International Marketing Paper
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Netflix, Inc.:
Market Entry Plan - Taiwan
Student Name Course Details: Name, Number, and Section
Dr. Ziad Swaidan
Date of the assignment
Market Entry Plan – Netflix, Inc. 1
Table of Contents 1.2 – Executive Summary ........................................................................................................ 2
1.3 – Taiwan: An Introduction ................................................................................................ 3
1.4 – Netflix, Inc.: Company Background ............................................................................... 3
2.0 – Global Macro Environmental Analysis: Online Video Streaming..................................... 4
2.1 – PEST Analysis: Taiwan .................................................................................................. 4
2.2 – Political Environment, Rules & Regulations .................................................................. 4
2.3 – Economic Environment .................................................................................................. 5
2.4 – Society and Culture ........................................................................................................ 6
2.5 – Technological Environment ........................................................................................... 7
2.6 – Opportunities and Threats .............................................................................................. 7
3.0 – Global Competitive Analysis: Online Video Streaming .................................................... 9
3.1 – Competitive Analysis: Taiwan ....................................................................................... 9
3.2 – Identification of Primary Competitive Threat .............................................................. 10
3.3 – Identification of Additional Competitive Threats ........................................................ 11
4.0 – Entry Strategies: Options for Taiwanese Market ............................................................. 12
4.1 – Identification of Market Entry Options ........................................................................ 12
4.2 – Recommendation of Market Entry Strategy ................................................................. 13
5.0 – Market Analysis and Segmentation: Netflix, Inc. in Taiwan ........................................... 13
6.0 – Marketing Mix Strategies: Taiwanese Market ................................................................. 13
6.1 – Product Strategy ........................................................................................................... 13
6.2 – Price Strategy ................................................................................................................ 13
6.3 – Promotion Strategy ....................................................................................................... 14
6.4 – Place Strategy ............................................................................................................... 14
7.0 – References ........................................................................................................................ 15
Market Entry Plan – Netflix, Inc. 2
1.2 – Executive Summary Taiwan is an island nation in Southeast Asia located off the coast of China, which also
goes by the name “Republic of China” (ROC). The territory itself has a rich history dating back
to inhabitation by Taiwanese aborigines, but the most recent century has found the country
caught up in numerous bouts of wartime drama and challenges to sovereignty that have
ultimately led to differentiated answers when asking, “who exactly governs Taiwan?”.
A great deal of campaigning has been done during the past decade to bring new MNC
activity to the multiple technology parks that Taiwan has erected across the country. Taiwan’s
government is supportive of private industry, and many government-owned entities have recently
undergone privatization. The numerous typhoons and seismic events that take place here could
potentially pose threat to companies with a great deal of physical assets, or those that depend on
an extensive supply chain network. Despite this fact, many US-based companies have turned to
Taiwan for expansion; among them being such recognizable global names as Corning, Microsoft,
IBM, DuPont, 3M, Intel, and Hewlett-Packard.
Netflix, Inc. was founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph as
a digital video disk rent-by-mail subscription service for movies (FundingUniverse). In the years
since, the company has fundamentally transitioned its core business model to focus on digitally
streaming content such as movies and television shows to its over 38 million subscribers
spanning over 40 international markets. This service permits subscribers to view its over one
billion hours of movies and television shows on-demand, streamed over the internet to devices
such as PCs, Macs, and other electronics such as televisions and Blu-ray players, mobile devices,
game consoles, and digital video players.
The country of Taiwan is an entirely greenfield market, as no firm has introduced a viable
product to Taiwanese consumers. As such, market entry for a firm such as Netflix will be
relatively unencumbered by competitive threats.
Netflix, Inc. should adopt an outright investment strategy in Taiwan by acquiring the
content rights and equipment necessary to duplicate their US operations in the market. The
firm’s liquidity situation affords them the ability the flexibility of capital expense necessary to
undertake the investment, and doing so will ensure that the firm reaps the maximum benefits of
profitable success in the new venture.
Market Entry Plan – Netflix, Inc. 3
1.3 – Taiwan: An Introduction Taiwan is an island nation in Southeast Asia located off the coast of China, which also
goes by the name “Republic of China” (ROC). The territory itself has a rich history dating back
to inhabitation by Taiwanese aborigines, but the most recent century has found the country
caught up in numerous bouts of wartime drama and challenges to sovereignty that have
ultimately led to differentiated answers when asking, “who exactly governs Taiwan?”.
From a geographic perspective, the population is concentrated on the northern and
western portions of the island, as the eastern half of the island is composed of rough,
mountainous terrain. Taiwan and the small number of surrounding islands in its territory have a
combined total of 35,980 sq. km., which is slightly smaller than the states of New Jersey and
Connecticut combined. It is surrounded by 4 major bodies of water; the East China Sea to the
north, the Luzon Straight to the south, the Philippine Sea to the east, and the South China Sea to
the west-southwest. Taiwan’s climate is mostly tropical and somewhat similar to the Gulf Coast
of Texas, with much if the island experiencing frequent rain and hot, humid weather during the
summer months.
A great deal of campaigning has been done during the past decade to bring new MNC
activity to the multiple technology parks that Taiwan has erected across the country. Taiwan’s
government is supportive of private industry, and many government-owned entities have recently
undergone privatization. The numerous typhoons and seismic events that take place here could
potentially pose threat to companies with a great deal of physical assets, or those that depend on
an extensive supply chain network. Despite this fact, many US-based companies have turned to
Taiwan for expansion; among them being such recognizable global names as Corning, Microsoft,
IBM, DuPont, 3M, Intel, and Hewlett-Packard.
With a prime location among the outer rim of Asia Pacific region, liberal views towards
multinational investment, and a well-educated workforce, Taiwan is an exceptional host country
for companies looking to internationalize.
1.4 – Netflix, Inc.: Company Background Netflix, Inc. was founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph as
a digital video disk rent-by-mail subscription service for movies (FundingUniverse). In the years
since, the company has fundamentally transitioned its core business model to focus on digitally
streaming content such as movies and television shows to its over 38 million subscribers
spanning over 40 international markets. This service permits subscribers to view its over one
billion hours of movies and television shows on-demand, streamed over the internet to devices
such as PCs, Macs, and other electronics such as televisions and Blu-ray players, mobile devices,
game consoles, and digital video players (GlobalData, 2013).
Netflix operates under three unique business segments: domestic streaming, international
streaming, and domestic DVD. Content is obtained through licensing agreements, revenue
sharing agreements, and direct purchases with and from studios and other production companies.
The company markets its services through a number of channels such as broad-based media
(radio and television), online advertising, and strategic partnerships (GlobalData, 2013).
Strategically, Netflix has identified exclusive original shows as the means of acquiring new
customers, and it intends to begin distributing episodes of these popular offerings in the near
future (BusinessWeek, 2013).
The company reported $3.61billion of revenue at the close of FY2012, but while earnings
increased 12% over 2011 its profits sank dramatically (SEC, 2013). The company is publicly
traded on the NASDAQ exchange under the symbol NFLX, and as of October 2013 reports a
Market Entry Plan – Netflix, Inc. 4
market cap of $17.9billion. It employs over 2,000 full-time workers and is headquartered in Los
Gatos, CA.
2.0 – Global Macro Environmental Analysis: Online Video Streaming After domestic sales began to flatten in 2010, Netflix began setting its sights on
international expansion and has since rolled out operations in Canada, Latin America, the United
Kingdom, Ireland, and the Nordic countries of Finland, Denmark, Sweden, and Norway (SEC,
2013). An area of particularly attractive growth potential is the Asia Pacific region, as its
economic expansion, favorable demographics, and proliferation of internet service offerings
make it an ideal candidate for Netflix' offering should they be capable of proper market
segmentation (Seeking Alpha, 2013). With over 23 major countries of divergent tastes, however,
the company should choose to enter the region with a "land and expand" strategy by first
familiarizing themselves with customer needs and expectations in a nation of specific targeted
culture, and growing their business outward as opportunity presents itself.
2.1 – PEST Analysis: Taiwan A PEST analysis will be used to observe the Taiwanese macro-environment in an effort
to properly identify and account for factors which the MNC must consider prior to committing to
market entry. Through this process of due diligence, the firm may reduce their exposure to
components of risk as related to governance, economics, culture, and technology. Such research
allows the strategic manager to more accurately form their marketing mix for the country of
interest.
2.2 – Political Environment, Rules & Regulations Whereas a PEST analysis does not typically cover a particular country’s political history
in great depth, the situation in Taiwan warrants addressing these factors due to the ongoing
nature of their influence. The course of the past century has witnessed Taiwan come under the
control of both Japan and China (PRC). When the communist party led by Chairman Mao took
control of China during the 1949 Chinese Revolution, Nationalist party leader Chiang Kai-shek
withdrew to Taiwan with several million refugees (CIA, 2013). Since that time, the island has
recognized itself independently as the Republic of China; a fact that is disputed by mainland
China and its allies (including the United States). Taiwan claims to have full sovereignty over
PRC in addition to Taiwan, whereas PRC denies the independence of Taiwan and instead claims
it as its 23rd province. Although tensions remain high in the region, neither PRC nor ROC has
made significant militaristic threat against the other in recent years. The active government of
Taiwan is a democratic republic, whose current president Ma Ying-jeou was elected by popular
vote in May of 2008 (CIA, 2013).
The Taiwanese government has undertaken several initiatives to spur investment activity
in the nation, including the alignment of foreign investor rights and privileges with those of
domestic investors, as well as tax breaks intended to encourage investors to contribute funds to
R&D and human resource cultivation (HSBC & PWC, 2010). The country has been a member
of the World Trade Organization since 2002, and as of 2009 the WTO ranked “The Separate
Customs Territory of Taiwan” as the world’s 18 th
largest trading entity (HSBC & PWC, 2010).
The World Bank’s Ease of Doing Business 2014 report ranks Taiwan 16 th
overall out of
189 world economies observed. This relatively high ranking puts Taiwan in a strategically
sound position relative to their East Asia & Pacific peers, as only Singapore (1 st ), Hong Kong
Market Entry Plan – Netflix, Inc. 5
(2 nd
), Malaysia (6 th
), and South Korea (7 th
) achieved higher results on the scale. The 10
dimensions of the World Bank’s DB analysis as measured against conditions in Taiwan are
reflected in Table 1 below. As shown, Taiwan has made improvements in all but 3 categories
versus 2013 rankings.
Table1: Ease of Doing Business 2014: Topical Ranking Data for Taiwan
Topic DB 2014 Rank DB 2013 Rank Change in Rank
Starting a Business 17 15 -2
Dealing with Construction Permits 7 6 -1
Getting Electricity 7 6 -1
Registering Property 31 31 No change
Getting Credit 73 71 -2
Protecting Investors 34 32 -2
Paying Taxes 58 56 -2
Trading Across Borders 18 18 No change
Enforcing Contracts 84 85 +1
Resolving Insolvency 16 15 -1
(Source: World Bank, 2013)
Opportunity: Strong trade relationship with the United States. The United States is Taiwan’s third largest trading partner. As of 2011, the country exported
10.8% of its net outgoing goods and services to the United States and accepted
10.1% of their total imports from same (U.S. Commercial Service, 2011).
Threat: Delicate political relationship with China. The fact that China lays claim to Taiwanese territory, coupled with the knowledge that not all nations
recognize Taiwan’s sovereignty is possible cause for concern. Should a firm
invest in ROC operations, the arrangements made with the government of Taiwan
could feasibly be nullified following a concerted effort made by PRC to reclaim
direct control over the territory. The possibility of PRC expropriation of
organizations erected without their influence and oversight should remain top of
mind for those wishing to conduct FDI in Taiwan.
2.3 – Economic Environment Taiwan has a dynamic capitalist economy primarily steered by robust capabilities around
machinery and technology manufacturing and export. The enormous growth undertaken in the
country during the latter half of the 20th century has been referred to as the “Taiwan Miracle”, as
it has catapulted its GDP to USD901.9 billion (2012; USD38,500 per-capita) making it ranked
20 th
among all world economies (CIA, 2013). Although it has demonstrated its ability to create
and maintain industries capable of growing its economy, the fact that such a large portion of its
GDP depends on exports leaves Taiwan vulnerable to soft markets in international demand.
While the country has averaged 8% real GDP growth over the past 30 years, expansion slowed to
a mere 1.8% in 2012 due to lagging exports (CIA, 2013). Worth noting is the fact that Taiwan’s
trade surplus is enormous, and the country suffers from a low unemployment rate of 4.3% as of
2012.
As depicted in Figure 1 below, Taiwan’s percent change in annual GDP growth over the
past 3 years has remained for the most part positive. The country’s strong performance in GDP
Market Entry Plan – Netflix, Inc. 6
growth puts the nation in a competitive position as an outlet for foreign direct investment, as
their ability to demonstrate consistency in economic expansion is reflective of the fortitude of
Taiwan’s economy.
Figure 1: Percent Change, Taiwan Annual GDP Growth Rate
(Source: tradingeconomics.com, 2013)
The country has long been a destination for contract and component manufacturing
processes, but some time ago global organizations began shifting many such activities to
mainland China to take advantage of comparatively lower labor costs. Fortunately for Taiwan,
however, rising costs in China in tandem with a recognizable supply of skilled workers has found
many operations moving back to the island. This year alone, the country planned to garner
USD5 billion of additional investment capital from organizations moving back to Taiwan
(BusinessWeek, 2013).
Opportunity: Admirable GDP per capita. Although Taiwan globally ranks 30 th
in the GDP per capita comparison, the only three Asia-Pacific nations outranking
the country are Hong Kong, Brunei and Singapore (CIA, 2013). This puts Taiwan
in a strategically sound position for the introduction of consumer goods to the
Asian market(s), as the disposable income enjoyed by its inhabitants likens the
degree of product sampling.
Threat: Dependence upon PRC for economic solvency. The People’s Republic of China represents Taiwan’s top ranked target for FDI activities. This
fact, coupled with the idea that China is ROC’s number one trading partner (29%
of total trade as of 2010) makes the country susceptible to severe economic
disruption should political relations with mainland China dissolve.
2.4 – Society and Culture The majority of Taiwanese citizens are of Han (Chinese) descent, and—although several
regional variations exist—Standard (or Traditional Mandarin) Chinese is the nationally
recognized language. Most practitioners of religion in the country follow Buddhism or Taoism
(68.1%), with the remainder of the country made up of I-Kuan Tao, Protestantism, and/or
Catholicism. The Taiwanese people are almost completely opposite from United States citizens
when analyzed using Hofstede’s Five Dimensions of Culture. They score high on the scale of
power distance, uncertainty avoidance, and long-term orientation, taking low marks for
Market Entry Plan – Netflix, Inc. 7
individualism and masculinity. Their collectivistic culture finds them forging strong, life-long
bonds with both family and peers.
Opportunity: Societal appreciation for American goods. Having visited the country in 2012, I was fortunate enough to witness the general appreciation for
goods from the United States and “Americanism” first-hand. A 2012 Boston
Consulting Group study concluded that Chinese consumers are willing to pay
premium prices of between 10 and 80% to consume American goods and—
although the observations were made of PRC consumption—similarities between
the two cultures allow researchers to draw similar conclusions for the ROC
market (Forbes, 2012).
Threat: Comparatively laggard adoption of new products. The collectivistic nature of Taiwan’s people finds that early adopters are few, and aggregate
adoption of products newly introduced in the market requires proliferation of
recognized quality. This attitude typically originates with respected persons
within social circles (in-country early adopters) and propagates slowly. Market
entrants must accordingly remain patient with measurements of attach rate, which
can lead to sluggish return on investment.
2.5 – Technological Environment Taiwan is a recognized global leader in integrated circuit manufacturing, including
components and final products related to PCs, LCDs, LEDs, mobile phones, solar cells,
motherboards, and more. From a consumer perspective, their advanced telecommunications
networks and high proliferation of connected devices makes the country adequately situated for
targeting by technology firms whose service offerings depend on these platforms for
deployment.
Opportunity: High saturation of connectivity. The United Nations’ Telecommunication Development Sector estimated that the percentage of
Taiwanese people with internet access was 75.99% as of 2012 (ITU). For
comparison, the same research concluded that usage in the United States of
America sat at 81.03% for the same period (ITU, 2012). This widespread internet
accessibility permits the copious number of firms utilizing web connectivity to
deliver services a well-established audience of consumers in Taiwan.
Threat: Proliferation of copyright infringement. According to the U.S. Commercial Service, American firms have remained cognizant of infringement of
intellectual property rights by Taiwan and its citizens for some time now, and
internet-based piracy by individuals, corporations, and educational institutions
alike continues to be problematic (2011). Although the situation continues to
improve, companies with electronic products that is easily replicated (e.g.
software and electronic books) should take the necessary steps to protect their IP.
The U.S. Commercial Service has outlined recommended procedures in their
publication “Doing Business in Taiwan”.
2.6 – Opportunities and Threats A PEST analysis has uncovered several factors that Netflix should take into consideration
both before considering expansion into Taiwan, and as they form their go-to-market plan moving
forward. These findings are summarized below.
Market Entry Plan – Netflix, Inc. 8
2.6.1 – Opportunities
Three circumstances stand out as being the most advantageous opportunities for a
Netflix, Inc. expansion into Taiwan.
1. Admirable GDP per capita. Although Taiwan globally ranks 30th in the GDP per capita comparison, the only three Asia-Pacific nations outranking the country are Hong
Kong, Brunei and Singapore (CIA, 2013). This puts Taiwan in a strategically sound
position for the introduction of consumer goods to the Asian market(s), as the disposable
income enjoyed by its inhabitants likens the degree of product sampling.
2. Societal appreciation for American goods. Having visited the country in 2012, I was fortunate enough to witness the general appreciation for goods from the United States and
“Americanism” first-hand. A 2012 Boston Consulting Group study concluded that
Chinese consumers are willing to pay premium prices of between 10 and 80% to
consume American goods and—although the observations were made of PRC
consumption—similarities between the two cultures allow researchers to draw similar
conclusions for the ROC market (Forbes, 2012).
3. High saturation of connectivity. The United Nations’ Telecommunication Development Sector estimated that the percentage of Taiwanese people with internet access was
75.99% as of 2012 (ITU). For comparison, the same research concluded that usage in the
United States of America sat at 81.03% for the same period (ITU, 2012). This
widespread internet accessibility permits the copious number of firms utilizing web
connectivity to deliver services a well-established audience of consumers in Taiwan.
2.6.2 – Threats
No entry into a foreign market is a leisurely experience, and as such should take into full
consideration the existence of several threats discovered using a PEST analysis. The three most
influential threats to a Netflix, Inc. expansion into Taiwan are summarized below.
1. Delicate political relationship with China. The fact that China lays claim to Taiwanese territory, coupled with the knowledge that only a handful of nations recognize Taiwan’s
sovereignty is possible cause for concern. Should a firm invest in ROC operations, the
arrangements made with the government of Taiwan could feasibly be nullified following
a concerted effort made by PRC to reclaim direct control over the territory. The
possibility of PRC expropriation of organizations erected without their influence and
oversight should remain top of mind for those wishing to conduct FDI in Taiwan.
2. Proliferation of copyright infringement. According to the U.S. Commercial Service, American firms have remained cognizant of infringement of intellectual property rights
by Taiwan and its citizens for some time now, and internet-based piracy by individuals,
corporations, and educational institutions alike continues to be problematic (2011).
Although the situation continues to improve, companies with electronic products that is
easily replicated (e.g. software and electronic books) should take the necessary steps to
protect their IP. The U.S. Commercial Service has outlined recommended procedures in
their publication “Doing Business in Taiwan”.
3. Dependence upon PRC for economic solvency. The People’s Republic of China represents Taiwan’s top ranked target for FDI activities. This fact, coupled with the idea
that China is ROC’s number one trading partner (29% of total trade as of 2010) makes
the country susceptible to severe economic disruption should political relations with
mainland China dissolve.
Market Entry Plan – Netflix, Inc. 9
3.0 – Global Competitive Analysis: Online Video Streaming The global competitive environment for online video streaming is extremely young, and
proliferation of service offerings is still emerging. Having originated in the United States of
America, the technology is gradually undergoing global expansion as firms such as Netflix
extend their businesses to foreign shores. While many smaller competitive firms exist around
the world, the lack of technological and service-specific marketing expertise, the need to address
content targeting by regional tastes, as well as capital-intense operational requirements
surrounding legal content acquisition and licensing have prevented widespread market entry.
3.1 – Competitive Analysis: Taiwan
Further to our analysis of the global competitive environment for online video streaming,
the country of Taiwan is an entirely greenfield market, as no firm has introduced a viable product
to Taiwanese consumers. As such, market entry for a firm such as Netflix will be relatively
unencumbered by competitive threats. However, the prospective rollout is not without its
drawbacks, and we’ve accordingly chosen to analyze the market through the lens of 5
competitive forces.
The model of Five Competitive Forces was developed by Michael E. Porter and has
become one of the most relevant methods for analyzing an organizations industry structure in
strategic processes (Porter, 1980). Porter’s model is based on the insight that a corporate
strategy should meet the opportunities and threats in the organization’s external environment.
Bargaining Power of Suppliers: Moderate: Content is king when it comes to streaming video services, as providers must have access to the media they wish to provide to
consumers. While suppliers of these materials may wish to make the most profitable
contractual arrangements for streaming of their content, they do not have competitive
firms to play a market entrant against for the time being. However, the premier market
entrant must gain access to this content, so suppliers do wield a certain degree of power.
Bargaining Power of Customers: Weak: Without competitive conditions in the market, end-customers have no one else to turn to for streaming video content. That being the
case, the bargaining power of these customers is extremely weak.
Threat of New Entrants: Strong: Netflix is assuredly not the only firm to recognize the greenfield conditions of online video streaming in the Taiwanese market. Other firms are
equally as likely to throw their hat(s) in the ring either at this juncture or in the near
future should the first to act show demonstrable success.
Threat of Substitute Products: Strong: Although the profitable video streaming service market in Taiwan is virtually non-existent, the country’s people have plenty of
options for accessing video content; including piracy. Given that specific numbers
regarding Taiwanese video piracy may be hard to come by due to the illegal nature of the
action, should piracy be extremely widespread it may be extremely difficult to begin
asking consumers to pay for such services.
Competitive Rivalry within Industry: Weak: In stark contrast to the extremely competitive environment for entertainment video in the United States of America, the
industry in Taiwan is almost non-existent. This presents an attractive situation for
companies with existing expertise in video streaming such as Netflix, but although
competition doesn’t exist at the moment any demonstrable success in the market is
virtually guaranteed to be met with new market entrants within due time.
Market Entry Plan – Netflix, Inc. 10
3.2 – Identification of Primary Competitive Threat
Whereas no one competitive threat exists in the Taiwanese market, Netflix must not rest
on their laurels while forming their entry strategy. The formation of a marketing plan should
include an analysis of possible competitive threats the firm may face in the near future. For the
purposes of this market entry plan, we’ve chosen to assess Amazon.com as the primary
competitive threat due to their status as the most recognizable threat to Netflix in their home
country of operations. In consuming these materials, however, the strategic marketing manager
should assign limited weight to the impact of these analyses, as the competitive threat does not
realistically exist as described due to the greenfield status of internet video streaming in Taiwan.
Netflix: Strengths Amazon.com: Strengths
1. Core Competence in Content Selection and Delivery
The company has committed over $5billion towards
their streaming library, which boasts TV show and
movie content exceeding 1 billion viewing hours and
60,000 titles. They have created a strategic advantage
with their proprietary user interface, which serves
content browsers with recommendations based on
ratings and viewing history analytics performed on
historical data gleaned from their subscriber base.
2. Proven Capability in Subscriber Attraction and Retention
Netflix’ faculty in content and selection is key to their
ability to attract and retain subscribers. Although
interdependent, the fact that they have demonstrated
perpetual growth in their subscriber base represents a
unique strength in and of itself. Netflix subscribers
jumped by 5 million users in 2012 to over 38 million
total, which the company attributes to compelling
content, outstanding member experience, and brand
clarity.
3. Inherent Focus on Core Business The Netflix model finds particular strength in the market
due to the fact they have not diversified beyond their
core business. The company adheres to their
commitment to focus on streaming video, and sees their
competence in doing so key to rapid innovation resulting
in increased customer satisfaction.
1. Strong Customer Base Although Amazon remains the weaker of the two
competitors in the video streaming sector, it benefits
from a highly trafficked website and loyal following of
retail consumers. With up to 138 million monthly
visitors to its website, their Total Addressable Market
for introduction to existing and/or new video content
services shows great potential, and a concerted effort to
cannibalize the customer base of Netflix could prove
successful (compete.com, 2013).
2. Growing Selection of Content Amazon’s Instant Video service currently offers over
150,000 movie and television show titles, and the
company’s continuous expansion in additional licensing
is evidence of its commitment to content growth.
3. Bilateral Instant Video Strategy Amazon offers its full library of streaming video content
for sale or rent via its online marketplace. Alternatively,
the company also devotes a segment of these materials
as a complementary value-add to its Amazon Prime
service, in which customers pay lump sum annual fee for
access to free two-day shipping on the majority of
Amazon-sold products through its electronic retail
storefront. This strategy incentivizes potential
customers to upgrade their Amazon accounts to the
Prime offering, and in turn exposes them to the
streaming ecosystem it has developed.
Market Entry Plan – Netflix, Inc. 11
Netflix: Weaknesses Amazon.com: Weaknesses
1. Burdensome Debt and Limited Cash Flow Early in 2013, Standard & Poor’s altered its outlook on
Netflix’ speculative BB-minus level debt to negative,
citing declining cash flow levels between this year and
next, the firm’s increased propensity to leverage debt,
and “risks associated with original programming”. The
company’s stated intention to increase a debt-backed
commitment to their streaming footprint is cause for
concern, as decreasing cash reserves reported in 2012
are actually reflective of an inability to obtain additional
debt to finance acquisitions, capture business
opportunities, and meet capital expenditure or other
capital requirements in the future.
2. Weakening Firm Profitability Despite its ability to outpace analyst forecasts for share
prices, Netflix has recently exhibited declining
profitability. Fiscal year 2012 saw a decrease of 86.71%
in operating profit from 2011, mainly due to increases in
operating costs as a percentage of sales. Further, the firm
reported operating margin of 1.39% in 2012 compared
with 11.74% in 2011. Should Netflix be ineffective in
demonstrating success with its growth forecasts
profitability may further wane, resulting in displeased
investors and declining company value.
3. Decline of the Domestic DVD Segment Although the Domestic DVD segment vaulted Netflix to
common recognition as the major player in subscription-
based television and movie content delivery,
subscriptions to the physical disc distribution service
have continued to decline in recent years. The firm’s
commitment to investing in new content creates an
additional financial commitment by default, as they must
acquire additional assets as quickly as new movies are
released.
1. Burdensome Debt Hampers Ability to Strategically Target Competitors
Amazon.com is not exempt from the issues with debt
obligations that have plagued its competitor Netflix in
recent years. During fiscal year 2012, the company
recorded total debt of $3.8 billion, which came as a
170% increase over the same performance in 2011
(GlobalData, 2013). This fact could limit their ability to
expand their streaming video content and infrastructure
to put it on par with Netflix’ offering.
2. Broadly Diversified Business Amazon began in 1994 as an online retailer of consumer
goods and has since diversified its business into a
number of product and services, including the
facilitation of 3 rd
party seller accounts, streaming video
content, marketing and promotional activities, web
services, and co-branded credit card agreements
(GlobalData, 2013). While all of their offerings are
web-based, the lack of focus on any one business in
particular may prevent them from developing
competencies related to streaming video.
3. Lack of Physical Disc Options The physical disc rent-by-mail is a weakness for Netflix
due to the fact the company has experienced a decline in
users utilizing the service, yet its business model is still
partially based on the offering. This puts Amazon at a
disadvantage because although not as many consumers
wish to rent videos on physical disc when given
streaming capability, at least it represents flexibility of
options. Amazon does not distribute physical disc
rentals, therefore they cannot compete on this front.
3.3 – Identification of Additional Competitive Threats As was the case for the primary competitive threat, existing secondary and/or tertiary
competitive threats do not exist in the Taiwanese market. For the purposes of this study we have
assigned additional competitors based on the current situation in Netflix’ home market of the
United States of America, but—just as before—the strategic marketing manager should assign
limited weight to the impact of these analyses, as the competitive threat does not realistically
exist as described due to the greenfield status of internet video streaming in Taiwan.
Hulu – Hulu is a joint venture between several TV networks for subscription-based delivery of popular television shows. Similar to Netflix, Hulu subscribers pay a monthly
access fee to view streaming content, which may be downloaded to a multitude of digital
devices. From a competitive standpoint this service leaves a lot to be desired in terms of
breadth of content, and unlike Netflix their offering is not exclusive of advertising. In the
event our strategic recommendations selected a secondary competitor, Hulu would be
chosen.
Market Entry Plan – Netflix, Inc. 12
Vudu – Vudu offers users the ability to purchase or rent movies and television shows starting at 99 cents each, and was recently acquired by Wal-Mart. They tout competitive
advantage in their claim to deliver streaming content the very day it’s released to DVD; a
marked difference in the turnaround time of up to one year typically seen by Netflix
subscribers. As was the case with both Amazon and Hulu, who would fill a primary and
secondary competitor role, respectively, if our analyses rendered such a decision Vudu
would fill the tertiary spot.
HBO GO – HBO developed its GO service to stream their in-house television series, as well as licensed movies. As of now they only offer 244 movie titles in addition to 47
series and a handful of comedy and sports recordings, so their content lineup is paltry
compared to the Netflix library.
Apple iTunes – Apple began offering movies and television shows for purchase and download to compatible devices in 2005, and capitalizes on the broad user base the
company enjoys for their mobile devices.
Google Play – Much like Apple iTunes, the Google Play store allows its users to purchase or rent movies and television shows. The service should be viewed as a direct
competitor to Netflix due to overlap of content offering, but thus far Google appears to
have fleshed out their library as more of a fringe value-add to their Google Play
marketplace rather than assemble a concerted effort to cannibalize Netflix viewership.
YouTube – This behemoth of online video content is primarily driven by user-supplied uploads, but some full-length films are also legally available for streaming. Although
this does not parallel the service offering of Netflix, their existence cannot be ignored;
particularly in the event they choose to modify their business model to take advantage of
their large-scale delivery infrastructure and offer services that compete with Netflix in the
future.
4.0 – Entry Strategies: Options for Taiwanese Market
4.1 – Identification of Market Entry Options Netflix must recognize that correctly choosing their market entry strategy is imperative to
sustainable success in Taiwan. Several options for market entry exist for Netflix to take into
consideration, each of which has varying degrees of feasibility.
Joint Venture – An entry strategy where two businesses join together and share
ownership over a newly created third firm. This strategy is moderately attractive to a company
considering entry into an intensely competitive market, but with shared risk comes shared
reward. Considering the Taiwanese streaming video market is greenfield, there are no existing
firms in the market with competencies that would bolster Netflix’ offering. Partnering with a
production studio with rights to a large library of content desired by the firm may be attractive,
but the Netflix’ value proposition is in the delivery of said content; something that the firm has
historically demonstrated significant independent success with.
Acquisition – Although an existing online video streaming firm does not exist in the
Taiwanese market for the purposes of acquiring a veteran organization, Netflix may acquire
companies which represent a significant portion of their overall cash outlays in an effort to ease
the burden of market entry. Large internet infrastructure and/or web hosting companies, or
holders of large content libraries may be targets for this manner of acquisition.
Market Entry Plan – Netflix, Inc. 13
Outright Investment – This strategy would find Netflix performing direct foreign
investment in the Taiwanese market by acquiring the content rights and equipment necessary to
duplicate their US operations overseas.
4.2 – Recommendation of Market Entry Strategy Netflix, Inc. should adopt an outright investment strategy in Taiwan by acquiring the
content rights and equipment necessary to duplicate their US operations in the market. The
firm’s liquidity situation affords them the ability the flexibility of capital expense necessary to
undertake the investment, and doing so will ensure that the firm reaps the maximum benefits of
profitable success in the new venture.
5.0 – Market Analysis and Segmentation: Netflix, Inc. in Taiwan The target consumer market for Netflix is adults over the age of 17 who enjoy watching
movies and television shows, and who have internet access via a device capable of viewing
streaming content. The company’s delivery model is such that pervasive internet connectivity
and broad selection of content permit them to target just about every consumer in their markets
of operation, with the only additional determination of eligibility being the offset amount of
disposable income necessary to subscribe to their services. Furthermore, their business is largely
hinged on factors of convenience, as consumers need not leave the comfort of their home to
utilize their services. Internationally, this market largely consists of mobile users, as many
consumers in emerging markets find larger, more expensive devices for streaming content access
such as PCs and Macs to be cost restrictive.
6.0 – Marketing Mix Strategies: Taiwanese Market The marketing mix for Netflix’ expansion into Taiwan will take on a somewhat similar
approach to the service rollout in the United States of America, with certain considerations being
given for local taste in content. Of considerable interest to the determination of marketing
investment is the fact that the firm does not manufacture and/or distribute a tangible product,
therefore inventory build-up and/or scrap to redress product specifications per ongoing
marketing research is entirely unnecessary. Modification of service delivery can be dynamically
performed with very little expense through acquisition of new content and/or redesign of the
customer-facing user interface.
6.1 – Product Strategy As previously addressed, Netflix will not be offering a tangible product to consumers;
rather a service-based internet streaming video on demand offering. The firm should negotiate
and acquire the distribution rights for a solid base of content based on initial and ongoing market
research, the scope of which should mirror their original offering during expansion into Latin
America. Consideration should primarily be given to video content in Mandarin Chinese, or
films which have the ability to enable subtitles in same.
6.2 – Price Strategy Considering that Netflix will only be offering web-based streaming video, the firm need
not account for variable pricing seen in the US market, which continues to offer DVD and/or
Market Entry Plan – Netflix, Inc. 14
Blu-Ray disc-by-mail services. Netflix should adopt a flat-fee offering wherein their customers
may gain access to unlimited streaming video for a reasonable fee as determined by market
research. To set their price and determine the scope of necessary content acquisition, the
company should conduct public surveys to inquire as to “what price consumers would pay to
obtain the following services”, followed by a selection of predetermined options.
6.3 – Promotion Strategy A solid promotional strategy will be of pivotal importance to Netflix’ ability to increase
consumer awareness quickly. Netflix should consider taking out advertisement space offered by
providers of public transportation, as well as in and around the oft-traveled urban roadways used
by motorcyclists. The firm should offer complementary one month trials of their service for new
subscribers responding to their initial marketing push, and bundle the same offering through
partnerships with hardware manufacturers who retail new tablets, PCs, and mobile phones. As is
the case in similar such marketing efforts in other countries, the company will collect billing
information from consumers who sign up for the promotional offer; the terms and conditions of
which will indicate that the subscription will automatically renew at the prevailing rate using the
credit card information provided. This method of subscriber growth must be vetted with local
law, but should the strategy be permitted the exposure to Netflix’ service offering will increase
consumer trials and minimize attrition.
6.4 – Place Strategy As a web-based service offering, Netflix need not be overly preoccupied with the Place
Strategy of the marketing mix. Distribution of product is performed wholly over the internet,
thus acquisition of the Netflix.tw and/or Netflix.com.tw top-level domain(s) is of primary
concern. Purchase and/or service lease of the physical equipment necessary for the delivery of
services may also fall under place strategy, as geophysical location of servers may impact quality
of service (QOS). The island of Taiwan is small enough, however, that centrally positioning the
equipment in
Market Entry Plan – Netflix, Inc. 15
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