Strategy and Netflix, Act II
MBAA 609
R. Nakatsu
The Temporary Competitive Advantage
A company gains a competitive advantage by
providing a product or service in a way that
customers value more than the competition’s.
First mover advantage refers to a company that
is first to market with a new product or service.
A company has a sustainable competitive
advantage when its financial performance
consistently outperforms its industry peers.
The Competitive Forces Model...
is a tool to formulate strategy by examining the
environment in which your organization
competes.
Five forces create the competitive environment:
1. Buyer power
2. Supplier power
3. Substitute force
4. New competition force
5. Current competition force
The Competitive Environment
Bargaining Power
of Suppliers
Threat of
New
Entrants
Rivalry Among
Existing
Competitors
Threat of
Substitutes
Bargaining Power
of Customers
Countering Competitive Forces
Four strategies:
 Low-cost leadership
 Product differentiation
 Focus on market niche
 Linkage (strengthen customer loyalty,
strengthen supplier intimacy)
Creating Linkage with Customers
Linkage refers to creating a tighter relationship
with customers. Some forms of linkage:

Build in switching costs
– Question: What are the sources of switching costs?

Create “sticky” web sites
– See Business Week article, “Creating Web Addicts
For $10,000 a Month”

Network Effects (also known as network
externalities)
The Value Chain Method
views the organization as a set of activities
through which a product or service is created and
delivered to customers.
Value chain processes fall into two categories:

Primary activities: most directly related to the
production and distribution of a firm’s products and
services
 Support activities: make the delivery of the
primary activities possible; consists of infrastructure,
HR, technology and procurement.
The Value Chain
Administrative Coordination & Support Services
Human Resource Management
Technology Development
Procurement of Resources
Inbound
Outbound
Operations
Logistics
Logistics
Marketing
Customer
and
Service
Sales
How does a firm use the
Value Chain Method?
1. An analysis of a firm’s value chain can reveal
operational weaknesses. Technology can be
used to improve and address the weaknesses.
2. Firms can use the value chain as a framework
to differentiate its business processes from
that of its competitors.
Question: How does a firm use the value chain
method to create a sustainable competitive
advantage?
Netflix, Act II Business Model(s)
Netflix 1.0: DVD by Mail, flat fee per DVD rental
plus S&H, primary target was early adopters of
DVD players (focus on market niche)
Netflix 2.0: DVD by Mail, monthly subscription,
unlimited exchanges, no late fees, next-day
delivery of DVDs.
Netflix 3.0: ???
Netflix 4.0: ???
Supplier Power Issues
See Question 2: What challenges does the new
Netflix face in acquiring video content?
• Issues increasing supplier power (negatives for
Netflix)
• Issues decreasing supplier power (positives for
Netflix
Netflix and Linkage
• What are some of the actions that Netflix took to
support customer-side linkage?
• What are some of the actions that Netflix took to
support supplier-side linkage?
See Question 3. Describe some of the partnerships
that support Netflix’s strategies to become a low-cost
provider of video streaming.
Data Analytics
Big Data: Collecting and analyzing massive and
complex data sets to gain insights.
See Question 4. How does Netflix use its data to
support its decision-making and strategies?
Assessing Firm Competiveness
See Question 5. According to the chapter, what are
some of the biggest competitive threats that Netflix
faces today?
• What companies/trends are competitive threats to
Netflix today?
• Use Porter’s Five Forces Model to analyze Netflix’s
competitive position.