluation.3. Problem statementCurrently, Netflix emphasised largely on online streaming market with website promotion, large amount of investment into partnership and original programming, and multi-platform capability while less attention to DVDs rentals services. This strategy was successfully build the competitive advantage in online streaming with large market share and increasing revenue. However, it showed a shortcoming on DVDs rentals services that caused decreasing market shares to only 30 percent. Although, DVDs rentals market showed a decline phase, it still a profitable market for the firm to focus. Then, the customer backlash against the spinning off Qwikster and increasing price could be seen as biggest problems that Netflix faced. The reason for customer backlash was the firm’s strategy did not fit customers’ requirement for one-stop convenient shopping. Furthermore, the firm’s weak marketing research strategy at that time was the hiding problems that could not meet customers’ requirement. Netflix need to clearly conduct its marketing research before operating any strategies.As mentioned, the obvious problem for Netflix was the decreasing DVDs rentals market share to only 30 percent. One of the main reasons behinds this was Netflix’s current strategy of less attention to this market due to thedecreasing phase of DVDs rental market. However, DVDs rental market still showed a profitability that Netflix cannot loss it without any fight. The current strategy lead to no promotion on DVDs rental that might be the reason for this decreasing market share. Another reason was the increasing competition from its competitor – Redbox, which successfully gained the customers and market share from Netflix during economic recession. The success of Redbox was largely built on customers’ preference on low price rent-by-title service and convenient to access the kiosks that were considered as weaknesses of Netflix. Also, Netflix did not offer video game rental lead to loss of competitive power that allow competitors to take the market share from it. Additionally, the financial crisis and failure marketing strategy without marketing research can be identified as the trigger for this decline of Netflix’s market share.Although Netflix owned large marketing share of 61 percent in online streaming market, the increasing competition and fast growth of competitors bring huge pressure and threat the development of Netflix. This bring the challenge for Netflix regarding to remaining market share and profitability. The main reasons for the competitors to successfully and fast growing were the existing customer basis, and high innovation in service differentiation including additional services, downloadable movie rentals and high definition formats. No downloadable movie rentals service could become the reasons that weaken Netflix competitive power as increasing customers’ needs on downloadable service. According to the analysis, the problems and challenges for Netflix could be stated as following (Table 10).4. Alternative strategies and alternative evaluationAiming to address Netflix’s problem and challenge, some alternative strategies are developed to help Netflix’s to better compete with competitors (Table 11).4.1 Alternative evaluationAccording to the evaluation, the alternative strategy 2 can be identified as superior option for Netflix to address the problem 1. DVD rental market is in the declining phase that Netflix do not need to put much investment into this. The alternative strategy 1 requires large amount of investment that might increase the cost and cause unnecessary waste when market is no longer profitable. Also, building new physical stores or kiosks requirement a long-term period operate this strategy that might be seen as unsuitable for this declining market. Conversely, alternative strategy 2 requires relatively lower cost and shorter period to implement that can better fit with the market situation and Netflix’s strategic type and capabilities.Through the evaluation, alternative strategy 3 as the short-term strategy can help Netflix to increase its competitive power and prevent the loss of market share or even increase in the short-term period. It is the strategy that Netflix can choose to overcome the problem 2 with converting weaknesses into strengths. As for long-term strategy, alternative strategy 5 is more suitable to address the problem 2 due to more realistic, lower cost, and efficient. Also, the experience of successfully enter foreign market in the past can save cost for constructing the processes and relatively low risk compared with alternative strategy 4.5. Implementation planAiming to implement all these three strategies, it is important to conduct the complex and detailed market research into customers’ reaction and market potential. Within strategy 5, it is crucial thatNetflix apply in-deep and complex market research and select the most attractive market to entre. After the analysis of market research, the strategy should be approved by the senior executives and inform all the internal employees about the oncoming strategy. The feedback should be effective obtained from employees about the strategy to achieve internal consistency. This can help Netflix better implement thestrategy with the understanding and passion of all employees. Aiming to the achieve the cost reduction, Netflix can use the employee with experience to communicate with suppliers and entering foreign market to reduction the cost and time for employees training. Still, some basis training still need to be conducted. Additionally, it is important conduct the employee hiring process and employee training in foreign countries within strategy 5.The budget for each strategy should be approved by senior executives that allocate the fund for each activities. After that, Netflix should start to reach some suppliers to negotiate the partnership to adding small amount of products for test running. Then, Netflix can start running the test by putting the adding services and products in website to receive the feedback from customers in strategy 2 and 3. Although, strategy 5 cannot implement the test, the market research of this strategy is crucial. After the review of the test result, Netflix can enlarge the negotiation with partnership with revenue sharing agreement to reach more titles to attract the customers and reduce the potential cost. Then promotion stage for strategy 2 and 3 the firm can use cross-promotion agreement with game consoles manufacturers, games producer, and game information and review website. The promotion for strategy 5 is large based on the online environment to reduce the cost, such as YouTube, social media, website, and combined with some TV advertising.Table 15: Gantt chart for strategy 235Table 17: Gantt chart for strategy 3383940Table 19: Gantt chart for strategy 541。