Netflix was founded to fulfill a glaring gap in the movie rental business. Since the company rents out movies by mail and via streaming, and with no insistence on the customer for a set date of return of the DVD movie (for the mail rentals), the company has steadily grown to became the best choice for movie enthusiasts keen on a fantastic deals insofar as movie rentals are concerned.
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Since its founding in 1997, the company has steadily grown and is now the market leader in the online movie rental business in the US. This steady growth has been due to the adoption of forward-looking policies and plans by the management team at Netflix.
Choruses of disapproval from customers and industry experts alike have met the recent announcement by Netflix that it was separating its mail order and streaming services. Netflix has now established a separate website, (Qwikster), for its mail order movie rental services.
The cost for the two desperate services has thus increased for Netflix subscribers, and the separate website for the mail order service means customers will have to create new accounts distinct from their current Netflix accounts. Although the move has been roundly criticized, with CEO Reed Hastings even issuing an apology for the abrupt changes in pricing and services offered, I personally feel that the change is a smart business move that will prove beneficial in the future.
Presumably, the management team at Netflix has correctly concluded that the mail order service for its movies is facing an uncertain and not-so-bright future. The mail order service is slow and is prone to misuse; for instance, there is exposure to late return of rented movies, broken discs, and inadvertent sending to wrong recipients.
The world is quickly shifting to web based transactions, these transactions being quick and convenient. Web based sales, cash and business transactions, when correctly monitored and regulated, are superior to physical transactions of the same.
Therefore, the future of Netflix lies in its online streaming services, and its decision to focus on this service will ensure the company remains competitive for a long time. I think the decision to separate the two services is thus an indispensable strategic step that the company has taken, a step which might not bear fruits presently but in years to come.
In light of the foregoing, Netflix should take the following measures to ensure it retains its subscribers and reaches out to new customers. It is obvious from the reaction by customers and Netflix subscribers that, the gripe they have is not so much because of the separation of the two services, as it is about the increased cost of the two services. By maintaining separate rates for the two services that previously were under one price scheme, Netflix has effectively nearly doubled the cost of its services.
Therein lays the biggest source of complaints from its subscribers. Therefore, I feel that Netflix should first reduce the cost of its online services in order to retain its subscribers. Netflix should then engage in promotional offers aimed at increasing its subscriber base and acquiring new customers, for instance offering free streaming of a certain number of movies for new customers.
In keeping faith with online transactions and communication, Netflix should send an email highlighting this promotional offer and new prices to all its customers, and the email should contain links that will enable customers to subscribe to the new offers, with other links enabling customers to invite friends.
The email advertisement should also offer benefits to subscribers who invite the highest number of friends, thus increasing Netflix’s potential of retaining and acquiring new customers. With this simple yet effective strategy, I believe Netflix and its Qwikster subsidiary will be able to remain competitive and offer the best movie rental and online streaming services well into the future.