Although Netflix is still the leading online movie DVD rental firm, it faces numerous challenges, both internal and external. Internally, the firm has to deal with high operational costs, customer relationship issues and high costs of revenue sharing agreements, among others (Reidenbach and Goeke 111).
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Externally, the firm’s most critical challenge is the emergence of numerous competitors offering cheap, convenient and fast services. The competitors also offer a wide range of services that threaten to reduce the market share that Netflix currently controls. The recommendations provided in the case will certainly play a critical role in ensuring that Netflix retains its leading position in the online movie DVD rental industry.
One of the recommendations for Netflix is to invest in contract negotiators. Although Netflix has exclusive rights of many TV shows, the costs associated with the newly released movies and TV shows are quite high, making it a double-edged sword. Therefore, investing in contract negotiators is an appropriate move that would enable the firm to leverage the high costs associated with the special revenue sharing agreements.
The contract negotiators would certainly help in ensuring that the firm secures contracts at the lowest costs possible, thus translating into significant savings for the firm (Reading 327). Such costs are justifiable because the availabilities of such newly released items would help to increase customer satisfaction and market share.
Making significant investments in research and development is an indispensable move that would help to fight competition, particularly from Redbox, which offers its customers cheaper, convenient, and express services (Reading 13). Netflix has to invest in new technology that promises new and innovative customer viewing experiences to remain competitive.
Other companies in the market are offering new forms of viewing through televisions and the internet, which means that Netflix should be at the forefront in ensuring that it makes noteworthy advancements that would offer its customers superior services that guarantee customer satisfaction.
This move is critical because it will guarantee its customers a wide range of movie services at affordable costs. At the same time, Netflix must improve its customer service to ensure that it does not lose any of its customers to its competitors.
The move to minimize the use of the distribution centers is highly feasible because it would help to reduce operational costs for the firm. A movie that returns to the headquarters does not generate revenue through rentals; instead, it becomes a liability because it requires administrative and warehousing costs.
Therefore, offering customers sufficient incentives to ship DVD’s directly to other customers would not only help to reduce costs for the firm, but would also help in increasing revenues. Attractive discount rates and credits would motivate customers to rent more movies, as well as ensure safe deliveries (Reading 10).
Although Netflix would have to assume the liability involved during shipping, the returns expected would exceed the costs involved, thus translating in increased profitability for the firm. Most significantly, this move is likely to increase customer satisfaction rates.
In addition, the move by Netflix to use the services of US Postal Service (USPS) would facilitate accurate, punctual and proper deliveries, thus helping to promote customer satisfaction. With the increase in competition in the movie rental industry, only companies that offer superior services are bound to remain competitive.
This move might be helpful in reducing overall distribution costs for the firm because these costs account for a significant proportion of expenses for Netflix. Use of third party distribution services would help to reduce the turnaround time appreciably, thus increasing revenues and enhancing competitiveness (Reading 87).
Reading, Clive. Strategic Business Planning: A Dynamic System for Improving Performance & Competitive Advantage. Sterling: Kogan Page Publishers, 2004. Print.
Reidenbach, R. Eric, and Goeke, Reginald W. Strategic Six Sigma for Champions: Keys to Sustainable Competitive Advantage. Wisconsin: ASQ Quality Press, 2006. Print.