The memo recommends that Netflix cancel its plan to separate its DVD and streaming services into different brands (Qwikster and Netflix). It suggests that Netflix maintain its DVD and streaming services together under the Netflix brand and at the same monthly price to regain lost subscribers. It also recommends that Netflix develop a video-on-demand platform and provide exclusive original content to differentiate itself from competitors. Implementing these recommendations would adhere to a strategy of cost leadership and differentiation to improve Netflix's competitive position in the market.

1. AlessandraAguiar
Pepperdine University
Strategy 492
Dr. Norma Davis
The 2011 Rebranding/Price
Increase Debacle

2. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
This memo discloses a strategic plan of action for Netflix, and recommended changes to the
market structure and business model, which should serve as a remedy for the company’s brand
and current declining position in the market. In efforts to repair the PR damage from rebranding,
regain subscribers, and improve profitability, customer satisfaction, and long-term success, the
following recommendations are suggested: 1. Cancel the Qwikster site and maintain monthly
prices, 2. Partner with a television provider to act as an interface to access Netflix, 3. Imitate
premium channels such as HBO and Showtime and provide exclusive content. These
recommendations will adhere to a more effective strategy, and are believed to yield substantial
long term cost savings. Implementation will begin within 45 days to allow strategy formulation.
Background
Over the years, Netflix has dominated the DVD rental market in comparison to its competitors
such as Blockbuster, Redbox, Apple iTunes, Amazon, Hulu, and Google TV. Netflix’s $9.99 a
month rate was key to Netflix’s ability to offer customers a great value for their money.
However, in recent years, the U.S. per capita annual spending on DVDs was declining, and due
to increasing competition and pricey new content deals, the company was unable to maintain its
operating margin levels. (Hoffman, 2011) These factors led to CEO, Reed Hastings’ decision to
increase monthly subscription prices and restructure its operations by separating the DVD by
mail and streaming services. The goal was to rebrand the DVD by mail business to Qwikster to
allow Netflix to focus on streaming services as a means to reduce shipping costs incurred from
DVDs by mail. Consequently, customers were displeased, causing a drastic loss of subscribers.
Evidently, the financial outcome of this decision negatively affected Netflix’s brand and their
position in the market it once dominated.
Recommendations
1. Maintain DVD by mail service as well as streaming. Emphasize marketing its streaming
services. Cancel Qwikster and maintain monthly prices.
2. Develop and integrate a VOD platform/service
3. Create and provide exclusive content
Basis for Recommendations
1. Cancelling the Qwikster brand and maintaining its monthly prices will lure lost subscribers,
and promote customer satisfaction by eliminating inconvenience and facilitating accessibility.
The attempt to rebrand the DVD by mail service and separate the streaming service directly
contributed to the dramatic loss of subscribers, thereby weakening the brand that was valued by
subscribers primarily for its effective customer preference database technology and price
structure.
2.) By offering a video on demand service, Netflix may be able to expand its subscribers’
connectivity preferences and choices through a new platform. Amazon Prime Instant Video
currently allows any member to instantly watch individual videos for a small price. With the rise
of competitors in the market, it is critical that Netflix maintain competitive. Therefore, a video on
demand service would satisfy shifting customer demands and preferences.
3.) With rising new content costs, Netflix would likely gain a strong competitive advantage by
emulating premium channels such as HBO or Showtime, who enjoy the benefits and profitability

3. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
of having their own exclusive content. As opposed to acquiring pricey new contents, Netflix can
focus on the creation of its own exclusive content as a means of differentiating itself from other
competitors. This, in turn, will bring back value to the brand and promote long-term growth for
the streaming business.
Discussion:
According to Michael Porter, the three competitive strategies for outperforming other
corporations are cost leadership, differentiation, and focus. (Wheelen, 2015). A successful
company should incorporate more than one of the generic strategies. Netflix can determine the
best strategy to use in new business pursuits by evaluating each strategy’s contribution to their
success or failure. Netflix can regain its dominant position in the market by reestablishing
competitive advantages through a proper utilization of a differentiation focus strategy from
Porter’s competitive strategies (Exhibit 1). The alternative for Netflix is to continue its attempt
at rebranding through the separation of services, while straying away from a cost leadership
strategy by increasing their prices. The risk in doing this however, is that a Netflix must be able
to ensure that the price increases directly relate to higher quality and that prices are not too far
above the price of the competition. Netflix would face too great of a risk against many
competitors (Exhibit 3) pricing similar services below them. According to Porter, in order to be
successful, a company must achieve one of the previously mentioned generic competitive
strategies, (Netflix’s cost leadership). Without a cost leadership strategy, Netflix risks being
“stuck in the middle” of the rising competitive marketplace without a competitive advantage
(Business Set Free, 2013) (Exhibit 1) . The options grid (Exhibit 2) should serve to prove that all
the recommendations together adhere to a combination of a cost leadership and a more effective
differentiation strategy to eliminate the need for price increases.
Next Steps: Prior to implementation of recommendations, the first step suggested is to produce
apology letters to all lost subscribers in efforts to demonstrate the company’s value in its
customers. The drastic number of subscribers creates sense urgency in regaining subscribers;
therefore, CEO Reed Hastings himself should execute this first step within the next 2 weeks.
Netflix currently has a subscriber base that is primarily built on early adopters. The next step
would be to offer these individuals free VOD access. These individuals will then support the new
service and in turn, create buzz to help market the new service.

4. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
EXHIBIT 1

5. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
(Business Set Free, 2013)

6. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
Exhibit 2
OPTIONS GRID – Netflix
Option 1 Option 2 Option 3
Descriptionof
Option
Separate the DVD
mail in service as
Qwikster from
streaming only as
Netflix, and
increase prices
Maintain DVD mail
service and streaming
service as Netflix;
maintain prices
Cancel Qwikster, Maintain
DVD mail service and
streaming service as Netflix,
improve services (provide
VOD service and exclusive
content)
Overall
Assessment
Do not
recommend
because of
inconvenience to
customers causing
loss of
subscribers, and
stockdecline
Do not recommend
due
to weakening
position in
competitive
marketplace; Rise of
competition yields
change/improvement;
No changes causes
redundancy
Recommend because of
expected revenue growth
from improved and more
attractive services to enjoy;
increased customer loyalty
from convenience and easy
of accessibility, and long
term growth from benefits of
new content
Strategic Fit
(Core
Competencies)
Allows businesses
to operate with
different cost
structures with
increased prices
Retains the value and
identity of the brand,
with a
preferred/optimal low
monthly price option
that promotes
customer loyalty
Provides strong competitive
advantages and yields market
dominance; increases brand
value through the ability to
relate subscriptions to better
services and content
exclusivity

7. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
Financial
Attractiveness
Increased prices
will yield decline
in profit from loss
of subscriptions
Profits may or may
not remain stagnant
due to rising
competitors and
possible loss of
competitive
advantage
New services, content, and
low prices will yield strong
financial outcome in short
&long run due to increase in
subscriptions, and market
share benefits
Noteworthy
Risks
• Loss of
subscribers from
inconvenience
• Lack of
competitive
advantages
needed
• Position in the
market declines
• Customer
satisfaction is
ignored;
Customer loyalty
is lost from
inconvenience of
two websites
• Yields declining
market growth
• Flat market share
• Yields declining or
no market growth
• Lack of competitive
advantage due to
increasing
competitors with
better services to
meet shifts in
customer demands
•. Company remains
stagnant
• May lead to strong or
threatening competitive
reaction
• Improving services may not
attract enough subscribers to
repair the financial damage
caused, which could lead to
decline in stockprices
• Costs of developing new
content and VOD services
may be greater than revenue
generated

8. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
EXHIBIT3 – Intense Rising Competitive Marketplace

9. RECOMMENDATION MEMO
To: Dr. Norma Davis
From: Alessandra K. Aguiar
Date: June 16th, 2015
SUBJECT: NETFLIX INC.
BIBLIOGRAPHY
Hoffman, Alan. (2011) Netflix, Inc. The 2011 Rebranding/Price Increase Debacle. Case 12
from Chapter 6: Concepts in Strategic Management and Business Policy (9TH ed.) Waltham,
MA: Bentley University.
Wheelen, T., & Hunger, J. (2015). Concepts in strategic management and business policy
(9th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Your Small Business Competitive Advantage • BusinessSetFree.com. (2013, April 21).
Retrieved June 15, 2015, from http://www.businesssetfree.com/small-business-
competitive-advantage/