Netflix Inc. Marketing, Strategy & Planning
This report examines Netflix Inc.'s marketing, strategy and planning from the perspective of a marketing manager. Investigating marketing findings is outlined, relevant strategies aligned for competitive advantages in planning the firm's operation for market entry in the UK.
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MSc. InternationalMarketing
Department of Management
Prof. Riccardo Benzo, MCIM
Assignment:WrittenReport
No. of Words (3000) overby70 words.
Excl.Heading/Charts/Tables/Captions.
Deadline:12/2017
Marketing, Strategy &Planning
Tajudeen Ogunsola
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Table of Content
Introduction. 2
Overview 2
Background. 3
1. Mission 4
2 Management 5
3 History 6
4 Netflix Inc. Value Chain 7
5 Netflix Inc Three C’s 8
2. Situation Analysis
Industry & Market Position 9
Internal – SWOT Analysis 10
Weaknesses 10
Opportunity 10
Threats 10
TOWS Matrix Model 11
Conclusion. SWOT/TOWS Analysis 12
3. External - PESTLE Analysis
Conclusion. PESTLE Analysis 13
Competitive Analysis 16
Porter’s Five Forces 20
4. Segmentation, Targeting and Positioning
Segmentation Methods 23
Targeting. 24
Positioning. 25
5. Marketing Strategy
Ansoff Matrix Model 26
Marketing Mix (7Ps) 30
Strategy, Marketing & Planning 31
Planned Marketing - NetflixInc. 32
Figuresand Tables
CONCLUSION 33
APPENDIX
Bibliography, References& Websites 34
Marketing, Strategy & Planning - BUMN016H7
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Figures and Tables
Figure 1. Netflix Inc.'s business model and operations.
Figure 2. Netflix Inc.'s management structure
Figure 3. Netflix Inc. value chain
Figure 4. Netflix Inc. Three C’s
Figure 5. UK video streaming stickiness rating
Figure 6 Different services for watching TV programmes/films.
Figure 7 Global Expansion Investment in Original Content
Figure 8. Example of targeting structure.
Figure 9. Perceptual map
Figure 10. Ansoff Growth strategy matrix
Figure 11. Implementation of market development Growth for Netflix Inc
Table 1. is Netflix Inc.’s history and timeline.
Table 2: SWOT analysis of Netflix Inc.
Table 3. Netflix’s TOWS Matrix framework analysis.
Table 4. Netflix Inc.’s PESTLE analysis
Table 5. Cost, service, and product comparison table
Table 6 Original content market strategies drive
Table 7. Porter’s Five Forces Analysis
Table 8. Traditional segmentation
Table 9. Netflix Inc's marketing mix
Table 10. Strategy, marketing & planning
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Introduction
The report examines Netflix Inc.'s marketing, strategy and planning from the perspective of a
marketing manager. Investigating marketing findings is outlined, relevant strategies aligned
for competitive advantages in planning the firm's operation, for market entry in the UK. The
report shares Netflix's situational challenges, the competitive structure of rivals, and market
drivers for a robust direction of growth strategy. Theoretical concepts including SWOT /
PESTLE and Ansoff matrix and a rationale for 7P's are the most appropriate marketing mix for
implementing the strategy. The conclusion is on lessons learned research limitations and
suggests Netflix Inc.'s market expansion strategy in Africa includes knowledge-building.
Overview
The uncertainty of the global SVOD market requires relevant market strategies and flexibility,
adapting to changing consumer needs with competitive prices to meet demand.
Unfortunately, there are no exceptions, even for the world's leading subscription streaming
service, Netflix Inc.
Entry into the UK SVOD market is highly competitive, with major brands including BBC iPlayer,
Now TV, Sky, and Amazon Prime Video featured in Table 5 (Deloitte, 2017). Domestically it
has increased subscribers to 6.1 million members with a Basic subscription package starting
at £5.99 but competing still demand extensive planning (OfCocm, 2017).
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Background
Reed Hastings and Marc Randolph founded Netflix Inc in 1997. Three years later, Hastings,
Netflix Inc.'s CEO,approached former Blockbuster CEOJohn Antioco and asked for $50 million
to give Netflix Inc. away, and Antioco turned down the offer (Chong, 2015). Coincidentally,
Blockbuster filed for bankruptcy in 2011, with a sale price of just $290 million (Fritz, 2011;
O'Neill, 2011).
Netflix Inc. pioneered the Internet delivery of TV shows and films through the technology
revolution of streaming services and diversifiedfrom the DVD rental business founded in 1997
(Netflix Inc., 2015; Glenday, 2017). Its strategy invests heavily in original and licensedcontent,
a competitive driver for market entry, which has paid off (O'Neill, 2011, Netflix Inc., 2017,
Statista.com, 2017). As a result, Netflix Inc. invested heavily in producing original content and
spent $6 billion on expensive prestige projects like The White Helmets, House of Cards, and
The Crown.
The company has streaming members worldwide, but no subscribers in China due to local
restrictions, Syria, North Korea, and Crimea due to US sanctions (Mintel, 2017; Netflix Inc.,
2017). Today, it has 110 million subscribers in 190 countries (excluding China) and offers
original content in 21 languages,along with amarket valuation of $100 billion (Ampere, 2016;
OfCocm, 2017).
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Goals & Mission
- Become the leading global entertainment distribution service.
- Create markets accessible to filmmakers.
- Help content creators find a global audience.
- License entertainment content globally.
Figure 1 shows Netflix Inc.'s business model and operations.
Source: Basedon the author analysis of Netflix Inc. 2017
-24/7/365 of the
year -Convenience,
Accessibility &
Affordable pricing
-
Original content
-HD & 4K viewing.
-Ad free streaming
- Brand name
-Pioneer
-Exclusive contents
-Tech-Driven
-Mass market
(Consumers
interested in
watching movies,
series, TV shows or
documentaries)
-Applicable to most
demographics
(Children & Adult,
male or female)
- Across markets
(domestic & global)
-Hire; retain.
develop & produce
original conten.t
- Content Acquisition
- Exclusive &Licensed
Content
-Distribution Service
- Software
-ISP’s
-TV Broadcasters (ITV,
BBC, Channel 5 & BBC
iPlayer)
-Movie Studios
-Content Creators
(Producers, Writers, &
Production companies)
- Cable networks
(Virgin Media, BT, SKY &
Talk Talk)
-Telco Operators (o2,
EE, Three & Vodafone)
-Amazon/Google (Cloud
Services)
-Software /Developers
-ISPs & Servers
-Cloud storage
-Internal content
library
-Automated & AI
services
-Auto-cancellations
(no contract term)
-Unique viewing
experience
Social Media
Netflix Inc. gift card
-IOS accessible
streaming (Apple,
Android, Blackberry)
-Streaming via
Game console
-Cable network
-UK Set-Top Box
Key
Partners
Key
Activities
Value
Proposition
Customer
Relationships
Customer
Segmentation
Channels
Key Resources
Revenue Strengths
Cost Structure
Monthly Subscription model -Basic
-Standards
-Premium
DVD rentals but slowly declining
-Original content cost
-Exclusive & Licencing Rights
-Operational & Marketing cost
--Technology development & R&D innovation
Netflix Inc. BUSINESS MODEL –UK
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Management
Figure 2. Netflix Inc.'s management structure
Source: Netflix Inc. Annual Report, 2017
Netflix Inc. started operations in 1997 with a $2 million investment from founder Reed
Hastings and has grown into a multibillion-dollar empire. The streaming giant's revenue in
2017 rose by 32.41 per cent to $11.69 billion. Operating income, however, declined by 24.0%
in 2015, before rising by 24.0% and 121.0% respectively in 2016 and 2017. Nevertheless,
operating income grew by a three-year CAGR (annual growth rate) of 28.0% to $0.8 billion in
2017 (Netflix Inc., 2017). Netflix Inc.'s worldwide films and series account for more than a
third of all primetime download traffic in North America. In addition, the company streams
10 billion hours of content from its library annually (Statista, 2017). The total workforce is
5,500, about 600 of which are temporary, and the management structure is shown in Figure
2 (Netflix, 2017; Frommer, 2015).
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Table 1. is Netflix Inc.’s history and timeline.
1997 Reed Hastings and Marc Randolph had an idea to rent DVDs by mail. They tested
the concept by mailing themselves a DVD.
1998 The DVD arrivedintact,and the ideafor Netflix Inc.wasborn. Netflix Inc..com,the
first DVD rental and sales site, is launched.
1999 The Netflix Inc. subscription service debuts, offering members unlimited DVD
rentals without due dates, late fees, or monthly rental limits.
2000 The introduction of a personalised film recommendation system uses members'
values of past titles to predict future decisions accurately
2002 Netflix Inc.makesitsfirstpublicoffering(IPO)ata sellingprice of $1 a share under
the NASDAQ ticker NFLX.
2003 Netflix Inc. is issued a patent by the US Patent & Trademark Office to cover its
subscription rental services as membership surpasses 1 million.
2005 The Profiles feature launches, allowing members to create lists for different users
and moods.
2006 Membership grows to 5 million.
2007 Streaming is introduced, allowing members to watch series and films instantly.
2008 Netflix Inc. partners with consumer electronics brands to allow streaming on Xbox
360, Blu-ray players and TV set-top boxes.
2009 Afternearlythree years and 40,000 submissions,the $1 millionNetflix Inc.Prize is
awarded to the team Bellkor's Pragmatic Chaos for improving the accuracy of
recommendations by 10%. Streaming partnerships expandto internet-connected
TVs as membership surpasses 10 million. In addition, the Netflix Inc. Culture Deck
publication.
2010 Netflix Inc. arrives in Canada, and streaming launches on mobile devices. As well,
the first dedicated kids experience debuts on streaming.
2011 NetflixInc.launchesinLatinAmericaandthe Caribbean.The firstNetflixInc.button
appears on remote controls.
2012 Membership reaches 25 million members and expands into the United Kingdom,
Ireland, and the Nordic Countries.Netflix Inc. ventures into stand-up specials with
'Bill Burr: You People Are All the Same.'
2013 'House of Cards,' 'HemlockGrove,''ArrestedDevelopment',and'Orange Isthe New
Black' usher in the first slate of original series programming. 'House of Cards' wins
three Primetime Emmy awards - the first for an internet streaming service. In
addition, the Profiles and My List feature debut on streaming.
2014 Membership surpasses 50 million and extends to Austria, Belgium, France,
Germany, Luxembourg, and Switzerland. In addition, Netflix Inc. begins streaming
in 4K Ultra HD.
2015 Our first original feature film ('Beasts of No Nation'), our first non-English original
series('Clubde Cuervos') andourfirstAsianoriginal('Terrace House'). Membership
extendstoAustralia,Cuba,Italy,Japan,Spain,andNew Zealand.Audiodescriptions
for the visually impaired launch with 'Daredevil.'
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2016 NetflixInc.expandsto130 new countries,bringingthe servicetomembersinmore
than 190 countriesand21 languages worldwide.Furthermore,aDownloadfeature
allows offline and on-the-go viewing.
2017 Membership hits 100 million members globally. Netflix Inc. wins its first Academy
Awardfor 'The White Helmets.'The introductionof interactive storytellingandthe
Skip Intro button gives members more choices to tailor their viewing experience.
Source: Netflix Inc., 2017
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Value Chain
Netflix Inc.'s signature value chain is the disruptive innovator that implements various
strategic models across its "value chain" for market penetration. Hence. the value chain of
Netflix Inc. in Figure 3 is a set of related value activities that are carried out in the distribution,
delivery and support of the product or service by connecting it with the activities of suppliers,
channels, and customers (Porter, 1985).
Figure 3. NetflixInc. Value Chain
Source: based on: Porter’s Value Chain and Competitive Advantage (2001)
As a result, each aspect of the value chain synergies with other areas to complete or be part
of a process that moves the cycle forward. Therefore, Netflix Inc., need content providers to
provide entertainment content, just as it needs ISPs to bridge the third-party relationship
between the platform and its subscribers along with the production pipeline.
Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound Logistic Outbound Logistic
Operations Sales & Marketing Services
Support
Activities
Software applications
Mobile apps
Servers & Database
Recruitment ofmanpower
Innovation development & training
Performance & rumination incentives
Invent & developments.
Continuous innovation
Streaming services & mobile device
Suppliers ofcontent & develop original content.
Exclusivity –“Content is King”
Partnerships
- The platform
- Physical
distribution
- Technology,
servers, &
platform
iOS Android, iOS
Apple, & or the
application
flawless
integrations.
- Distribution
management
- Develop content &
purchase content.
- Catalogue library
- Deliver service
experience.
- I.T, Security & Data
Independently
“owned” sever.
- Functioning
service & products
- Content &
Production
- Sustaining &
supporting business
relationships/
partnerships (e.g.,
Studios networks,
TV networks etc.)
- User experience
- No commitment
subscription-based
policy
- Unique
recommendation
systems
(UI/UX etc.)
- Marketing &
strategy
- Publicity
management
- Drive brand trust
- Manage expectation.
-Deliver & drive
HD/4K/ viewing
experience.
- Capitalise on
opportunities.
- Expand into
new markets
Primary Activities
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Figure 4. Netflix Inc. Three C’s
Source: Adapted by the author using Netflix Inc. The Three C's of Global Expansion Strategy (Netflix Inc., 2017)
Figure 4 shows Netflix Inc.'s Three C's (Content, Cost and Competition) is a complex part of its
value chain that aligns strategic vision and mission with its distribution performance to drive
global expansion in content delivery across markets. For example, the acquisition of movies,
TV series, TV shows, and documentaries lead to this process. In addition, costs and
competition raise expectations around the breadth and depth of online digital distribution to
deliver value, exceptional experience, and affordability throughout the value chain.
Internal Environmental Analysis
Situation Analysis
Netflix Inc.'s UK market performance and situational challenge affecting internal and external
factors are analysed (Kotler, 2000).
Industry & Market Position
Netflix Inc. has four direct competitors (BBC, iPlayer, Now TV, and Sky) and several indirect
competitors competing for market share. BBC iPlayer (BBC sister company) gained the most
subscribers in 2017 and has advantages over Netflix Inc., as the government license financed
its operations (Jackson, 2017).
Content
Cost
Competition
Daytime; Weekend; Anywhere;
Anytime access onAny device
with thumbs-up/thumbs-down
content rating.
Fixed price, non-binding
subscription& Threeoption
plans.
Drive ingenuity across the
business model; deliver
innovationthrough technology;
rapidly growsubscription across
markets throughcost
leadership.
Value attributed to
traditionalTV
under pressure.
Increasing demands
for personalization,
advanced search,&
recommendations.
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SWOT Analysis
SWOT Analysis in Table 2 evaluates the strengths, weaknesses, opportunities, and threats of
Netflix Inc. to discover positive and negative impacts from both internal and external
perspectives (Humphrey, 1960 / 1970).
Table 2. SWOT analysis of Netflix Inc.
Strengths:
- Brand name
- Large subscriber base
- Original content
- Bargainingpower
Weaknesses:
- High costof 3rd-party original content
- Short-term content “right” (1 year)
- Environmental issues
- ISP's dependency
Opportunities:
- PartnershipsinEurope
- Market expansion
- Growth of technology
- Region-specificcontent.
Threats:
- Increased competition
- Digital piracy
- Foreign exchange
- Football exclusivity:Amazon
Source: based on Baines and Fill 2014
Strengths: Netflix Inc. has massive subscribers in 190 countries, with 110 million worldwide
users and strong bargaining power to negotiate third-party content and secure exclusive
content rights (Statista, 2017; Bradshaw et al., 2017). Its share price surged over 6000% in
2007, and its core strength is its brand name, which stands for online streaming content for
market penetration (Netflix Inc. Annual Report, 2017).
Weaknesses. Hacker attacks and digital piracy are significant threats to the business model.
For example, TheDarkOverload (hacker) stole most of the new season of Netflix's popular
series "Orange Is the New Black" from a post-production studio and demanded a ransom
(Bershidsky, 2017). In addition, Netflix Inc.'s environmental awareness ranked "D," garnered
negative publicity, and co-dependency on third-party content and the cost of exclusivity
exposed Netflix Inc. competitively. (Gwynn, 2017; Bradshaw et al., 2017).
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Opportunities. The UK student segment is a potential growth driver for a discounted
subscription offer (Russell, 2017). Taking advantage of the European Union's 30% tax
incentives for locally produced content is an opportunity (Murgia, 2017). Mergers and
acquisitions of smaller competitors (Eleven Sports) suggest that competitors consolidate
content to improve competitive advantages (Ampere, 2016). Netflix must analyse
opportunities from a national perspective or market penetration.
Threats. Rising internet speeds threaten and multiply illegal video piracy downloads
(Bershidsky, 2017; Opam, 2017). Also, adverse exchange rate fluctuations have impacted
revenues as the decline in average monthly income per user has led to currency fluctuations
and higher VAT rates in European markets. Eleven Sports is another threat with 17 million
subscribers,and Amazon Prime Video closedthe gapwith its exclusivityof livePremier League
football streaming (Deloitte, 2017).
These weaknesses reflect strategic market constraints and weaknesses in the TOWS analysis
in Table 3. The TOWS analysis matrix (Threats, Opportunities, Weaknesses and Strengths)
evaluates external and internal factors to outline an appropriate marketing strategy that
reflects the changing environment.
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Table 3. Netflix’s TOWSMatrix framework analysis
Based on Baines and Fill 2014
Internal attributes:
External attributes
Strengths
- Brand name
- Large subscriber base
- Original content
- Bargainingpower
Weaknesses
- High costof 3rd-party
original content.‘
- Short-termcontent
‘rights’ (1 year)
- Environmental issues
- ISP's dependency
Opportunities
- PartnershipsinEurope
- Market expansion-China
- Growth of technology
- Region-specificcontent.
- Target niche segments
- Expandto Europe and
produce Europeannative
content.
SO:
- Capitalise onthe
customerbase to secure
exclusivecontentand
expandmarketniche
segments.
- Substantial brand
opportunitytopartner
withlocal content
providers(e.g.,create
native content).
- Secure foreigncontent
to be distributedinother
markets.
- Maximise technology
developmenttoimprove
userexperience.
W0:
- Increase revenue
throughmore
advertisementto
compensate forthe
increase inoriginal
content.
Threats
- Increased competition
- Digital Piracyputsthe
businessmodelatrisk.
- Foreign exchange – e.g.,
revenue from
international markets
dependantonexchange
rate fluctuations.
ST:
- Negotiate with
producersanddirectors
to secure more exclusive
contentto gainan
advantage over
competitors.
- A respectedbrandname
can secure more original
contentto outrun
competitors.
WT:
- Reduce energy
consumption/use more
environmentallyfriendly
energyresourcesto
improve competitors'
environmental ranking.
- Lowershippingcostsby
makingmore content
available tobe streamed
(reduce energy)
- Increase the entire
contentlicence period to
avoidcontentshownon
competitors'services).
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Key Points: SWOT/TOWS
The SWOT analysis suggests the company can compete successfully despite overwhelming
weaknesses and the external factors show a holistic perspective of the strategic business.
These weaknesses present challenges, but the relationship with customers is pivotal and how
Netflix Inc. generates revenues to remain profitable. Heavy investment in developing original
content, competing for content, and the complexities associated with exclusivity rights is,
highlighted. Additionally, the challenges of operating in a new market suggest streaming
services are interdependent on ISPs and the heightened threats from downloadable piracy
content. Nevertheless, the SWOT analysis implies market threats, but with access to endless
financial resources supported by sophisticated technology infrastructure, Netflix Inc. can
capitalise on these threats for market entry.
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Situation Analysis – External PESTLE Analysis
The PESTLE analysis in Table 4 allows us to examine each market's political, economic, social-
demographic, technological, environmental, and legal (PESTLE) aspects to identify situations
unique to the UK operation of Netflix Inc. (Ghauri and Cateora, 2014).
Table 4. Netflix Inc.’s PESTLE analysis
POLITICAL ECONOMICAL SOCIO-CULTURAL
Audiences have shifted
away from traditional TV
towards on-demand
streamingservices
(Ofcom, 2017)
Local operators must
abideby (controversial
EU) rulings that30% of
its content is European
(Mintel, 2017).
Tax: controversial EU
company will betaxed
the same 26% levy as
traditional media,
forcingNetflix Inc. to
potentially pass the
costs onto customers
(Robinson and Murgia,
2017).
Accordingto Bradshaw
and Bond, competitive
pricingis an
opportunity (2017).
The high priceof forex
affects international
business (Pelts,2016).
An issuethataffects
Netflix Inc.is the issueof
exchange rates. The
company pegs its pricing
around the US's $10 fee;
however, within specific
markets, this can be as
much as $19 due to
exchange rates and VAT.
As a result, itmoves
Netflix Inc.to a luxury
purchasefor some
subscribers.Potentially,it
attracts a whole 'price-
conscious' segment
(Pelts, 2016).
Youngerviewersprefer
online streamingservices
for theirentertainment,
witha thirdwatching
lesstraditional media
(Bond,2017)
Trends show customers
watch 24 minutes of
content on their
smartphones (Ofcom,
2017; Mintel, 2017)
Form strategic alliancewith
mobileoperators to supply
unlimited data for
streamingNetflix Inc.and
other SVOD services
(Mintel, 2017).
Potential in restricted
content: original content
with regional interestis an
opportunity for Netflix Inc.
Inc.
P
E
S
T
E
L
POLITICAL SOCIAL- CULTURAL ENVIRONMENTAL
ECONOMIC
TECHNOLOGICAL
LEGAL
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TECHNOLOGICAL LEGAL ENVIRONMENTAL
Operators can exploit
ecosystem growth by
investingin R&D, which
supports 4K streaming
(Mintel, 2016).
4K screen resolutions
create a tech shiftfor
streamingservices due
to increasingdata
consumption,which
strains users’
broadband services
(Roettgers, 2017).
A costly PR consumer
lawsuitcould raise
subscription fees
(Spangler, 2016).
Copyright access to
content: Netflix Inc.blocks
access to content from
other countries is a
disadvantage(Greenberg,
2016).
Digital piracy threatens
Netflix Inc.by allowing
customers to consume
pirated content instead of
the ones availablethrough
the company’s service
(Mintel, 2017).
Streaming services like
Netflix Inc.,access to
data servers puts
enormous pressureon
the environment. In
partnership with
Greenpeace, tech
companies are
beginningto look at
solutions to lessen their
carbon footprint
(Mintel, 2017).
Tech companies to pay
part of an
environmental bill of
$11 trillion by 2025 to
lessen carbon footprint
(Lewis, 2016).
Netflix Inc.,rated D by
renewable energy
campaign groups,is a
disadvantageon carbon
footprint (Darrow,
2017).
Source: Based on theories from Baker, 2014; Johnson et al., 2011.
Takeaway - Pestle Analysis
A study of the political environment in the UK shows the country is stable with market
opportunities. Economically, Netflix Inc. is well-positioned to exploit market gaps, but
societally, younger viewers prefer streaming services to watch traditional media.
Technologically, streaming services have shifted to increasing data consumption through 4K
screen resolutions, putting a strain on users "broadband services. However, the legal
concession with EU member states" tax contributions to create local content for new entries
is 30%. Netflix Inc. needs to rethink its environmental policy to reduce its carbon footprint.
Finally, it needs to take stricter measures to improve its renewable energy rating from D to A
to bring about change.
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Competitive Analysis
Figure 5. UK Video Streaming Stickiness Rating
Source: Verto Content Watch, UK adult 18+, Q3 2016 (Verto Analysis, 2016)
At a Glance. The competition analysis in Figure 5 shows the four competitors BBC, iPlayer,
Sky, ITV, and Channel 4. Verto Analytics reports a 39% lead, Sky with 19% and Netflix Inc. and
ITV with 16%, only four percentage points ahead of Channel 4 (2016). However, there are
three ways to monetise - through advertising (today's dominant revenue source), via SVOD
(which provides, among other things, the absence of advertising) and through wholesale
agreements with traditional pay-tv providers (Ampere, 2016; Deloitte, 2017). Although the
revenue from TV licences is divided between the four UK channels, the BBC receives a higher
share of revenue to cover the inadequate advertising and radio business (BBC, 2016).
According to Ofcom, Netflix Inc. has 31% of subscribers watching the streaming platform with
over 6.1 million.
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Figure 6 Different Services for Watching Tv Programmes/Films
Source: Consumption of VoD Content CMR Research 2017 – Populus UK (Ofcom, 2017)
Consumption.
Deloitte UK suggests anyone with a connected screen or access to one could become a
subscriber because the average person connects two screens - smartphones, PCs, televisions,
and tablets (Deloitte, 2017; Ofcom, 2017). Coincidentally, Netflix Inc.'s membership growth
also reflects fluctuations when consumers with Internet access buy smartphones and when
they tend to increasetheir viewing rates (ScreenMedia, 2010). Domestically,the SVODmarket
has immense opportunities for new entries, as the cost of subscriptions is low. As a result,
SVOD will trigger an increase in pay-tv subscriptions over the next five years (Deloitte, 2017).
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Table 5. Cost, Service and Product Comparison Table
Brands BBC SKY ITV
(ITV Hub)
Channel 4
(4)
Channel 5
(My5)
Netflix
Inc.
Virgin
Medi
Now
TV
Amazon
Prime
Video
Annual/
Monthly
fees
£3.06
pm/£36.75
) – UK
Licence fee
split of
£147 per
year
£240
py/£20
pm
£3.06
pm/£36.7
5) – UK
Licence
fee split
£3.06
pm/£36.75)
– UK Licence
fee split
£3.06
pm/£36.75)
– UK Licence
fee split
£71.8
8
py/£5.
99
(Basic
)
£396
py/£33
py/
£95.88
/
£7.99
£71.88
py/£5.9
9
(Prime)
SVOD
Stand-alone
Broadband
(Internet,
phone &
TV.)
Pay TV (pay-
per-view-
option)
Ad-
Supported
Content
SVOD/Smart
TV-based
Providers
Original
content
Original &
3r d-part %
70/30 40/60 30/70 36/74 40/60 50/50 ? ? 50/50
Source: Compiledbythe author basedon availablesources& estimates (Sky TV, 2016; Callum Mason, 2017; ISpreveiw,
2017).
‘Content is King’: Acquiring content, developing original content, and obtaining licensed
content, as shown in Figure 7, is the "cash cow" for the BBC, Sky, Amazon Prime Video, and
Now TV (Mintel, 2017). For example, Netflix Inc. invests in a foreign-language series of
Columbian crime drama, Narcos, French political thriller Marseilles, or Hibana (Spark) to
address the situation.
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Figure 7. Global Expansion Investment in Original Content
Source: Investment in Original Content Netflix Programming, 2017
The Crown was broadcast successfully in the UK to fulfil its overseas expansion strategy
requirements. The introduction of original content (Netflix, 2017), followed by the $7 billion
investment in original content (e.g., House of Cards and Orange Is the New Black) in 2017,
together with an additional $1 billion marketing budget, which will drive subscription growth
and success (John McCarthy, 2017). Competitive analysis suggests continued growth for
brand expansion to fill market gaps with original and exclusive content (Ampere, 2016).
Table 6 Original Content Market Strategies Drive
Company Description
Audience targeting All All significant broadcasters create original content to target subsections of their
specific audiences. SVOD platforms are increasinglymovingoutside of
drama/comedyfor originals, withmore realityand entertainment releasedin
2018
Flagship title Netflix,
Amazon, BBC,
ITV, Sky, Now
TV
Productionof a smaller volume ofmore expensive, high-profile dramatic series.
Used to differentiate servicesanddrive marketingandsubscriptions (for SVOD)
International
distribution
BBC& ITV Both the BBCandITV have large sales outside ofthe UK(through BBCandITV
Studios). While flagshipshows focus onthe UK, theyalsooftencollaborate with
foreignbroadcasters to create content with a more international focus
Internationalscale Netflix Inc. A high volume oforiginal content commission, designedto reduce reliance on
(and in manycasesreplace) third-partycontent acquisitionacross all
international markets
Source: The UK VoD market Current status and future developments by Ampere Analysis (Ofcom, 2017)
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Porter’s Five ForcesAnalysis
Porter's Five Forces Analysis identifies competitive pressures (due to barriers to entry,
customers, suppliers, substitutions, the rivalry between existing companies) that increase
opportunities and threats to the business (Porter, 1979).
Source: The Five Forces analysis framework developed in 1979 by Michael E. Porter
Table 7. Porter’s Five Forces Analysis
Competitive Pressures Created by Threat from New
Entrants:
Threat of New Entrant
MODERATE
Buyer demand is multiplying;the industry
expects an increasein views.
The products of rivals aredifferentiated
through their content library.
The buyer experiences low costs when
switchingcompetitors.
Under regulated industry for renting
movies
High content acquisition costis theprimary
barrier to entry in this industry.
Netflix Inc.must continue supportingthe
risingpopularity of e-commerce for
improvement to enhance its inventory of
stream movies and HD streaming
inventory.
Threat from New
Entrants
Potential New
Entry
Bargaining pow er
of customers
(buyers)
Buyers
Threat from
substitution
products and/or
services
Suppliers
Bargaining pow er
of suppliers
Substitutes Competitive
Rivalry
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Competitive Pressures Created by Threat from New Entrants: Apple iTunes (market
challenger), Now TV and BBC iPlayer (market leader) show threats of competition and are
likely to imitate Netflix Inc to boost profits or segment products for growth opportunities.
Competitive Pressures Stemming from Buyer
Bargaining Power & Seller-Buyer Collaboration:
Bargaining Power of Suppliers
WEAK
Buyer switchingcosts arelow.
A particular internet-streamingvideo on
demand can deliver quality that other
brands do not match.
Buyers are individualsand cannot quickly
negotiate as a group.
There are multiplebuyers in the
marketplace; one buyer is not critical to
internet-streaming video on demand
provider success
Netflix Inc.’s dependency on third-party
content suppliers to meet buyer demand.
UK buyers need content specific to culture
& interest.
Different suppliers havedifferentcontent
on offer – buyers have too many options
CompetitivePressuresfrom SupplierBargainingPower&Supplier-SellerCollaboration: BBC
iPlayer is NetflixInc's biggestcompetitor, with an extensivecontent library, investment in new
content and collaborations.
Competitive Pressures from The Sellers of
Substitutes Products:
Threats of Substitutes
MODERATELY HIGH
Suitablesubstitutes arereadily available
(i.e., Subscription-based Now TV, BBC
iPlayer, Amazon Prime Video and
YouTube, Apple TV is notfully developed
but arethreats
Substitute goods competitively priced,but
Amazon does not need to look for
consumers,which is a massivethreatto
Netflix Inc.
Features such as interfaceease of use,
movie recommendations, etc., differentiate
substitutes.
The buyer experiences low costs when
switchingcompetitors
For most UK homes, digital cableis now
necessary;therefore, various customers
will havea filmcollection fromtheir cable
network (Sky, TalkTalk,Virgin Media,EE.)
“On-Demand”, services offered by cable
television providers might substitute Netflix
Inc.if they increasetheir movie stock listto
a similar titlechoice.
One of the major threats is the vastand
open Internet, where anyone can find
movies illegally.
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Competitive PressuresfromThe Sellersof Substitute Products: Replacementproductsare readily
available (e.g., subscription basedNowTV,BBCiPlayer,AmazonPrime VideoandYouTube,Apple
TV),but are not yetmature and pose a threat.
Competitive Pressures from Supplier Bargaining
Power & Supplier- Seller Collaboration:
Bargaining Power of Buyers
FIERCE
Movie Studios have a differentiated input
that enhances the quality of the product
and is critical to the internet-streaming
video on demand.
Some movie studios and internet-streaming
video-on-demand providers collaborateto
offer exclusiverights to certain movies.
There are few suppliers of certain movies
The business-model supplies buyers with a
largeamount of bargainingpower.
Buyers may cancel anytime without a
termination fee and enjoy a free
subscription for a month (not in the UK).
The low priceand high amount of content
availablethrough Netflix Inc. create a
competitive advantagecompared to
traditional media outlets.
Buyers are pricesensitiveand risk
abandoningNetflix Inc.over relatively
incremental priceincreases.
Competitive Pressures from Supplier Bargaining Power & Supplier: Amazon Prime Video,
exclusive rights to Premier League football and the closure of Sky's monopoly on live
streaming of sporting games,which targets male consumers, means subscribers are switching
more frequently.
Competitive PressuresCreatedbyRivalry
Among CompetingSellers:
Rivalry Among Competitors
MODERATE
Buyer demand is snowballing.
Its content library moderately differentiates
products of rival sellers.
The buyer experience is based on lower
costs when switchingcompetitors
Rivalry demand for buyers ‘moments of
free time.’
Inmate workingstrategy from rivals.
“Content is king” syndrome, firstto
distribute& develop or supply original
content “marketing” cultureterms as “first
roots strategy”.
Competitive Pressures Created by Rivalry Among Competing Sellers:
Some competitors increased their investment in original content to meet the demand for
exclusive content, while others used discounted prices to reduce short-term competition.
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Segmentation
The STP (segmentation, targeting and positioning) process provides a thorough
understanding of identifying attractive consumer segments and assessing competitive factors
shown in Table 8 (Pervez & Cateora, 2014).
Table 8. Traditional segmentation
SegmentationMethod Data Analytical basedSegments
Geographic
(Netflix Inc. members
are grouped according
to programmingtaste
insteadthe traditional
segmentingusedby
otherfirms)
Continent:NorthAmerica, Asia, Europe, AfricaWithin
the UnitedStates:Pacific, mountain, central, south,
mid-Atlantic, northeast
Demographic Age, gender, income
Psychographic Lifestyle, self-concept, self-values
Benefits Convenience, economy, prestige
Behavioural Occasion, loyalty
Source: Adapted using Pervez & Cateora Segmentation (Pervez & Cateora 2014)
Demographic factors like “geography, age, and gender, which is not indicative of the content
subscribers will like, instead of matching members on a global database of activities", aligns
with the strategy (Goode, 2017).
Segmentation scholar Russell Haley (1968a) says, “one should seek to establish the benefits,
which consumers are looking for in a product, as these determine their behaviours much
more accurately than do demographics or volume of consumption” (Haley, 1995b. P30-35).
Netflix Inc., therefore, focuses on the mass appeal of buying, and this strategy continues to
deliver results. In the UK, Netflix Inc.'s B2C market consists of 58% of 16-24-year-old
subscribers, increasing 14% compared to 2015 (Deloitte, 2017). The subscriber age on the
Netflix platform is between 17 and 65 (Pwc, 2016).
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Targeting
Figure 8 shows that consumers connect to brands through behavioural attributes to sustain
and maintain a loyal relationship. (Haley, 1968a).
Figure 8. Example of targeting structure.
Source: Data from various sources on targeting
Netflix Inc. uses multiple targeting techniques and strategies that focus on the purchasing
power of the mass market to appeal to potential users. Therefore, it does not focus on age,
fundamentals, beliefs, and inclinations, as it did with its segmentation process, but benefits
from the mass market's most significant demand for SVOD. The aim for Netflix Inc. is to
discover groups of people and finds out who is like you, loves these topics, and then mixes
and matches them (Goode, 2017). With the mass-market appeal, enormous content diversity,
and exclusive programming, this mix is essential to attract different users to the platform
(Armstrong and Kotler, 2000).
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Positioning
Positioning is not to “create something new and different, but to manipulate what is already
up there in mind, to retie the connection that already exists” (Ries and Trout, 1981, p.5).
The percentage of perception maps in Figure 9 shows the SVOD service with premium
personalisation, firmly positioned as a local streaming provider of online content,
independent of Now TV in terms of convenience, accessibility, and original premium content.
The repositioning into the "premium" category resulted from investing 60% of annual revenue
in content to compete with global premium channels (BBC, iPlayer, Now TV, and Amazon
Prime Video) to realign the strategy (Moulding, 2017, Ampere Analysis, 2017). In addition,
repositioning the brand creates competitive conditions for other competitors, including Sky,
ITV, and NBC (The Economist, 2016).
Figure 9. Perceptual Map
Source: Author, designed on completion of 2017 marketing strategy
Broadband (ISP, Phone & Pay cable TV) Set-Top Box Pay TV Providers
SVOD/Smart TV based Providers.
Ad-Supported
Content
Stand-alone
VOD
Narrow
target
Broad
target
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Netflix Inc. defines its positioning as expanding standard video packages, library content, and
virtual reality content not yet in use.Afterwards, the goalof a50 / 50 split between purchased
content and original production ensures this position is perfectly balanced (Ampere Analysis,
2017).
AnsoffMatrix Model
The Ansoff Matrix model consists of 4 distinct market growth strategies that assume agrowth
strategy derives from whether the market is new or existing, or the product is new or existing
(Ansoff, 1957).
Figure 10. Ansoff Growth Strategy Matrix
Source: Adapted using Ansoff Matrix framework model (Ansoff, 1956)
Diversification strategies
Product development strategies
Market penetration strategies
Use digital (Netflix Inc. platform)& OOH to target:
i. New geographicmarkets “British market”
ii. New customersegments –“patriotic to
culture & interest”
iii. New “content peoplelove”.
iv. New “user experience”tools
Use the Platform to support:
i. Diversification into relatedbusinesses (*ISP
service*)
ii. Diversification into unrelatedbusinesses
iii. Upstreaming (with suppliers)
iv. Downstream integration(with
intermediaries)
Use Platform for
i. Market share growth –compete aggressively online.
ii. Customer loyalty improvement – migrate existing
customer online and add value to existing product,
service, and brand.
iii. Customer value improvement – increase customer
profitability by decreasing cost to serve and
increase purchase or usage frequency and quantity.
Use platform to
i. Add value to existing product.
ii. Develop content for digital distribution.
iii. Change payment model (Subscription –flat rate –
no commitment)
iv. Increase/change (content portfolio, access to
content or exclusive content range)
Netflix Inc. CAPITALISING ON THE “PLATFORM”TOSUPPORTAND PROVIDEVARIOUS GROWTH STRATEGIES
New
markets
Product growth
Existing products New products
Market development strategies
Existing
markets
Market
growth
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Market penetration leverages the products to grow within the defined market and seizes
opportunities to increase margins and profitability. Through a strategic partnership with UK
broadband services (Virgin Media, Now TV, and Sky) and telecoms companies (o2, EE,
Vodafone and Three), Netflix drives market penetration and keeps prices competitive.
Figure 11. Implementation of Market Development Growth for Netflix Inc.
Source: Author takes on strategy implementation for market development growth
Market analysis shows the annual operating margin projection increased by 3% to 7% in 2017
compared to the previous two years (Netflix, 2017). The "profitability metric" then requires
increasing margins, as revenue, subscriber growth and margins are interconnected (Walters,
2017). Figure 11 shows how Netflix Inc. can exploit this market by creating content and
capturing imagination to deliver content that people love for a profitable target segment. See
the appendix for a complete analysis of the other three strategies in the Ansoff matrix.
CREATE
- Digitizetherelationship.
- All you can watch.
-Anywhere,Anytime&Anyplace
MARKET DEVELOPMENT GROWTH
CAPTURE DELIVER
- Simplified installation.
- Accessible on multipledevices.
- Non-binding subscription.
- Personalized experience.
- Viewing preferencedrivenby habit.
- Hybrid DVD& streaming.
TARGET
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Marketing Mix - 7Ps
The analysis of Netflix Inc.'s marketing mix examines the 7Ps (Product, Price, Place,
Promotion, Process, People, and Physical Evidence) to highlight the streaming services
business and marketing strategies shown in Table 9. According to Jemore McCarthy, the
Marketing Mix is a widely used tool by companies and marketers to determine a product or
service offering (McCarthy, 1960). In the 1970s, the marketing mix went from 4Ps to 5Ps and
extended to 7Ps when Booms &Bitner updated it to meet the changing demands of marketing
(1981).
Table 9. Netflix Inc's marketing mix.
Product strategies Price strategies Place strategies
Video Streaming/ Video on
Demand:
TV Shows
Movies/ documentaries
Original content (TV
Shows/Movies)
developed by Netflix Inc.
Product Features:
Non-binding
subscription.
Three diffs.plans basis
customer needs
Original popular global
content
Suggestions:
Add more recent movies.
Sports instantstreaming
Expandingthe library
collection
Accommodate different
internet speeds.
Implement proper
communication in
advancebefore abruptly
deducting £10.00
monthly subscription.
Consider value-based
pricingthan
differentiated price
strategy (e.g., original
content)
offer quality original
content at a higher price.
Consider 1-month free
streamingserviceto
compete with the UK
market culture.
Promotion strategies
Introduce the 1-month
free trial advertisements
& on social media.
Deploy digital
campaigns.
Social media ads (PPC)
strategy)
Consider
sponsoring/supporting
filmfestivals (e.g., British
Filmfestivals,BAFTA
Independent Films,
BAFTA University Films)
Amazon provides
Internet; however,
Netflix Inc.should
consider settingup its
facilities.
Physical evidence
Streaming service&
more web features
Maximisedistribution.
People
Employees
Management
Service agent/partners
Third-party content
suppliers.
Supply more trainingfor
internal staff (e.g., tech
& Software to improve
customer experience)
Processes
On-demand:
ISP’s
Data library
Coding/Scripting&
Software
Source: Adapted from E. Jerome McCarthy’s 4Ps model(1960) & ExtendedMarketing Mix by Booms & Bitner (1981)
32. 32 | P a g e M a r k e t i n g , S t r a t e g y & P l a n n i n g
Table 10. Strategy, Marketing & Planning
Objectives Implementingamarketpenetrationstrategywithmobilitydriverstopenetrate
the profitable youth and mature segment.
Goals 1. 8% increase inoperatingmarginsin2018 to offsetgrowthandprofitability.
2. Encourage new subscribers, get existing members, and attract millennial
crowds with the bowling alley approach.
Strategy Adopt a market penetration strategy to expand the streaming business by
providing exclusive and original programming aimed at UK subscribers'
interests and culture (e.g., The Crown and Stranger Things).
Counter-Threat
Strategy
1. Substitute products - consider the inclusion of "sports" for market
leadership.
2. Power of suppliers and buyers - Provide original content associated with
British culture and interest.
3. Substitute threat - establish strategic alliances/partnerships with telco
operators and lock them into exclusivity agreements before Apple and
YouTube explode.
4. Bowling Alley Strategy- penetrate the recommended segments before
moving to the next pin (one category, niche or vertical).
Optional Tactics 1. Pursue the market penetration strategy that promotes the service
experience to deliver and increase high-quality prices.
2. Develop more original "content people love" and sell new titles to third
parties (BBC iPlayer, ITV Hub & My5) to generate new revenue streams to
counter the funding of the TV licence by rivalsor revenue from ad-supported
content.
3. Drive Netflix app installs on iOS platforms aggressively. Deploy product
offering through social media and support activities with strategic OOH
substantial-size media campaign for brand awareness.
Segmentation Segment by cluster group, supported by internal segmentation software to
define potential users - primarily "content lovers" and "digital natives" who
prefer children and documentary content.
Targeting 1. 16-30 Student segment (Novelty seekers) Exploratory adventures.
2. 25-35 General audience (Digital natives)Professional familieswithchildren.
3. 35-65 Matured Wanderers (Content lovers) Product-specific loyalists.
Positioning Position the brand on the same level as NOWTV and BBC iPlayer (Gadher, D
2016), as shown in Figure 10.
Winningproposition
1. Keepinnovatingtosupportacompetitive advantage.
2. Use subscriberacquisitionmomentumtoincrease subscriptions.
3. Move to plantfirstroots strategy,considerISP diversification,anddelivernext-generationdigital
technologyexperience first!
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Conclusion
Using unconventional methods to segment, target and align the user experience through
content by attracting a new user is a takeaway. Maximising the opportunities for multiple
connected devices in developing countries for shared streaming so that they can share the
cost is ingenious. Investing in original content or producing regional and language-based
content has increased product demand. Netflix Inc. has simultaneously launched in 54 African
countries within two years (2015 to 2017), a massive risk paid off. Consequently, there is little
or no information about its successful African expansion in 54 countries. Subsequently, the
African market needs further research and close monitoring to understand tactics and
business cases.
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APPENDIX
Ansoff Growth strategy matrix
Figure 10. Ansoff Growth Strategy Matrix
Source: Adapted using Ansoff Matrix framework model (Ansoff, 1956)
The UK market is geographically attractive but highly competitive, with opportunities for
market development. To implement a strategy, Netflix Inc. can expand the content mix to
reduce dependence on licensing agreements, improve user experience and increase
subscription growth. Target audiences (three groups; 18-35 youth) are students and mature
consumers by "capturing" and "delivering" content that people love. In addition, Netflix Inc.
announced its content library would grow by 50% by 2020, expanding market development
options (Walters, 2017).
Diversification strategies
Product development strategies
Market penetration strategies
Use digital (Netflix Inc. platform)& OOH to target:
v. New geographicmarkets “British market”
vi. New customersegments –“patriotic to
culture & interest”
vii. New “content peoplelove”.
viii. New “user experience”tools
Use the Platform to support:
v. Diversification into relatedbusinesses (*ISP
service*)
vi. Diversification into unrelatedbusinesses
vii. Upstreaming (with suppliers)
viii. Downstream integration(with
intermediaries)
Use Platform for
iv. Market share growth –compete aggressively online.
v. Customer loyalty improvement – migrate existing
customer online and add value to existing product,
service, and brand.
vi. Customer value improvement – increase customer
profitability by decreasing cost to serve and
increase purchase or usage frequency and quantity.
Use platform to
v. Add value to existing product.
vi. Develop content for digital distribution.
vii. Change payment model (Subscription –flat rate –
no commitment)
viii. Increase/change (content portfolio, access to
content or exclusive content range)
Netflix Inc. CAPITALISING ON THE “PLATFORM”TOSUPPORTAND PROVIDEVARIOUS GROWTH STRATEGIES
Market
growth
New
markets
Existing
markets
Product growth
Existing products New products
Market development strategies
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Market penetration is using products within the defined market to grow. Profit from
opportunities to increase margins and profitability by forming a strategic partnership with UK
broadband services (Virgin Media, Now TV, and Sky) and telcos (o2, EE, Vodafone and Three)
to increase market penetration and keep prices competitive. Market analysis shows that in
2017, the annual operating margin projection increased by 3% to 7% compared to the
previous two years (Netflix, 2017).
Product development is the development of new products for the existing market to benefit
the existing customer base. There are opportunities for product development in the
entertainment market, which is more than $2 trillion, with the Internet, and home electronic
video being the fastest-growing segment (Campbizsmart.org, 2017). Improving the customer
experience through UI / UX, enabling more devices to access content, and offering High-
Volume-File (HVF) 4K transfer will boost market development. If innovation is created, it will
givea competitive advantage to capitaliseon investments in R & D that supports 4K streaming
efficiently (Roettgers, 2017; Mintel, 2016).
Diversification is tapping new market opportunities with various products/services outside
the original business. Diversification is not part of Netflix Inc.'s generic penetration strategy
or business model. There are three ways to diversify. First, acquire Eleven Sports for its genre
content and 17 million European subscribers to gain competitive advantage. Second, go to
the" ISP Business "offering package with the streaming product development service. Third,
diversify into cloud computing/storage for B2B customers, given Netflix Inc.'s history with
cloud storage, its application expertise, and its delivery relationship with Amazon Web
Services (AWS).
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