Netflix Case Study: The Strategic Evolution of Netflix Company

A summary of the evolution of Hastings’ strategy from 1994 to 2011. Basically, the company was founded in 1997, and Netflix CEO Reed Hastings has created extensive and subsequent strategic business strategies, which have allowed it to become a major player in the entertainment sector.

According to Shih & Kaufman (2014), Hastings introduced the first business website with a search engine in early 1998, enabling its customers to browse its offerings by genre, title, director, and actor.

In order to offer clients unlimited rentals for affordable monthly subscriptions, the CEO also introduced subscription services in 1999.

This promotion went beyond DVD rentals. For instance, Hastings developed a mail-in delivery service as part of its Initial Public Offering (IPO) in 2000 to boost customer satisfaction.

Additionally, the CEO introduced a customized movie suggestion system that took into account users’ ratings in order to forecast each Netflix user’s preferences with high levels of effectiveness.

The business started renting out video movies in 2002 at a reasonable price with shipping costs.

As Netflix company changed its investment strategy to focus on areas that were strategically important to consumer satisfaction, Hastings blended its traditional and cutting-edge techniques to regain customer contentment.

In 2006, Hastings increased Netflix’s marketing initiatives and changed its marketing strategies by beginning to secure the distribution rights to particular independent films through its Red Envelope Entertainment business as reported by Shih & Kaufman in their article published in 2014.

The CEO also introduced the Netflix Prize, which drew a lot of people. Streaming was made available to Netflix subscribers in 2007 so they could instantly watch a variety of movies and television series on their computers.

When the business altered its cancellation policy for subscriptions and added a function that allows users to recommend and comment on movies, the CEO also paid close attention to customer retention.

According to Shih & Kaufman (2014), Hastings worked with other consumer electronics companies in 2008 and 2009 to stream on additional Internet-connected devices.

As the CEO of Facebook, which was attempting to adapt to new technology by attempting to integrate Netflix’s social service into other markets, Hastings made another substantial modification to Netflix’s strategy in 2010. 

In order to adapt to a new technology market, the CEO also divided the DVDs into Qwikster, a new brand.
In essence, nine strategy changes were taken by Netflix to become effective.

According to Shih & Kaufman (2014), this includes the shift to rentals, the shift to a monthly subscription model, the shift from restricted to unrestricted DVD rental availability, the shift to episodic DVD material, and the shift to streaming in 2007 and in 2011.

Additionally, Netflix divided its streaming and DVD rental businesses into two separate entities. In addition, the corporation became much more competitive in comparison to its rivals by switching to original content and international production.

The Causes of Netflix’s Leadership to make Shifts

The necessity to satisfy clients and the urge to adapt to new technology were the driving forces behind these significant changes made by Netflix.

According to Modgil et al. (2020), based on client feedback and the need to abandon the brick and mortar business model adopted by its rivals, Netflix leadership was able to make each adjustment. 

For significant reforms, the CEO adopted a laissez-faire  leadership style. The CEO chose employees who supported individual decision-making, eschewed imposing rules, and welcomed productive people.

It promoted a productive line of communication that was open and honest. It was much simpler to make each move for Netflix leadership because they adopted customer-centric and data-driven marketing methods that are effective in the digital age.

For instance, they were able to design effective plans because the leaders preferred to tackle the underlying causes rather than the symptoms and could use the data at their disposal to do so.

Were the Shifts Driven from the Top or the Bottom?

Evidently, Hastings chose top-to-bottom leadership during Netflix’s evolution.

According to  Shih & Kaufman (2014), for instance, Netflix Company prevented customers from canceling their subscriptions, which led to several complaints from customers. However, after hearing the unhappiness reports, Hastings gave customers the option to terminate their online accounts through the website.

Actually, its services were poorly thought out but reactive because customers complained about the timing of movie deliveries and the pricing structure before high management could respond as documented by Voigt, Buliga, and Michl in article published in 2016.

According to Hiller (2017), Hastings promoted honesty and open communication both vertically with management and horizontally among employees, encouraging personnel to be imaginative and inventive.

Hastings promoted honesty, open communication, self-determined decision-making, productivity, and rule avoidance through its top-to-bottom leadership strategy, making it more responsive to market demands.

Netflix Decision Making Process: Well-planned or haphazard

When there was a problem, Hastings and other Netflix officials would decide what to do next because they could pinpoint the source of every issue and offer a fix. The shifts were initially planned, but after a while Hastings displayed various random reactions that seemed haphazard as recorded by Shih & Kaufman.

In an attempt to discover what might stick, Hastings had made some risky moves or actions. For instance, the CEO changed the company’s strategy to one that was more emergent and showed certain unanticipated behaviors, such the development of unique content.

These changes in strategy were haphazard and unplanned, yet they allowed the business to succeed and adapt to the needs of the market.

The Differences between Blockbuster’s and Netflix’s Business Models

The traditional brick-and-mortar business model, which allowed customers to physically visit the company’s store and rent movies, was what Blockbuster relied on.

While Netflix did not use a brick-and-store business model, it did use differentiation and cost leadership by emphasizing the mailing of DVDs at lower pricing than Blockbuster as per Davis and Higgins in thier article published in 2013.

Additionally, Netflix pioneered subscription-based internet streaming, something that none of its rivals had previously attempted. Instead of operating physical stores like Blockbuster, Disney, HBO, and other established traditional broadcasting companies, Netflix made use of new technologies.

Blockbuster also prioritized acquisition to acquire market domination and a culture of dormancy that slowed down decision-making, whereas Netflix increased its focus on entrepreneurialism and strategic clarity as documented by Shih and Kaufman.

Moreover, Netflix Coused algorithms to make it simple for users to choose and order movies. When compared to Blockbuster and other traditional broadcastings, it also expanded from its native USA market to the international market through its internet presence.

The Disruptive Nature Of Netflix and Blockbuster’s Responses

According to Hiller (2017), Netflix proved disruptive to the movie rental industry as a result of the company’s effective responsiveness to behavioral market responses.

The CEO established a highly disruptive business strategy centered on DVD rentals, which upset the brick-and-mortar business model of Blockbuster, which was the dominating actor in America at the time.

The company began as a low-end market disruptor by focusing on differentiation and a cost-leadership approach for its products and services, a strategy its competitors had never employed.

It provided online streaming via subscription, a new-market innovation that made Netflix more responsive to market demands, hence causing Blockbuster to lose users and money.

According to Antioco (2014), Blockbuster made numerous attempts to make its own purchases in reaction to this disruption, including attempting to adopt Netflix’s model by developing competing video by mail and internet streaming services such as toys, but this was unsuccessful due to boardroom disputes and other problems.

  Actually, the 2004 launch of the Blockbuster internet site offered features that were very similar to Netflix’s business model.

In response, Blockbuster introduced a “no late fees” campaign and integrated online offers with its physical locations in an effort to improve the performance of its goods and services as reported by Budzinski and Lindstädt in article published in 2018.

Additionally, it launched Blockbuster Total Access in 2006 so that customers could exchange DVDs in-store or via mail.

Netflix’s Strategy: Deliberate or Emergent

As demonstrated by its numerous strategic modifications, Netflix’s strategy is an emergent business model. Hastings initially employed a deliberate strategy as the CEO took planned and intentional steps targeted at upending Blockbuster’s business model.

But over time, Hastings changed Netflix’s strategy to one that was more sensitive to market demands by taking some unexpected moves as documented by Kipping and Cailluet in an article published in 2010.

The business experienced considerable trial and error, leading to consumer displeasure at times, but was ultimately successful in restoring it. Beginning with outdated VHS technology, Netflix later transitioned to DVDs shared via mail and is now a global leader in online streaming services.

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