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Netflix Inc. Case Solution

Background

Netflix was established in 1997 by Marc Randolph and Reed Hastings in Scott’s valley, California. After its incorporation and experiencing significant growth, the company went public and offered its IPO. Which enabled them, to sell 5.50 million shares at $15 per shares, which contributed towards raising $82.5 million in share capital. It can be assessed, despite facing losses during its initial period of operation, it was able to generate a profit amounting to $6.50 million in 2003. Furthermore, it can be evaluated that, it’s subscriber’s growth from 1 million in 2002 to 27 million in 2012. This allowed them, to enhance their financial as well as market position, while gaining appeal amongst the customers available in the market. It can be assessed that, by 2012 it had 100,000 titles distributed through 50 shipment centers, with minimal delivery time amounting to 1-2 business days. Therefore,enabling the company to become a profitable and successful venture. Netflix was able to employ and sustain around 4,100 employees. However, it can be evaluated that, Netflix expanded its first international operation to Canada, offering online streaming service and later expanded to other parts of the world.

Governance

Reed Hastings was the founder and CEO of Netflix and was responsible for making key decisions for the company and was responsible for aligning the strategies of the company to its strategic goals. Most recently, its chief marketing officer was Kelly Bennett and Chief Communication Officer was Jonathan Friedland. Along with, Tawni Cranz appointed as its Chief Talent Officers, Neil Hunt as its chief product officer and Greg Peters as its international development officer. Furthermore, Ted Sarandos working as its Chief Content officer and David Wells appointed as its Chief Financial officer. Moreover, as the Director, Richard Barton holding the Executive Chairman of the Board along with Timothy Haley, A. George (Skip) Battle, Jay Hoag, Leslie Kilgore, Ann Mather, Brad Smith and Anne Sweeney.

Content Analysis

External Analysis

It can be determined that, due to the increasing content cost, the company had to increase its prices,which had significantly harmed the user subscription base of the company, showing a decline in the number of subscribers amounting to 800,000 and this number was expected to increase in the future. However, it can be evaluated that, the senior management of the company did not anticipate the upsetting results their strategic decision had on their profitability and position in the market. Therefore, the decision of increasing their service prices damaged their overall growth prospect in the market and exhibited a steep decline in their subscriber base. Which they had gained over the years, by maintaining and sustaining strong reputation in the market. This had allowed them to secure sufficient share in the market, while increasing their services appeal among the customers.

Furthermore, it can be evaluated that, the senior management didn’t anticipate the adverse effects their inflated pricing policy would have on the brand image of the company and its future implication. It was estimated that, the subscribers would continue to decline, if the company maintains the same pricing policy. Thiscould be attributed to the customer’s perception regarding its services. The customers gave preference to Netflix over going to the theater, in an attempt to save cost. Therefore, when the company increased its prices, this perception of the subscribers was challenged and resulted in them losing interest in the services provided by the company. Most of the customers could have regarded the increase, in a way, where they preferred theaters over the high prices of Netflix. Which, in turn, exposed company to certain risks and gave its competitors an opportunity to secure sufficient share of the market for themselves, as the brand image of Netflix was compromised in the market.

Internal Analysis

After analyzing the case, it can be evaluated that, the company’s senior management didn’t expect that, their increased pricing policy would have such a significant adverse effect on its already established subscriber’s base. In addition to this, it was assessed that, the management didn’t establish solid ground to justify the price increase to its subscribers and develop effective and efficient contingency plans to off-set the adverse effects of the price increase.  Which, in turn, cause the company to lose 800,000 subscribers from its user base in the form of canceled subscriptions. Therefore, it was exposed to competitor attacks and an advantage was given to its competitors available in the market to make most of the situation and reap the benefits from Netflix’s ineffective and inefficient pricing policy...........................................

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