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Jules Boletis
Gera Lenssen
Lotte Huisingh
Joost Verbakel
Ann-Kathrin Beiderwellen
Full Balance

 •   “We care for you and we are here to serve you!”
 •   Netflix takes care of the quality procedure to serve the customers
     needs.
 •   New activities are introduced to satisfy the customers with a DVD
     delivery service.

Fundamental Core Activities:

         Online DVD rental
                • Shipped through postal services
         Subscription instead of pay per view
                • No late fees
         Large movie assortment including old movies
                • Unlimmited shelf space
         Movie recommendation
                • Data base
End Value
                                “Freedom”                                “Convenience”



                                                                  Enjoyment of
                                                                 movie   variation

                                    Unlimmited                                         Postal
                 No late fee                                 Data base
                                    shelf space                                       services
Consequences


                          Up to 5                                     Customer
                          movies                                        input


                                    Large movie                                      Online DVD
                                    assortiment                                        rental
                                                              Movie
               Subscription                                recommen-
Attributes                                                    dation

                               All core processes of Netflix result in satisfying the customer
                               in their needs around freedom and convenience when looking
                               at movie rental. Next to that the actions, consequences and
                               end values are all results of the Full Balance strategy of
                               Martin‟s Quality Model.
   Value innovation is created when Netflix‟s actions affect both its
    cost structure and its value proposition to buyers.

   Due to `revenue-sharing agreements with the major studios´
    Netflix could rearrange its cost structure so that the company
    could offer lower rental prices per movie. However, the actual
    price was higher than those of competitors as
    Blockbuster, because Netflix offered subscriptions. In addition to
    that more cost savings were made by eliminating and reducing
    certain factors the rental movie industry competes on. (Please
    find those factors in step 2.)

   Netflix lifted up buyer´s value by raising and creating elements
    the industry has never offered; as for example raising rental
    periods and creating customer´s awareness of unknown movies.
    (Please find more factors Netflix created or raised in step 2.)

When looking at the criteria Value Innovation it is to conclude that
                  Netflix creates a Blue Ocean !
Eliminate                                             Raise

   `Bait and Switch` perceptions                        Actual prices (subscriptions)
    (recommendation system)                              National Network
   Stores with part-time employees                      Amounts of movies rented
   Sales of `old` movies                                Duration of rental
   Claiming late fees                                   Inventory selection
   Advertising of the newest movie                      Facilitating movie rental (home service)

Reduce                                                Create

   Ability to obtain a movie quickly (movie night)      Data Base of al subscriptions
   Importance of location choice                        Recommendation System based on data Base
   Share position of newest movies                      Demand for `old` movies
   Price per movie rented                               Home Service by internet order
   Level of difficulty to cancel subscription           Automatical replacement based on
                                                          recommendation system (if a movie returned a new
                                                          one is going to the client)

                                           Based on the Four Actions Model regarding Netflix´s activities you
                                           can say that those activities change the standard of competing
                                           factors. Netflix eliminates; reduces; raises; and creates new
                                           competing factors inside the movie rental industry. For that
                                           reason it is valid to say the company is creating a Blue Ocean !
By making use of the Strategy Canvas it is easier to determine in
what the competition is currently investing, on what factors the
industry currently competes and what customers receive from
the existing competitive offerings on the market.

The horizontal axis captures the range of factors the industry
competes on and invests in.

The vertical axis captures the offering level that buyers receive
across all these key competing factors.

The value curve then provides a graphic depiction of a
company‟s relative performance across its industry‟s factors of
competition.
We decided to take BlockBusters as suitable example for the movie rental
  industry:         Netflix       BlockBusters
                                            Strategy Canvas
                      Eliminating   Raise                 Reduce   Create
                 12

                 10
Offering Level




                  8

                  6

                  4

                  2

                  0
The Strategy Canvas clearly visualizes that Netflix is operating on a
different offering level than the other companies; especially
BlockBusters.
The gradient of those curves indicates that Netflix is creating a Blue
Ocean Strategy comparing to the other companies in the industry!

   Summarized you can state that Netflix is creating a Blue Ocean
                            Strategy

However, BlockBuster already adopted several of its operation
activities so that the Blue Ocean of Netflix already starts turning into
a Red Ocean. Due to the fact that the Blue Ocean of Netflix is
already attacked by other companies of the industry it is to say that
the Blue Ocean Netflix created is not that sustainable.
This schema is based on Netflix before the VOD market.
 Unique pricing system  Netflix offers an attractive pricing system. Customers
  are able to rent unlimited amount of movies with a fixed price; „All you can eat
  model‟. There are also no late fees and costumers can rent an unlimited amount
  of movies.

   Convenience  Home delivery service. Customers can rent an unlimited amount
    of movies, receive them within 24 hours and have an on time delivery; all is
    included in the subscription. Netflix offers the customer help with choosing a
    movie, this thanks to their software database.

   Efficient & customized  Netflix offers a database which shows
    recommendations to customers. This database is based on the interests of the
    customer. Furthermore, Netflix offers an automatic replacement system. This
    means that when a customer sends back the movie, they will automatically
    receive the next movie of their preference list.

   Image  Pro-active, Netflix knows which movies are interesting for the
    customer. Trustworthy, on time delivery is essential for Netflix and this requests
    trust of the customer.
Unlimited
                Subscriptions   No late fee
                                                rentals



                    Unique
                                              Convenien
                    pricing
                                                 ce
                    model

 Automatic                                                 On-time
                                Software
replacement                                                delivery
                                database

                  Efficient &
                  customize                    Image
                       d




     Unique                       Home                      Online
     offering                    delivery                  ordering
This schema is based on Netflix before the VOD market.
Customer Value is core to competitive advantage, if it is distinctive and relevant.

   Unique pricing system  Netflix offers an attractive pricing system. Customers are able
    to rent unlimited amount of movies with a fixed price; „All you can eat model‟.

   Personalized  Netflix offers a database which shows recommendations to customers.
    This database is based on the interests of the customer. Furthermore, Netflix offers an
    automatic replacement system. This means that when a customer sends back the
    movie, they will automatically receive the next movie of their preference list.

   Image  Pro-active, Netflix knows which movies are interesting for the customer.
    Trustworthy, on time delivery is essential for Netflix and this requests trust of the
    customer.

   Assortment  Netflix promoted old movies and owns the rights for independent
    movies. „Netflix hoped to enhance it‟s reputation as the highest quality source of
    independent films, a designation that contributed to its popularity‟.
Unlimited
       Subscriptions
                                      rentals



 Unique
 pricing                                         Assortment
 model                                                        Independent
                                                                 movies


                          Software
                          database                             Old movies


Personalized                                       Image



                        Automatic
                       replacement
Before the entrance of Blockbuster, Netflix had an unique value
proposition. This because they offered a total new dimension of
renting a video. They had many competitive advantages towards
their competition; e.g. „ No late fees‟ , „Database‟, „Home-delivery‟
and „ Subscriptions‟.

After the entrance of Blockbuster, many of Netflix‟s competitive
advantages weren‟t so competitive anymore. Blockbuster offered
e.g. also „ No late fee‟, „ Home –delivery‟ and „ Online ordering‟.
Fortunately, according to us, Netflix still has a value proposition on
which they can compete, e.g.; „Database‟, „Automatic
replacement‟, „Assortment‟. In the second enabler scheme you will
find their current value proposition.

Distinctive: Even though the value proposition decreased, they still
have strong competitive advantages as is visible in the enabler
scheme after blockbusters entrance.
   Durable demand  Looking 10 years from now, we think the
    demand for movies will shift to online demand in stead of
    renting a tangible movie. We do not think the demand of renting
    tangible movies is durable.

   Inimitability  It is not difficult to imitate the core business of
    Netflix, this shows by the entrance of Blockbuster and the many
    competitors of Netflix (movie rent stores). But the full database
    of Netflix is hard to imitate. This because of the strong
    relationship between Netflix and the studios. Concluding, the
    inimitability of Netflix is medium. Because of their database
    Netflix is able to distinguish itself.

   Non-substitutability  There are substitutes for renting a
    tangible movie with home delivery. E.g.; Downloading and
    renting a movie in a physical store.
   Operational efficiency Netflix has a very strong operational efficiency.
    Blokbusters „suffered from significant operation loses‟ while Netflix
    reported a profit in 2006.

   Appropriability Netflix came up with the this new dimension of renting
    a video. Blockbuster copied parts of this new dimension but is not as
    successful as Netflix. This could be the case because they are a starting
    company (Netflix also had problems during the beginning phase) or
    because Netflix is a to strong competitor. To conclude whether or not
    Netflix has a strong appropriability, these two factors are important. We
    choose for the second one; Netflix is a to strong competitor. This by
    looking at the second enabler scheme, Netflix still has many competitive
    advantages towards Blockbusters and other competitors. So Netflix has a
    strong Appropriability.

   Resource superiority  Also this factor you can approach on two
    different manners. First; Netflix offers movies, this product not rare and
    it is not difficult to offer this products. The second one; Netflix offers
    unique movies. Movies of independent movies and old rare movies. It is
    difficult to purchase these movies because you need a strong relation
    with the suppliers. Looking at the second manner and the competitive
    advantage of Netflix, we think the resources of Netflix are rare. So they
    have a high superiority.
   Based on the previous mentioned six constituents of
    sustainability, a high value @company is clearly visible through
    the database and the high operational efficiency.

   The value@customer is mixed as Netflix offers superior products
    but the demand is not durable as there is big competition from
    VOD services.

   Barrier@competition it is not difficult to imitate and the product
    Netflix offers has strong substitutes. So the barrier competition
    is low.

   Conclusion: Looking at the future (popularity of downloading and
    watching movies on the PC is increasing), Netflix does not have a
    sustainable product, even though at the moment they do have
    strong competitive advantages.
Options             Low risk        Profit (20%)   Sustainability   Customer        Total
criteria             (20%)                          (30%)            acceptance
                                                                     Netflix (30%)


License                    5               2               4               5            4.1
Integrate                  3               5               3               4            3.7
Stand-alone                2               3               4               5            3.7
Do not enter               5               1               2               3            2.7
Ranking where 1 is low, 5 is high.

 Not entering the market would bear a low risk and would not effect the Netflix
 brand but has also no future value. Stand-alone business would bear high risk but
 would be sustainable in the future without potential of effecting the main brand.
 The integration of VOD in the Netflix business would have high profit and the
 assumption is that the customer would see this as a added value.

        License strategy has proven to be most valuable to Netflix when
        implemented. This has been ranked by looking at the risk level, where low
        risk is in favor of Netflix. When looking at profit, sustainability and customer
        acceptance the higher the ranking the better results are expected on the
        long-term. This is why the License strategy is recommended.

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Netflix

  • 1. Jules Boletis Gera Lenssen Lotte Huisingh Joost Verbakel Ann-Kathrin Beiderwellen
  • 2. Full Balance • “We care for you and we are here to serve you!” • Netflix takes care of the quality procedure to serve the customers needs. • New activities are introduced to satisfy the customers with a DVD delivery service. Fundamental Core Activities: Online DVD rental • Shipped through postal services Subscription instead of pay per view • No late fees Large movie assortment including old movies • Unlimmited shelf space Movie recommendation • Data base
  • 3. End Value “Freedom” “Convenience” Enjoyment of movie variation Unlimmited Postal No late fee Data base shelf space services Consequences Up to 5 Customer movies input Large movie Online DVD assortiment rental Movie Subscription recommen- Attributes dation All core processes of Netflix result in satisfying the customer in their needs around freedom and convenience when looking at movie rental. Next to that the actions, consequences and end values are all results of the Full Balance strategy of Martin‟s Quality Model.
  • 4. Value innovation is created when Netflix‟s actions affect both its cost structure and its value proposition to buyers.  Due to `revenue-sharing agreements with the major studios´ Netflix could rearrange its cost structure so that the company could offer lower rental prices per movie. However, the actual price was higher than those of competitors as Blockbuster, because Netflix offered subscriptions. In addition to that more cost savings were made by eliminating and reducing certain factors the rental movie industry competes on. (Please find those factors in step 2.)  Netflix lifted up buyer´s value by raising and creating elements the industry has never offered; as for example raising rental periods and creating customer´s awareness of unknown movies. (Please find more factors Netflix created or raised in step 2.) When looking at the criteria Value Innovation it is to conclude that Netflix creates a Blue Ocean !
  • 5. Eliminate Raise  `Bait and Switch` perceptions  Actual prices (subscriptions) (recommendation system)  National Network  Stores with part-time employees  Amounts of movies rented  Sales of `old` movies  Duration of rental  Claiming late fees  Inventory selection  Advertising of the newest movie  Facilitating movie rental (home service) Reduce Create  Ability to obtain a movie quickly (movie night)  Data Base of al subscriptions  Importance of location choice  Recommendation System based on data Base  Share position of newest movies  Demand for `old` movies  Price per movie rented  Home Service by internet order  Level of difficulty to cancel subscription  Automatical replacement based on recommendation system (if a movie returned a new one is going to the client) Based on the Four Actions Model regarding Netflix´s activities you can say that those activities change the standard of competing factors. Netflix eliminates; reduces; raises; and creates new competing factors inside the movie rental industry. For that reason it is valid to say the company is creating a Blue Ocean !
  • 6. By making use of the Strategy Canvas it is easier to determine in what the competition is currently investing, on what factors the industry currently competes and what customers receive from the existing competitive offerings on the market. The horizontal axis captures the range of factors the industry competes on and invests in. The vertical axis captures the offering level that buyers receive across all these key competing factors. The value curve then provides a graphic depiction of a company‟s relative performance across its industry‟s factors of competition.
  • 7. We decided to take BlockBusters as suitable example for the movie rental industry: Netflix BlockBusters Strategy Canvas Eliminating Raise Reduce Create 12 10 Offering Level 8 6 4 2 0
  • 8. The Strategy Canvas clearly visualizes that Netflix is operating on a different offering level than the other companies; especially BlockBusters. The gradient of those curves indicates that Netflix is creating a Blue Ocean Strategy comparing to the other companies in the industry! Summarized you can state that Netflix is creating a Blue Ocean Strategy However, BlockBuster already adopted several of its operation activities so that the Blue Ocean of Netflix already starts turning into a Red Ocean. Due to the fact that the Blue Ocean of Netflix is already attacked by other companies of the industry it is to say that the Blue Ocean Netflix created is not that sustainable.
  • 9. This schema is based on Netflix before the VOD market.  Unique pricing system  Netflix offers an attractive pricing system. Customers are able to rent unlimited amount of movies with a fixed price; „All you can eat model‟. There are also no late fees and costumers can rent an unlimited amount of movies.  Convenience  Home delivery service. Customers can rent an unlimited amount of movies, receive them within 24 hours and have an on time delivery; all is included in the subscription. Netflix offers the customer help with choosing a movie, this thanks to their software database.  Efficient & customized  Netflix offers a database which shows recommendations to customers. This database is based on the interests of the customer. Furthermore, Netflix offers an automatic replacement system. This means that when a customer sends back the movie, they will automatically receive the next movie of their preference list.  Image  Pro-active, Netflix knows which movies are interesting for the customer. Trustworthy, on time delivery is essential for Netflix and this requests trust of the customer.
  • 10. Unlimited Subscriptions No late fee rentals Unique Convenien pricing ce model Automatic On-time Software replacement delivery database Efficient & customize Image d Unique Home Online offering delivery ordering
  • 11. This schema is based on Netflix before the VOD market. Customer Value is core to competitive advantage, if it is distinctive and relevant.  Unique pricing system  Netflix offers an attractive pricing system. Customers are able to rent unlimited amount of movies with a fixed price; „All you can eat model‟.  Personalized  Netflix offers a database which shows recommendations to customers. This database is based on the interests of the customer. Furthermore, Netflix offers an automatic replacement system. This means that when a customer sends back the movie, they will automatically receive the next movie of their preference list.  Image  Pro-active, Netflix knows which movies are interesting for the customer. Trustworthy, on time delivery is essential for Netflix and this requests trust of the customer.  Assortment  Netflix promoted old movies and owns the rights for independent movies. „Netflix hoped to enhance it‟s reputation as the highest quality source of independent films, a designation that contributed to its popularity‟.
  • 12. Unlimited Subscriptions rentals Unique pricing Assortment model Independent movies Software database Old movies Personalized Image Automatic replacement
  • 13. Before the entrance of Blockbuster, Netflix had an unique value proposition. This because they offered a total new dimension of renting a video. They had many competitive advantages towards their competition; e.g. „ No late fees‟ , „Database‟, „Home-delivery‟ and „ Subscriptions‟. After the entrance of Blockbuster, many of Netflix‟s competitive advantages weren‟t so competitive anymore. Blockbuster offered e.g. also „ No late fee‟, „ Home –delivery‟ and „ Online ordering‟. Fortunately, according to us, Netflix still has a value proposition on which they can compete, e.g.; „Database‟, „Automatic replacement‟, „Assortment‟. In the second enabler scheme you will find their current value proposition. Distinctive: Even though the value proposition decreased, they still have strong competitive advantages as is visible in the enabler scheme after blockbusters entrance.
  • 14. Durable demand  Looking 10 years from now, we think the demand for movies will shift to online demand in stead of renting a tangible movie. We do not think the demand of renting tangible movies is durable.  Inimitability  It is not difficult to imitate the core business of Netflix, this shows by the entrance of Blockbuster and the many competitors of Netflix (movie rent stores). But the full database of Netflix is hard to imitate. This because of the strong relationship between Netflix and the studios. Concluding, the inimitability of Netflix is medium. Because of their database Netflix is able to distinguish itself.  Non-substitutability  There are substitutes for renting a tangible movie with home delivery. E.g.; Downloading and renting a movie in a physical store.
  • 15. Operational efficiency Netflix has a very strong operational efficiency. Blokbusters „suffered from significant operation loses‟ while Netflix reported a profit in 2006.  Appropriability Netflix came up with the this new dimension of renting a video. Blockbuster copied parts of this new dimension but is not as successful as Netflix. This could be the case because they are a starting company (Netflix also had problems during the beginning phase) or because Netflix is a to strong competitor. To conclude whether or not Netflix has a strong appropriability, these two factors are important. We choose for the second one; Netflix is a to strong competitor. This by looking at the second enabler scheme, Netflix still has many competitive advantages towards Blockbusters and other competitors. So Netflix has a strong Appropriability.  Resource superiority  Also this factor you can approach on two different manners. First; Netflix offers movies, this product not rare and it is not difficult to offer this products. The second one; Netflix offers unique movies. Movies of independent movies and old rare movies. It is difficult to purchase these movies because you need a strong relation with the suppliers. Looking at the second manner and the competitive advantage of Netflix, we think the resources of Netflix are rare. So they have a high superiority.
  • 16. Based on the previous mentioned six constituents of sustainability, a high value @company is clearly visible through the database and the high operational efficiency.  The value@customer is mixed as Netflix offers superior products but the demand is not durable as there is big competition from VOD services.  Barrier@competition it is not difficult to imitate and the product Netflix offers has strong substitutes. So the barrier competition is low.  Conclusion: Looking at the future (popularity of downloading and watching movies on the PC is increasing), Netflix does not have a sustainable product, even though at the moment they do have strong competitive advantages.
  • 17. Options Low risk Profit (20%) Sustainability Customer Total criteria (20%) (30%) acceptance Netflix (30%) License 5 2 4 5 4.1 Integrate 3 5 3 4 3.7 Stand-alone 2 3 4 5 3.7 Do not enter 5 1 2 3 2.7 Ranking where 1 is low, 5 is high. Not entering the market would bear a low risk and would not effect the Netflix brand but has also no future value. Stand-alone business would bear high risk but would be sustainable in the future without potential of effecting the main brand. The integration of VOD in the Netflix business would have high profit and the assumption is that the customer would see this as a added value. License strategy has proven to be most valuable to Netflix when implemented. This has been ranked by looking at the risk level, where low risk is in favor of Netflix. When looking at profit, sustainability and customer acceptance the higher the ranking the better results are expected on the long-term. This is why the License strategy is recommended.