C A M B R I D G E M A R K E T I N G C O L L E G ES © CMC 2005 Home Entertainment Analysis and Decision Case Study June 2011 David Kilburn.

C A M B R I D G E M A R K E T I N G C O L L E G ES © CMC 2005

Home Entertainment

Analysis and DecisionCase StudyJune 2011

David Kilburn


Scenario

• You are a Marketing Consultant in the home entertainment sector.

• TASK: You have been asked by Netflix, Inc. to undertake a strategic audit in relation to the organisation’s

• Core competencies• Competitive advantage • Value propositionYou have also been asked to consider how Netflix can remain competitive in the context of developments in technology, rising competition and changing consumer behaviour. Consideration should be given to the organisation’s financial position, its strategic risks and mitigating strategies to overcome these risks.


Where are we now ?

Audit of current situation


The home entertainment sector today

• Fiercely competitive market• Fast moving industry• Discerning consumers• New technology ever present• Declining sales in DVD’s• Increase in sales of blu ray discs• Blockbuster model becoming obsolete• Downloading, streaming and blu ray discs are

in vogue• Digital distribution of home video represents

the future


Brand issues• BRAND DOMAIN (brand’s target market)

• BRAND HERITAGE(how it has achieved success)

• BRAND VALUES (core values and characteristics)

• BRAND ASSETS (what makes brand distinctive)

• BRAND PERSONALITY (character of brand)


Home Entertainment SWOT

Strengths

• Established market• Strong, well known brands • Strong record of NPD• Innovative• Technical innovation

Weaknesses

• There is no guarantee that a new product will be successful

Opportunities

• Profiting from technological advances

• Possible growth areas – Canada, Mexico, Colombia, Chile, Brazil, U.K. Australia

• Increase in sales of games software -20%

Threats

• Highly competitive and turbulent market

• NPD process is lengthy and sometimes challenging

• Proliferation of piracy


•Netflix - SWOTStrengths• 12 million subscribers• Website voted top retail site for customer satisfaction on numerous occasions• Ships 2 million dvd’s per day• Offers a range of different pricing models and no late fees

charged• Combination of streaming and discs for rent provides a

competitive advantage• In 2009, the number of subscribers increased by2.8 million

leading to revenue increases of 22% to $1.7billion and net income increases of 40% to $115.9 million

• The internet service includes movie recommendation algorithms- suggests movies that customers may wish to view based on those previously selected

• Netflix ready devices enable movie and TV streaming without interruption by commercials

• Netflix offers free trials of its service and continues to bill customers at the end of the trial period unless the customer cancels - leverages the benefit of customer inertia!

• Progressive staff policy


•Netflix - SWOTWeaknesses• Customers can switch between suppliers very easily• Relatively low start up costs • Industry is susceptible to price wars• Movies are becoming widely available over the internet and via

multiple devices including smartphones – Netflix service is continually under attack

• Revival of the cinema - sales of movie tickets up 10%• Netflix is unable to rent out discs of Warner Bros films until 28

days after their release- it is cheaper but could make their service look less responsive than the competition

• Demand is created for new releases but Netflix is unable to meet this demand for 28 days!

• Netflix is dependent on the studios to grant permission to stream content but get out clauses allow the studios to cancel the rights at short notice

• Demand for certain titles can often exceed capacity leading to delays in fulfilling customer needs


•Netflix - SWOTOpportunities• To expand internationally – Canada, and subsequently Mexico, Colombia, Chile, Brazil, U.K. and Australasia • To partner with consumer electronics firms such as Apple• To leverage further business opportunities in gaming and other

communications devices• To be embedded in almost every Blu-ray player and internet connected

TV sold in 2011• To constantly engage in R & D to ensure that Netflix is at the forefront of

new developments in consumer electronics


•Netflix - SWOTThreats• Changes in US copyright law could adversely affect the business model

–copyright owned by others- First Sale Doctrine• Studios could erode Netflix’s differential advantage by putting pay-per-

view, video on demand and premium TV options ahead of DVD’s being the first available format

• Studio promotion could adversely impact customer retention levels • Subscribers’ expensive choices of films could adversely affect

profitability• Blu-ray and streaming are more expensive than DVD so a faster than

expected adoption rate of these formats would actually reduce profitability

• Walmart and Amazon could cut prices so there is a reduced differential between retail and rental.

• If licensing agreements are not renewed Netflix could be adversely affected

• Netflix also relies on its partners to keep up to date with advances in technology and customer expectations

• Discounted postage rates for Netflix may be increased as discounted postal rates have been contested in law as being discriminatory.

• Netflix is also vulnerable to failures of its own and third parties’ computer systems


•Netflix - SWOTThreats

• Netflix’s brand could be damaged by the actions of third parties (electronics manufacturers or DVD suppliers)

• The sources of new subscribers may not yield the required growth for the promotional cost, resulting in an adverse impact on marketing expenditure and customer recruitment

• Netflix has offices in earthquake zones so may suffer power blackouts which are uninsurable.

• A breach of security of personal customer data would be a risk to its reputation and may lead to legal claims against the company

• Protection issues – intellectual property infringements, domain names, legality of the discs, copyright and censorship rights.

• Ability to raise finance may be compromised- borrowing will incur additional debt, ability to pay suppliers etc are all important considerations

• Netflix must ensure that its capital funds are sufficient and accessible


•Netflix – Culture- staff policyStaff Policy- 7 core principles• Values are what we value• High performance• Freedom and responsibility• Context not control• Highly aligned, loosely coupled• Pay top of the market• Promotions and developmentBlack and white philosophy – good performers get rewarded, slackers get fired. Company values effectiveness rather than effort. Staff can take as much leave as they feel is necessary.Very interesting policy – it is likely that most staff will

take off less time than the norm. (3 weeks per year).


Map of competition in the U.S

Non traditional broadcasters

AppleAmazonGoogleHulu

High volume retailers

WalmartAmazonBest Buy

Pay per view/video on demand

Time Warner ComcastDIRECTVEchostarAT&TVerizon

Rental companies

NetflixBlockbusterMovie GalleryRedboxLOVEFiLM


PESTLE

Political• Government legislation


Economic

• Global credit squeeze impacts on interest rates and dampens consumer spending

• Possible downturn in world economy• Disposable income levels have

declined


Sociological

• ‘Must have now’ society. We want it now!

• Ideally suited to electronic products and services

• Home entertainment now a growing market


Technological

• Technology is ever changing• Opportunities are endless• Sophisticated database marketing

techniques now possible (companies can conduct carefully targeted campaigns)

• New media – apps, hand held devices etc allow viewing of videos, films, DVD’s etc. 24/7 no matter where you are


Legal Legal• Freedom of information versus

database management. Netflix being sued by a subscriber because she believed her sexual orientation was compromised


Where do we Want to be?


Objectives

• Decide• Objectives

– For U.S.A. and International

• Deliver• Outcomes


Segmentation

• Described and Profiled for each sector


Segmentation

16-29 segmentThis segment has always known mobile and has been brought up in a digital environment.Internet and computer savvy, they use mobiles as a permanent appendage, like to live life to the full and enjoy individuality, whilst using social networking sites like YouTube and MySpace to communicate with people. They are turned on by celebrity endorsed products and like to use the latest ‘hot’ products.


Segmentation

30-49 segmentThis segment is comprised of couples with

childrenwho are also au fait with the digital environment.They are Internet and computer savvy, enjoy

home entertainment because of the children and it

works out cheaper than going out. They live a full and active lifestyle and use social networking sites to communicate with friends and family.


Segmentation

Segment – 50-65‘Baby Boomers’ – Have relatively high disposable income, possibly paid off mortgage, want to

enjoylife, spend money.‘Empty Nesters’ – new media savvy – so

can be targeted effectively


Targeting

Use social networking sites which are content driven and interactive such as MySpace, YouTube, etc. Use consumer electronic websites, use of blogs, SMS messages to mobiles. Use

retailer websites, and introductory offers to elicit trial and purchase.


Positioning

• Clear and defensible– Set out USP and Positioning for each

sector.– Are there any commonalities or Single

Brand options

• Vision• Values


USP and Positioning

USP – it is the hottest, latest, must have Blu ray disc/dvd

Positioning – latest release, affordable price, instantly available


Targeting, USP, Positioning

Target consumers using online web sites

Consumer electronics magazines – exclusive

offers, trial products

USP – latest technology at an affordable price

Positioning – quality, exclusive products,using the latest technology


How do we get there?


Action

• Decide• Objective• Deliver• Outcomes


Strategic Development

• Product– Sector Selection– Core/ Physical/Augmented Proposition– Branding

• Pricing• Distribution• Promotion• People • Process


Implementation and Control

• Budgeting Areas• Metrics• Balanced Scorecard• McKinsey 7S


Comms Strategy • Audiences –Internal and External, domestic

and international

• Media• Messages• Timing/Budget• Stakeholders

• Investors• Suppliers• Partners • Customers• Celebrities• Media• Manufacturers• Retailers • Who else ?


Internationalisation

• Where, when and how– GE/ Harrel and Keiffer



• Budgeting Areas• Metrics• BS• McKinsey 7S


Critical success factors

• Create a sustainable brand image and position amongst competitors

• Change management (PLC,BCG)• Internal marketing (stakeholder

management, CRM)• Funding (Borrowing/J.V/Debt/ Licensing/I.P)• Constraints – Overstretching

- Competitive landscape - Changes within the home

entertainment industry


Vision

For Netflix to become an established global

force in the home entertainment industry with a strong and loyal customer base,enabling it to invest in a robust, innovative marketing plan which will

keepit top of mind within all its target

markets


Mission statement

To deliver excellent service and the latest technology to consumers worldwide.

At the same time valuing honesty, integrity, empowerment and openness. By consistently aiming for breakthrough excellence in technology development, we believe we will stay close to our consumers and communities.


Values

• Committed to high quality, exclusive products which delight our customers

• Committed to developing the best home entertainment package for all our customers

• Committed to a strategy of continual product development, licensing agreements and innovation


Corporate objectives

• To ensure that the company can operate successfully in the USA and other potential markets, such as Canada, the U.K. Australia, Mexico, Argentina,Colombia and Brazil

• To continue to develop new products quickly giving us a crucial competitive advantage

• To tailor global brands to suit local preferences (Think global, act local)


Strategic management of marketing mix

• Product Core – sought after products, latest

releases or blockbusters Augmented – speed of delivery,

quality guaranteed • Price Affordable price – value for money



• PlaceU.S. player – but needs to drive more sales in the USA and open new markets in Canada,

U.K, and possibly Australasia, Mexico,Argentina, Colombia, Brazil, and India -(Bollywood factor)

• PromotionWeb site – continually update the content. Always make available the latest releases featuring famous celebrities – refresh regularly. Highly interactive with customer base - encourages viral marketing



• People Train and develop the existing staff. Selective recruitment of key sales/marketing/technical personnel. Recruit proven staff in overseas markets to develop sales and distribution.

• ProcessesRegular internal/external communication. Long term relationship building. B2C customer involvement. Relationship marketing. Customer Lifetime Value. Branding strategy.


Implementation and Control McKinsey 7S

Structure Netflix Head office based in US Where will subsidiaries be sited?

Strategy Focus differentiated aimed at loyal customer

base and potential customers in Canada, U.K. and in time other markets, such as Brazil and Australasia


Implementation and Control Systems Develop MKIS and control systems to

regularly review and monitor effectiveness of all marketing strategies

Develop benchmarking system to monitor against key market indicators and main competitors

Staff Continual development of key staff. CRM

development. Key relationship building with film distributors, agents, and retailers.


Implementation and Control SkillsEnsure correct training and development programmes are established to keep Netflix at the leading edge of new product development, systems and processes

Shared values Ensure company strategy is shared by

everyone in the organisation. Growth strategy and national and international expansion shared with all staff, agents, distributors, retailers, and key stakeholders.



Physical evidenceInteractive, quality web sites

Number of blogs, endorsements from consumersThe Netflix logo and brandROI table – comparison with other home entertainment providers



Style Creative, innovative, dynamic


Control – Balanced Scorecard

InternalDevelop CRM databases for collecting retailer, consumer feedback and insights into future needs, wants, industry trends, (market intelligence)


Control – Balanced Scorecard

Innovation and learning Skills training – advanced B2C selling,

web development to inform consumers about new products, DVD releases, critical thinking


Control – Balanced Scorecard Financial Sales vs. targets in each sector –

U.S.A. Canada, U.K. Brazil etc. Profitability metrics, CLV

Customer Customer satisfaction surveys –

customer feedback. Customer endorsements - web based

Brand recall/awareness of brand


Possible questions

1. What branding strategy should Netflix

adopt to maximise sales and profitability?

2. Devise a marketing plan to make Netflix

the leading player in the home entertainment business


Possible questions

3. Prepare a relationship marketing campaign which will effectively increase Netflix’s customer loyalty and their lifetime value.

4. Prepare an international marketing plan to ensure that Netflix expands its markets

beyond the USA


Possible questions

5. What branding and positioning strategy should Netflix adopt to improve its appeal to consumers?

6. There are considerable risks in the fast moving home entertainments sector. Outline how Netflix can mitigate these risks in its pursuit of commercial success.

C A M B R I D G E M A R K E T I N G C O L L E G ES © CMC 2005 Home Entertainment Analysis and Decision Case Study June 2011 David Kilburn.

Documents

e g es cmc

b r i d g e

e t i n g c o

competitive market

future slide

home entertainment sector

netflix swot strengths

commercials netflix