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Group 4 MMGP Final Submission
Netflix
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Introduction
The purpose of this Marketing Management Group Paper is to discuss, describe, analyze,
and make recommendations to Netflix as a firm as it relates to Marketing Management. A
background introduction and Market Analysis will be discussed. Then Netflix’s positioning,
competition, and branding will be discussed. Its approach to services and pricing will be
discussed after that. It’s promotion and marketing factors are then discussed. Finally,
recommendations are made based on this research.
Background and history
Founded in 1997 by Reed Hastings and Marc Rudolph, Netflix is an online subscription
service that streams television (TV) shows and movies. The company's subscribers can watch a
limitless amount of TV shows and movies streamed over the Internet to their TVs, computers and
mobile devices, as well as receive digital versatile discs (DVDs) delivered to their homes. The
company primarily operates in the US and also offers service to 240 different international
locations. Headquartered in Los Gatos, California, Netflix employs 2,189 people as of December
31, 2014. (2014 Annual Report & Proxy Statement) By 2007, Netflix had delivered its billionth
DVD and boasted nearly 7.5 million subscribers. (Statista, 2016) Despite this, DVD sales had
declined 19% according to the Digital Entertainment Group (Sabbagh, 2011). At that moment,
Netflix moved into streaming and virtually overnight became the United States largest source of
internet traffic. Now in 2016 with revenue over $6 billion and 75 million subscribers, Netflix is
the market leader in video on demand streaming.
Scanning the Market Environment
Old Four Ps
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Product
Because Netflix has original programming on their network, they should include original
programming for all demographics, including children and teenagers. A lot of the shows created
on Netflix are for mature audiences only, and if Netflix wants to get the entire family to watch
their programming, they should target the younger demographic. Research has shown that teens
and tweens spend on average of two hours per day with their preferred lineup of “Must see TV”
(Matrix, 2014). Teens are also very vocal about their viewing preferences and practices on social
media (Matrix, 2014)
Place
Netflix should also have DVD kiosks outside of big-box retailers such as Best Buy,
Target, Wal-Mart, grocery stores, and shopping malls, like Redbox. This could save the
consumer a trip to the post office, and they can get their DVDs without going out of their way
running errands. Netflix could also partner up with cable companies such as Comcast, and
Verizon to include their streaming service or add a channel to their networks. The partnership
would help the consumer enjoy the movies or shows on their TV screens, instead of watching the
programming on a laptop or having to connect a laptop or other devices with the television
monitor.
Promotion
If Netflix includes the information such as includes press releases, images and videos,
company history and overview pages, contact information for public relations representatives
and information on how Amazon gives back to their communities. that will make the public
relations department seem more approachable. This information would make Netflix more
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friendly because it will show individuals that would like to do research on the company more
information about the company than the services that it offers.
Price
With marketing strategies moving forward, Netflix could also use a “pay-per-use”
strategy that would allow users to access Netflix on an “on-demand” basis, such as a weekly plan
or a daily use plan.
New Four Ps
People
The people, demographic, that Netflix is looking to reach is diverse. The technology that
is used to bring Netflix into a person’s home is becoming easier and easier to use. This ease of
use brings a sense of freedom to the customer that did not have ten years ago. It is with this
freedom that Netflix will continue to grow their business into the future.
Processes
The process section in the four P’s refers to how marketing decisions are made within a
company and the effects in creating long term mutually beneficial decisions on the bottom line
and the customer experience. One of the most noted marketing decisions Netflix made was to
split the video streaming service from the DVD rental business. This willingness to look ahead
and to abandon a platform when it becomes obsolete so that they may focus on the future.
(Bodnar, 2011). In this P also belongs the decision that Netflix made to begin producing and
distributing unique proprietary content such as House of Cards. This decision creates a vertical
integration which allows Netflix to compete better with companies like HBO and Showtime
(Bodnar, 2011).
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Programs
Though the basic four P’s are explained in their dedicated section; this segment will focus
on the marketing activities that do not necessarily fit within the traditional four P’s. Netflix has
engaged in creating shows such as House of Cards to build their brand. Netflix developed this
show by using market analytics to ensure the programing appeals to the target market. This
decision ensures a high level of customer retention and repeat use of Netflix’s video streaming
services (Bodnar, 2011).
Performance
On the financial end, Netflix has shown an increase in profits from 2010 ($2.16 billion)
to 2015 ($6.78 billion) with a P/E of 364.96. Netflix continued growth over the last five years
and being able to outperform the S&P 500 since 2013 (NetAdvantage, 2015) has the stock seen
as a definite buy by many market analyses. On a non-financial aspect, the viewership of their
show House of Cards has increased dramatically. If 16% of the 24.4 million subscribers to
Comcast or Cox Communications watched the first episode of House of Cards that comes out to
about 5.34 million people. (Pomerantz, 2014) When season two was released, the Netflix
experienced a growth rate of about 800% meaning that 42.72 million viewers are experiencing
this program. (Pomerantz, 2014) The growth and viewership show how Netflix is changing the
way people are watching television. Netflix has also helped create the phenomena of “binge
watching” where a person will watch an entire season in a weekend.
Demographic trends
The company of Netflix has perfected the concept of reaching customers across the
global through the internet. Netflix has provided an additional option for consumers besides
basic cable. Netflix has demographic trends for itself in its industry that keep the company above
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its competitors. Since Netflix began in 1997, the company has consistently improved and grew
with its sales and marketing new targets. The main demographic factors that marketer’s monitor
is population. (Kotler & Keller, 2016) “In 2015, the number of subscribers to Netflix was 70
million with 26 million outside the United States” (Topic). Netflix is currently reaching
populations at large in many different markets. In the United States Hispanics prefer to watch
Netflix over any other competitors (Newswire). Marketing lower income families was primarily
Netflix’s focus. Netflix set its price at an affordable monthly price to compete with current cable
prices to be competitive in the industry. With the popularity of smartphones, tablets, laptops, etc.
Netflix became more popular because it was more available to people.
Economic Trends
The present state of the economy has a significant effect on all businesses including
Netflix. As the consumer’s disposable income is decreasing due to the rise in inflation in
proportion to the income per household and the economic concern that comes from a slow
economy, the consumer is watching ever closer where every dollar is spent. As to the
positioning, Netflix began as a luxury purchase, and a supplemental product to the customer's’
existing cable or satellite television services; however, due to the steep rise in the cost of these
television services, bundling packages and network disputes Netflix has become a replacement
product (Friedman, 2016). This conflict created a new customer segment where rather than
buying a cable service and an on-demand video streaming service like Netflix; the customer is
now purchasing web accesses and an on-demand video streaming services such as Netflix
instead of a cable or satellite television service. Thus, causing Netflix’s subscription rate to
increase 6% and reach total viewing hours of 29.1 billion. (Friedman, 2016) This viewership
means that Netflix rivals most mid-sized cable companies and poses a significant threat to the
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larger companies such as Time Warner. If the current trend of high cost of cable and slow growth
of the economy continue, Netflix is predicted to reach over 14% of all television watched.
(Friedman, 2016) This does not account for the competing video streaming services such as Hulu
or Amazon Prime.
Tech Trends
Netflix is an example of adapting and leading the market in technological change, which
is a result of massive consumer acceptance. Netflix recognized the power of the internet with
connecting with customer. In less than ten years, Netflix again foresaw the power of internet and
introduced entirely online streaming for on-demand movies. In 2011, Netflix accounted for a 22
percent of all North American internet traffic. Today, it is 36 percent. (Sandvine, 2015)
Today, Netflix faces new technological challenges. One such challenge are content
owners such as Time Warner and Viacom are hesitant to license new content to Netflix as it
drives away ad revenue. These costs amount to $5 billion for Netflix (Wall Street Journal, 2015).
Another challenge is the balance Netflix has to find in dealing with content owners and
consumers in regards to geographic delivery. Many consumers use Virtual Private Networks
(VPNs) to access content not accessible in their country. The VPN masks their true geographical
area. In January 2016, Netflix announced it would block VPNs in response to content owner
demands. As such, this is driving consumers away. (Greenberg, 2016) Now as Netflix moves
forward, it has to find a way to continue to stay abreast of the latest changes, such as dealing
with VPNs, or face new competitors.
Consumer Taste
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Netflix uses the recommender system when a customer logs into their account. When the
customer becomes a new subscriber, Netflix will ask the subscriber a series of questions that
includes preferences for programming and genres, and makes references to television shows and
movies that the subscriber may be interested in watching. Recommender services are becoming
an essential part of the e-commerce industry, and there is research that is focused on advancing
the recommendation technologies so that the predictions are as accurate to the preferences of the
subscriber as possible (Information Technology Newsweekly, 2014). Consumers are purchasing
Netflix subscriptions because of the television programming that is currently on Netflix, and this
streaming service allows subscribers to access and enjoy as many movies and programming as
possible for a nominal monthly fee.
Analyzing the Consumer Market
Cultural Factors
Culture shapes the buying patterns of the consumer (Keller and Kotler, 2016); because
the values and norms within a culture contribute to the likes and dislikes for that particular
group. Regarding Netflix and their video streaming services and the content that an individual is
watching, Netflix needs to find or create content to capture Netflix’s target demographic. The
diversity of Netflix’s consumers and the ability of those users to choose the content that they are
watching and how long they are watching, Netflix finds it necessary to target larger subcultures
with bought and created content rather than trying to produce content that will please everyone.
The ideal subcultures with the purchasing power, and a large enough population of consumers to
make a viable target demographic are Women, (Parker, 2013) Children, (Shah, 2010) African-
American, and Latino (Friedman, 2013). It is by having content that these subcultures are willing
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to consume that Netflix will be able to retain the current business that they have as well as
acquire new consumers.
Social Factors
Reference groups are individuals or a group of people that significantly influence the
behavior of an individual (Liu & Hu, 2012). The family is the first social group that people are
exposed to. Due to this, Netflix should recognize the family as the most influential primary
reference grouping the marketing plan. Specific tactics include going after the head of household
and towards children and teens. Children and teens spend billions of dollars a year, which make
them an especially worthy target as new subscribers. (Harris Interactive, 2011). Children and
teen subscribers should also receive different programming, such as original content, that further
make Netflix worthwhile to subscribe for families.
Personal Factors
Having a solid understanding of these factors will benefit the overall growth by allowing
Netflix to monopolize upon these factors. There are three points in the life cycle are young,
adult, and senior. Each of these groups has different television watching habits and media
streaming patterns. The largest of these group of current watchers is Young, 5-25 years, (BARB,
2015) and the group with the fastest growth over the previous year is seniors (55+) (Friedman,
2013). This means that Netflix’s efforts to retain these demographics is necessary to drive
viewership and ultimately revenue. The economic factor that is affecting the consumption of
Netflix video viewing services is the amount of disposable income of the consumer. The
financial decline into a recession in 2006 and the subsequent slow recovery has left many people
with a dwindling disposable income. This factor combined with the increase in cable prices as
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well as the conflict between networks and the cable providers has caused people to seek lower
cost alternatives for entertainment; creating an opening in the market that Netflix can fill by
providing an appropriately priced entertainment package.
Psychological Factors
The nature of media stream is one that is undertaken individually making the
psychological factor a prime driver for the buying decision. What makes people watch and binge
watch television, other than mental or personality disorders? There is also an emotional factor
that intertwined with the fulfillment of an individual’s needs. The watching movies fulfill two of
the needs described by Maslow. They are as followed Social and Esteem (Keller and Kotler,
2016). The Social and Esteem Needs are fulfilled by creating a commonality and a sense of
belonging to a peer group. The shared experience of having seen the same event creates this
belonging and builds status within one's peer group as having seen the event (i.e. those who saw
the first season of “House of Cards” as per those who have only see one or two episodes.
Herzberg lays out a theory that a person’s buying motivations are controlled by “satisfiers”,
attributes of a product that cause people to want to buy, and “dis-satisfiers”, attributes of the
product that cause people to avoid the product (Keller and Kotler, 2016). When a product has
more “satisfiers than “dissatisfiers” a person will buy the product. Herzberg's theory also says
that just the lack of “dissatisfiers” will not cause a person to buy. As Netflix fulfills these needs
an emotional connection is created. The consumer begins to associate Netflix with the positive
emotions that created by viewing Netflix’s exclusive content. The variety of content and the
sheer number of choices should be a topmost priority as it is one of the biggest complaints
Netflix has from its customers. This increase in content can be accomplished by increasing the
storage capacity of the servers, allowing for an increase of material available. This solution is an
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expensive process and should be a continual and incremental process. Beyond this, the
“satisfiers” need to be prioritized and improved before tackling the “dis-satisfiers”; which, will
inevitably increase customer retention and acquisition.
Variables
Because Netflix is an international company, it should not have programming geared to
American audiences only. Netflix should provide programming that people in other countries
may enjoy and that are in their language. Netflix should also analyze trends in usage for their
services and target users who rarely use the service by sending e-mail reminders to encourage
using the service. Netflix should send out satisfaction surveys on an annual basis to subscribers,
and if the results are poor, they should come up with strategies to improve their services so they
will not lose their members.
Market Segments
Evaluation of Market Segmentation Attractiveness
Netflix should identify the appropriate number of market segments, evaluate the most
attractive ones, and decide which ones to target. The market segments the have been identified
are geographic and demographic. Geographic segmentation divides the market up into
geographical units such as nations and states. The most attractive geographic segment is the
international markets. While the largest number of consumers come from the United States, there
are 240 international locations that Netflix has presence. Segmenting by nation allows Netflix to
tailor specific content to that nation. Demographic segmentation includes age and life cycle
stage, life stage, gender, and income, generation, and race. From these market segments, target
markets have been identified as family, young people, gender, race, and international locations.
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Full Market Coverage
Between full market coverage, market specialization, product specialization, selective
specialization, or single-segment concentration, Netflix should pursue full market coverage.
When Netflix evaluates and select its market, its objective is to promote product as the only
existing and affordable option for entertainment. Netflix overcame its existing competitors such
as Blockbuster but of the need to meet convenience and inexpensive. As Netflix evolved, its
services and products grew and because more available on tablets, laptops, smartphone, smart
televisions, and now the convenience. This method selecting a market is what helped Netflix
grow so rapidly international. Selecting only subsets due to selective specialization in a market is
not the most beneficial option for Netflix. Netflix does not only appeal to lower income families
or one parent homes, but two parent homes and the high class/wealthy persons as well. Product
specialization should not be Netflix’s main choice to evaluate a market. Netflix has one service
that has many products for choice. The service to provide entertainment with the only need of the
internet is key in this world. Netflix (to a degree) specializes in its product. Single-segmentation
is not a good option for Netflix because its profits from entertainment.
Target Markets
Each target market identified allows Netflix to best figure out how to acquire new
consumers and then keep them subscribed by offering specific content. The family target market
is most important as it includes subscribers that span vast age groups. They could be children,
teenagers, parents, or the elderly. Another target market are young people who are anybody
between the ages of 5-25. This market also represents the largest group of online streaming and
therefore should be market to aggressively. The gender target market includes men and women
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and both have different attitudes and tastes. Race as a target market is very large encompassing
over 100 million people in the United States. This includes Hispanic Americans, which is the
largest minority group. Closed captioning is one example of catering to the Hispanic Americans
where English is not their first language. Finally, international locations as a target market is
those that encompass a global market.
Positioning
Brand Positioning Statement
Brand positioning is the “act of designing a company’s offering and image to occupy a
distinctive place in the minds of the target market” (Kotler & Keller, 2016, p. 275). In other
words, it is what a consumer thinks about when they recognize a particular brand. In order to
have effective brand positioning, a company should have a guiding statement for brand
positioning. The positioning that Netflix takes is dependent on choosing a frame of reference by
identifying the target market and relevant completion, recognizing the optimal points of
difference, and creating a brand mantra, which summarizes the essence of the brand (Kotler &
Keller, 2016). This is known as the positioning statement. For media consumers, Netflix is the
industry leader delivering content compared to Amazon Prime and Hulu Plus, that easily delivers
content, both third party and original at an affordable price. This brand positioning statement is
broken up by its individual components: frame of reference, points of difference, and brand
mantra. The frame of reference are the other brands that a specific brand competes with (Kotler
& Keller, 2016). In the case of Netflix, Amazon Prime and Hulu Plus are its two biggest
competitors that offer the same service at about the same price. Finally, the points of difference
are those benefits that distinguish the brand from others (Kotler & Keller, 2016).
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Frame of Reference, Points of Difference, and Brand Mantra
In order to create a frame of reference, Netflix should first choose its target market and
recognize its relevant competition. Netflix’s target market includes families, young people, both
men and women, and race, such as African-American and Hispanics. These target markets all are
media consumers, which includes 46 percent of all Americans who stream content. (Spangler,
2016). Netflix’s main competitors are Amazon Prime and Hulu Plus. They are all a part of the
category membership, which includes over the top content streaming. Both Amazon Prime and
Hulu Plus are seeking the same thing, to get the largest amount of subscriptions. However,
Netflix has the right points of difference. Points of difference are those attributes that a consumer
strongly associates with and positively evaluate (Kotler & Keller, 2016). They need to be
desirable by the consumer, deliverable by the company, and different from the competition.
Netflix is already desirable as it has the most ease of access. It can be watched from any laptop,
TV, or mobile device. It also does not show ads whereas Hulu Plus does (D’Onfro, 2014). It
differentiates from its competitors by providing more original content than both Amazon Prime
and Hulu Plus combined. (Fahey, 2016) Finally, a brand mantra should be created. An effective
brand mantra is one that communicates, simplifies, and inspires (Kotler & Keller, 2016) An
effective brand mantra for Netflix should be: Streaming Convenience. It reflects what Netflix
does, and what it does well for consumers.
Competition
Netflix has risen to the top of the video streaming market as measured by viewership, but
two major competitors pose a threat to Netflix’s market position, Amazon Prime, and Hulu. The
reason that Netflix has managed to rise to the top of the market is through its biggest strengths,
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its ability to differentiate itself from the competitors. The distance between Netflix and its next
biggest competitor is rather significant. Netflix has managed to capture 43% of the market
followed by Amazon Prime (22%) and Hulu (9%). (Loeshe, 2016) It has also been shown that
the majority of the market prefers the no-subscription service (51%) (Loeshe, 2016) including
the no-subscription users of Hulu. The total 38 million customers of Hulu, 4 million of which are
paid subscribers, still pales in comparison to Netflix’s 64 million subscribers. (Hulu and Netflix
Subscriptions, 2016) Netflix’s position in the market is not stagnating. Netflix is boasting an 8%
growth over the past year (Richter, 2016).
The following strengths include price and no advertising. The first is price. Netflix’s
pricing strategy is comparable to the rest of the market, but with the addition of exclusive
content, it becomes a better value than Hulu or Amazon Prime’s video streaming service.
(Cheredar, 2013). Netflix can generate high profits while maintaining their prices without the
use of advertising or being subsidized from a third party, such as a cable provider, by delivering
volume and keeping cost low. This allows the customer to be easily able to fit Netflix services
into their monthly entertainment budget, and it lessens the economic barrier between the
customer and Netflix’s content. The final strength that Netflix possesses is a no advertising
policy. Netflix has dedicated itself to making money through their subscription fees rather than
through the sale of advertising (Cheredar, 2013). The lack of advertising on Netflix makes it
easier for the customer to access the content that they have purchased, increasing customer
satisfaction and furthering differentiating themselves from their competitors.
Netflix has some challenges that are hindering their business. These challenges
(weaknesses) provide a point of attack that is being exploited by their market competitors and is
allowing them to get a firm foothold in the market. The largest weakness that Netflix has with
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their service is the lack of content. Netflix does not carry any new releases in the movie
department, nor do they carry any current television shows, only past seasons. This weakness
has allowed Hulu to grab a foothold in the market and provides a point of attack for Amazon
Prime. Netflix does compensate for this with by offering of exclusive original content. The
second weakness that Netflix is their poor customer support (Netflix, 2016). This slow growth is
due to the lack of understanding of the demographics that exist within those markets (Cheredar,
2013). This lack of knowledge shows that Netflix needs to increase market research in these
geographic areas to improve their slow growth. This weakness provides a significant gap for
Amazon Prime to attack Netflix. Amazon, as a retailer, currently has a presence in these markets
and if they can convert this business from their retail side to their video streaming side through
the use of Amazon Prime it would definitely hurt Netflix in these markets. Netflix does have the
ability to hold their position should Amazon Prime take this route.
Product Branding
Brand Elements
The brand elements that will be the most useful in differentiating Netflix from the
competition are protectable and adaptable.
Protectable
Brands are placards by which modern consumers choose products and declare his or her
ethos, principles, beliefs, viewpoints and membership of communities (George, 2006, p. 215).
Netflix has various intellectual property rights such as patents, trademarks, and copyright. The
content provided by Netflix is protected by copyright, which includes property laws and treaties,
as well as the Netflix service ("What intellectual property notices should I be aware of?", 2016).
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Netflix is a trademark registered by Netflix, Inc., and Netflix has patents for their streaming and
DVD services ("What intellectual property notices should I be aware of?", 2016).
Adaptable
An aesthetically pleasing logo to consumers will help the users feel emotionally attached
to the company, brand, or product ("Executive Summary of “Brand Logo Design: Examining
Consumer Response to Naturalness,”" 2015). The current Netflix logo changed in 2014, and it
has the name of the company in red with an arch in the letters. The Netflix logo is simple, and it
does not include any special graphics or stylized wording. If Netflix keeps the logo simplistic
and not include graphics next to or surrounding the company name, consumers will adapt to it
quickly.
Packaging and Labeling
The packaging and labeling of Netflix products are simple. If a consumer uses the DVD
mail service, the DVD comes inside a thin red envelope with a white outline. By keeping a
simple, “no frills” look, it makes the company stand apart from their competitors. Netflix should
continue to use this type of packaging and labeling to support its brand image because it is
convertible, recognizable, concise, and easy to remember. Netflix should not change their logo to
appear “cool or trendy” because trends change regularly, and consumers have personal
definitions of what is considered cool. Recommendations include Netflix creating a balance of
the logo by removing the arch in the middle of the company name but keep the same font and
colors. Netflix could also use a custom font because its font could remind one of a Word Art
graphic created in Microsoft Word. The arch should be removed in the event that the logo needs
to be placed vertically or horizontally on a package.
Support Services
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Pinpoint and Appease Consumer Needs
Customers want a company that is known for being respectable, steadfast, and does not
have a lot of failures with their systems and leadership. Billing should not take place on random
days of the month, but it should be a set date, such as the first of the month. Netflix should also
have the latest movies available for customers and not remove movies from their catalog. Netflix
should also have edited versions of their original programming. A lot of the original
programming includes graphic violence, strong language, and nudity, and an edited or “clean”
version of the show could be available for younger viewers.
Downtime
Netflix customers do not want to deal with buffering as he or she streams media, nor deal
with website and application crashes. If the Netflix website crashes, customers should expect that
Netflix will be making the site functional again an urgent priority. If the website or application(s)
are down, and the issue is not resolved in a timely fashion (within twelve hours of the issue), the
customer should receive something for his or her troubles such as a store credit, or discount on
the service in the following month. When service is interrupted or is of concern, customers
contact the company via phone, email, or live chat. Netflix does not provide scripts for its
employees to read off of and instead lets them work with the customer using their unique
personality. Amazon Prime and Hulu Plus do require employees to read from a script, which
could leave customers dissatisfied. Netflix and Amazon Prime do offer 24/7 phone and live chat
support, whereas Hulu Plus provides support only during operating hours (Stenovec, 2013).
Costs
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With a company such as Netflix, the only costs that the customer needs to worry about is
the cost of the subscription. Netflix should keep their tiers based on the quality of the
programming a client watches the media on (either high-definition or standard definition), how
many screens a customer can watch programming on, and the ability to switch tiers until her or
she finds a plan that works in his or her best interest and meets his or her needs. Fortunately, the
price is all-inclusive for customers, which makes it easy to differentiate between the three. Hulu
Plus cost $7.99 per month, whereas Netflix cost $9.99 a month. Amazon Prime costs either $8.99
a month for the service or is included with all of Amazon Prime for $99 a year (Burks, 2016).
With price so similar, all three try to distinguish themselves in different capacities. Amazon
Prime has the largest list of total content, while Netflix has more total movies. Hulu Plus offers
same day or same week offering of current shows from cable and broadcast channels. It does
show commercials, something Netflix and Amazon Prime do not.
The Competitors Services
The largest of Netflix’s competitors is Amazon Prime. Amazon Prime has several
classification of services: retail, eBook, and video streaming. On the retail end, Amazon Prime
offers free two-day shipping, discounts on diapers and baby register, and a lower price on
groceries from Amazon.com (Marks, 2013). This is the biggest benefit to Amazon Prime
subscribers as it is directly tied to a major retailer and creates significantly more value for their
subscription (Unknown, 2015). Amazon Prime also offers over 800,000 e-book titles for free
(Marks, 2013), and Amazon Prime offers 17,000 movies and TV series compared with only
10,000 streaming titles on Netflix (Unknown, 2015). Amazon Prime also offers music streaming.
These services that create a strong affiliation with Amazon.com have the greatest effect on the
sales and subscriptions for the Amazon Prime. The fact that Amazon Prime is less than five
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years old and has taken the number two spot from Hulu, and has become a significant threat to
Netflix’s business is proof of this fact.
Hulu is the third largest competitor in the video streaming market. Hulu is the most
comparable in term of the services offered by Netflix. Hulu has one service that differentiates
itself from the competitors. Hulu can get content very quickly; usually, the same week that the
TV shows aired on network television. This service is the only service that Hulu possesses that
its competitors do not possess; however, this is not enough to maintain their market share.
Post-Sale Service Arrangements
Netflix is the leader in online streaming thanks in part to its access to content. The
subscription-based model is affordable with a price tag of less than $10 It can be viewed on
multiple devices such as mobile devices and tablets. It also provides support services such as
real-time customer chat and 24/7 customer support by phone or live chat. However, Netflix is no
longer the undisputed leader in online streaming as its main competitors; Amazon Prime and
Hulu Plus, are taking market share by offering services that rival that of Netflix. Netflix will
need to adapt its support services in order to stay at the top.
Customer Needs
Customers have three specific reservations about product services: reliability and failure
frequency, downtime and dependability, and out-of-pocket costs. (Kotler & Keller, 2016) Netflix
is the leader in its industry, but its main competitors offer comparable services that address these
reservations. In order to best deliver its content, Netflix has interconnection deals with Comcast,
Time Warner Cable, Verizon, and AT&T. (Baumgartner, 2015) These deals allow Netflix
dedicated digital lines to customers that use those internet service providers, which lets Netflix
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provide a reliable connection to its customers. Netflix leads with providing customer service as it
relates to downtime and dependability.
When service is interrupted or is of concern, customers contact the company via phone,
email, or live chat. Netflix does not provide scripts for its employees to read off of an instead lets
them work with customer using their own unique personality. Amazon Prime and Hulu Plus do
require employees to read from a script, which could leave customers dissatisfied. Netflix and
Amazon Prime do offer 24/7 phone and live chat support, whereas Hulu Plus offers support only
during operating hours. (Stenovec, 2013)
Customer Satisfaction
Customer satisfaction is ultimately measured in how well the company deals with its
current support services and what it does to adapt to stay ahead. Netflix leads in customer service
by allowing its employees to be themselves and not read from script. However, Amazon Prime
and Hulu Plus, make it easier for customers for rate and provide feedback for content. Netflix
could allow customers to add text reviews for all to see.
Pricing
Price Adaptations
There are three pricing concepts: geographical pricing, differentiated pricing, and promotional
pricing (Kotler & Keller, 2016). Geographical Pricing is what Netflix should focus on.
Geographical Pricing
Geographical pricing involves a company deciding how it should price products to customers in
different countries and locations (Kotler & Keller, 2016). Netflix should not use geographical
pricing because it is a streaming media service, and users provide his or her internet access and
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electronic devices to access the service. The service is at an affordable price for the majority of
consumers, and if a customer prefers to use the DVD-my-mail method, he or she would not have
to pay for postage because the postage costs are included in the subscription service.
Pricing Changes
Netflix should change the cost of their service in the event that the company predicts a cost of
inflation increase. The higher amount should be 2-3% to adjust for the cost of inflation. Netflix
should also increase the amounts of subscriptions if over-demand occurs. If Netflix deals with
over-demand, the company should have a “waiting list” and when a subscriber cancels an
account, it would give the next person on the waiting list an opportunity to experience Netflix
and what it has to offer. In the event that Netflix does a price increase, the company must give
notice to their customers so he or she can plan their budget accordingly and to decide if he or she
wishes to continue the subscription. Netflix also needs to prepare answers to common questions
after they announce the price increase such as: “Why an increase?”, “Will any services be added
or subtracted?” or “What will Netflix offer me with the price increase that a competitor cannot?”
Netflix should also train front-line staff, such as the call center and social media representatives,
so that the employees are fully prepared to defend the reasoning behind price increases. By doing
so, trust is built by the company and the customers.
Promotions
Integrated Marketing Mix
Integrated marketing communication mix is the theory that all the communication
channels between the company and the customer have a sense of synergy. (Keller and Kotler,
2016) The communication is a culmination of a mix of eight different modes of communication,
which, when working together to impress upon the consumer a holistic view of the company’s
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products/services and builds value for the firm. It is this added value that drives sales and makes
Netflix the current market leader in the on-demand video streaming service.
The first mode of the marketing mix is advertising. This is any paid for non-personal
presentation or promotion of the good or service. (Keller and Kotler, 2016) In this mode, the
companies packaging, print and broadcast ads, and signage are represented. Netflix does not
have any physical packaging, but the service is packaged in an online platform. Netflix uses a
bold red background with dark lettering to make their name/logo the focal point. Netflix does
run several ads for their video streaming services online as an integral part of their target market
is internet users. The second mode in the marketing mix is sales promotion. This mode is the
short term incentives that a company issues to draw in new customers. (Keller and Kotler, 2016)
Netflix’s promotions consist of a 30-day free trial; because Netflix believes that once a customer
uses their services for that long, they have a high propensity to continue the services either as a
supplemental service for their paid television service or as an alternative to this service. (Netflix,
2016) The third mode of the marketing mix is events and experiences. This is defined as
company sponsored activities and events designed to create a particular brand relationship
between the customer and the company. (Kotler and Keller, 2016) Netflix does not sponsor any
sports, not even NASCAR, at this time. The one event that Netflix currently possess is its
original created content. This does create a unique experience for the viewers and gives new
customers a reason to join as well as retaining existing ones. The fourth mode of the marketing
mix is public relations and publicity. This mode consists of a variety of programs, internally and
externally, to promote and protect the company’s image and brand. Netflix learned that good
public relations are necessary when a company makes a misstep. Netflix big misstep occurred
when they separated their DVD rental business from their video streaming services. This one
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change caused the cost of services to the consumer to increase by 60%, and confusion and
inconvenience for the customer. The result of this change was a loss of subscribership and a
drop in their stock price. (Sandoval, 2012) It took several years for Netflix’s public relations to
regain the trust and the lost subscribers. The fifth mode of the marketing mix is the online and
social media marketing. (Kotler & Keller, 2016) This mode covers all the blogs, twitter, web
page advertising, Facebook, etc. Netflix is highly vested in this type of marketing as it is the best
way for Netflix to reach its target demographic. Netflix learned the power of these
communication channels during the “lost year” when their co-founder, Hastings, made his
misstep about the company’s separation of its DVD rental from the video streaming, Netflix’s
price increase, and when the co-founder, Hastings, attempted to minimize the issues in an effort
to appease their customers. (Sandoval, 2012) Netflix learned it needed to use social media more
to gauge the customer response to their decisions. (Sandoval, 2012) The sixth mode of the
marketing mix is mobile marketing. This mode goes hand in hand with online marketing with
one exception; the advertising and communications are mobile friendly, designed for cell phones
and tablets. (Kotler & Keller, 2016) Netflix has adapted their online platform to a mobile friendly
version. This means that a customer may view Netflix’s content from their mobile device
anywhere they get a cell or Wi-Fi signal. The seventh mode of the marketing mix element is
direct database marketing. This mode is where the company uses email, the internet or phone to
directly communicate with the customer with the intent to solicit a response. (Keller and Kotler,
2016) Netflix does not participate in this marketing channel in a traditional way. It is true that
Netflix does send out emails to their customers advertising their new releases; it is the platform
where the online content is selected that best demonstrates this mode. Netflix uses an algorithm
to determine which movies and shows a customer would most likely enjoy watching, based upon
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their past content viewed. Netflix then adjusts the on-screen catalog and emails to account for
the customer preferences creating a better overall customer experience. (Netflix, 2016) The last
mode of the marketing mix is personal selling. This is the mode where the face to face
interaction with prospective clients for the purpose of answering questions, and making sales.
(Kotler & Keller, 2016) Netflix does not participate in this type of selling in business to customer
aspect, but Netflix does meet with companies such as Roku and T-Mobile to sell their streaming
platform as a default app on their products. (Netflix, 2016) When considering the integrated
marketing communication mix as a whole, it becomes apparent that Netflix can use the majority
of the channels listed in an effective manner to add value to their services and company. Netflix
can use this added value to drive sales and maintain its position as the market leader.
Future of the internet
The internet is an integral part of Netflix’s current and future business. It is only through
the use of the internet that Netflix exists at all. As the Internet evolves, it is up to Netflix to
“create the future” of the internet and how it is used rather than relying on other companies to do
this for them. (Netflix, 2016) It is how Netflix can manage the future of the internet that will
determine whether Netflix will remain as the market leader.
Netflix’s services originated as an online service making their use of the Internet to its
fullest capacity essential in the present as well as in the future. The biggest change to the internet
in the future is the available bandwidth, both at home and on mobile devices, and the cost of that
bandwidth. Currently, the bandwidth is steadily increasing; this allows Netflix to make
improvements to their services. The two current improvements that Netflix has made are the
ability to stream up to four devices at the same time, and capacity to view movies in UHD, 4k
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HD. (Netflix, 2016) Looking forward to the state of the internet, Netflix will be able to stream
more UHD movies as well as 3D movies. This increased bandwidth will allow Netflix to
increase the sound quality of standard stereo surround sound to a fully digital 5.1 surround
sound. (Zambelli, 2013) Another significant benefit of the increased bandwidth is the decrease of
the buffering time for each movie. Beyond the increase in the bandwidth, there is only
speculation as to the future of the internet, and what it will mean for companies and customers.
Netflix is tightlipped about what changes they are pushing for in the future of the internet, but
one thing is clear, Netflix will need to remain a driving force in the development of video
streaming if they wish to stay as the top competitor in the video streaming marketplace.
The Use of Social Media
Social media marketing is one of the most important facets of a company’s marketing
campaign. With access to the internet, consumers use social media to share text, images, audio,
and video with each other and other companies. (Kotler & Keller, 2016) For Netflix, the practice
of social media should be used to the highest extent possible, especially because Netflix has large
presence online. Social media marketing is done from three main platforms: online communities
and forums, blogs, and social networks. Netflix has shown that all three can be important tools
for a company to utilize order access the largest base of consumers.
Online communities and forums are places where consumers and companies come
together to connect and discuss on a variety of topics. (Kotler & Keller, 2016) While some are
sponsored by companies, most are created independently by consumers. They can provide
information on their products then easily collect feedback about services or products. While there
is a large unofficial forum which provides discussion and support for users, Netflix has no
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official or sponsored forum. Netflix could sponsor this one or create their own and integrate
customer service agents provide responses to threads that are created in order to support
customers.
Blogs are online journals or diaries that are frequently updated. (Kotler & Keller, 2016)
They can be private to a view people or open for the whole internet. Companies can create their
own updating consumers on the latest products and services. Netflix has a large presence in this
particular platform. Netflix has two official blogs: a company and technology blog. The company
blog is used for providing general updates that relate to the company. It is open to the public and
there are options for visitors to share the blogs to Facebook or Twitter. Netflix also operate a
technology blog, which focuses on technology and technology issues. While this and the
company blog are open to the public, Netflix could benefit, by allowing visitors to comment on
the blogs. The risks involved are Netflix not having total control over the information they might
want to shape.
Social networks are the most important platform for social media marketing. They
provide greatest amount of consumers that a company can easily reach. (Kotler & Keller, 2016)
A company has many different avenues it can take in order to reach this large audience such as
advertising. The vastness of consumer of audiences can be risky as a company needs to have a
well-defined audience to be effective on a social network. Netflix has used taken advantage of
the effectiveness of this platform by creating multiple social media accounts with Facebook,
Twitter, YouTube, Instagram. Netflix has over a million followers in each social media type
mostly advertising for new shows. Not only that, but Netflix has accounts that reflect different
geographic groups such as a Netflix US & Canada YouTube channel or Netflix France Twitter
account. It only makes sense that Netflix uses social media marketing all the geographic markets
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they have a presence in. With the ability to share, consumers can show their friends and family
posts from one of Netflix’s accounts potentially leading that person who was shared the content
back to Netflix.
Promotional Efforts and Value
Value consists of the customers’ perceived differences from the benefits they receive
versus the costs associated with it. (Kotler & Keller, 2016) For the cost of $9.99, customers can
stream at their leisure from their television, laptop, or mobile device. They can access hundreds
of hours of content with their family and friends. This is how Netflix provides value to their
customers. In order to promote this, Netflix uses their original content and social media to
convince customers that their service is right for them. Netflix doesn’t promote itself as provider
of TV shows and movies. Instead it promotes the allure of original content. (Perlberg, 2015) With
big shows such as House of Cards and Orange Is The New Black, Netflix knows that customers
will subscribe in order to watch exclusive content. It also provides a product differential from big
competitors such as Amazon Prime and Hulu Plus. This also goes hand-in-hand with their social
media marketing as they promote their original content on the Facebook and Twitter accounts.
These promotional efforts convince many to subscribe.
Netflix as a Socially Responsible Company
Netflix is a popular company, and the company could use this popularity to its’ advantage
by publicly displaying some type of community service or giving back. The company has a great
reputation for the way it treats its employees, and having some marketing materials that show
consumers and job applicants how Netflix is an excellent company by being successful and
community-oriented will make the company seem like an ideal place to work and increase
profitability.
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Netflix could give back to non-profit organizations that specialize in the arts, particularly
in film. Netflix has a lot of independent films in their database, and the company could partner
with aspiring independent filmmakers to help the filmmaker determine how to market their
movie, help them strategize and promote the movie, and even offer the movie on Netflix if it
does well on its own at film festivals, for example.
Benefits. Netflix could benefit from being a socially responsible company by having the
organizations and communities they assist by bringing traffic to the website.
Performance Measurements. Netflix could use some measurements of performance to analyze
the effectiveness of its’ socially responsible marketing. Some performance measures include the
following: selecting a focus area aligning with the mission, organization, and goals, choosing
partners carefully, developing a cross-functional strategy team, communicate via every possible
means, and innovation (Kotler & Keller, 2016). By using these performance measurements,
Netflix could determine if the socially responsible marketing process is on the right course.
Recommendations
Netflix is an innovative company that disrupted the market of video rental services. No
company is perfect so opportunities for improvement in addition to business strengths will be
discussed in this section.
Opportunities for Improvement
In addition to the streaming services online and the DVD-by-mail service, Netflix should
have DVD rental kiosks outside of big-box rental companies. Netflix could also partner with
cable companies across the country to gain exposure to more demographics and to broaden its
service.
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Netflix should add another payment plan option. The current plan is a monthly plan, but
for light users of the service, the consumer could pay for the service on a daily or weekly basis.
The pricing could be as low as $3 a day or $5 a week because the minimum monthly service plan
is around $8 a month. The billing method should be a certain day of the month (for example, the
1st or 15th or a month) for consistency because a subscriber may not remember which day of the
month he or she subscribed to the service.
About technology, Netflix has challenges to overcome. The company should convince
media corporations such as Time Warner and Viacom to license new content to Netflix despite
Netflix driving away ad revenues for content ownership purposes.
Netflix should also market itself a socially responsible company and work with non-profit
organizations in its industry to help up-and-coming filmmakers and to let the public know that it
gives back to the community.
Strengths
Netflix should continue its recommender system because it provides suggestions for a
user of the service for movie and program options based on viewing history. Because consumers
were discontinuing cable service subscriptions, customers used Netflix as an alternative method
of entertainment. Netflix should market its service to customers who wish to cancel cable
subscription contracts and market the service as on-demand service with the option to cancel or
pause the subscription at any time. By marketing the company as a business that allows its
consumers to take control of the subscription, more people are likely to join because the
subscription is based on what the user wants and not what the company wants.
Conclusion
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This Marketing Management Group Paper (MMGP) provides a focused approach toward
identifying Netflix’s position in its respective industry from a marketing management
perspective. In this report, a brief background was discussed. From auspicious beginnings in
1997, Netflix now stands as one the leaders in on-demand content offering. Next, a Market
Environment Scan was described and analyzed discussing various trends of Netflix. Netflix also
has redefined what it meant for people to come together and enjoy content. A Market Analysis
was initiated where trends and factors that were identified were discussed in further detail. The
key trends that Netflix most resonates with are the technological and cultural trends. Netflix has
recognized a shift in media from VHS to DVD to eventually online streaming. Also in this
Market Analysis was the identification of the Market Segments, their attractiveness, including
what Netflix’s Target Markets were and that a Full Market Coverage should be sustained.
Discussed afterwards was Netflix positioning in the market as well as the competition it faces, as
well as the brand image Netflix enjoys. As discussed before, Netflix’s positioning statement is:
For media consumers, Netflix is the industry leader delivering content compared to Amazon
Prime and Hulu Plus, that easily delivers content, both third party and original at an affordable
price. Netflix major competitors are Amazon Prime and Hulu Plus, but Netflix remains at the top
of this market. Next, Netflix’s services and pricing were discussed including the post sales
services that Netflix does. Then, the various promotions that Netflix ensures was discussed.
Along with this was the identification of Netflix as a firm that engages in socially responsible
marketing. Finally, recommendations were set forth to offer suggestions for strategic or
operational changes based on the research that had been conducted.
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