1

Executive summary

Netflix is currently the largest online DVD rental company in the US. The company
offers a prepaid plan for customers to rent DVDs online and have the DVDs mailed to
them in envelopes. Since the inception of the company, Netflix has been constantly trying
to improve itself on a few fronts of the business in order to better position the company to
its partners and most importantly, its customers. Moreover, the company faces tough
competition not only from traditional video rental stores, but also other online video
rental companies. On top of that, Netflix has a huge rivalry with Blockbuster, the largest
video rental chain in the US. In recent times, Netflix has also been facing the threats of
online video and Video-on-Demand (VOD), and are currently looking into the possibility
of entering this space. As being a rental service provider, it generates the revenue mainly
from the subscription fee. Netflix has earned the huge revenue of $122.641 million in
2015(according to income statement of netflix). Netflix has implemented the effective
CRM (Cinematch) and SCM (Stevens 2005) in the business process to tap the
environmental opportunities and create a competitive advantage in the industry.
Netflixs current business model is very technology intensive but only has a simple
concept of operation attached to it. The main idea was for Netflix to offer convenient
access to movies. Customers subscribe for a fee through the website and they can start
adding movies to their wish list and recommendations for movies are even provided
based on individual customer preferences. Customers can view videos and TV shows in
not only from laptops and TV but also from the smart devices like iPad and iPhone. The
major software supported by Netflix are Microsoft Windows, Mac OS X, Android
including the HTC Incredible(2.2), Samsung Nexus S(2.3), Motorola Droid(2.2), LG
Revolution(2.2), Commando C771(2.2), and Archos32 Internet Tablet(2.2), iOS iPad,
iPhone, iPod Touch, Apple TV.
Hence, Netflix have been doing the traditional type of business differently with the help
of e-commerce and able to add value to the customer and its other stakeholders.

Chapter I
Introduction
1.1 Background of Company
Netflix, Inc., (NASDAQ: NFLX) is an American provider of on-demand internet
streaming media in the United States, Canada, and Latin America and flat rate DVD-bymail in the United States. The company was established in 1997 and is headquartered in
Los Gatos, California. It started its subscription-based digital distribution service in 1999
and by 2009 it was offering a collection of 100,000 titles on DVD and had surpassed 20
million subscribers. As of April 2016, Netflix reported over 81 million subscribers
worldwide, including more than 46 million in the U.S.
Netflix was founded in 1997 in Scotts Valley, California by Marc Randolph and Reed
Hastings, who previously had worked together at Pure Software, along with Mitch Lowe.
Hastings was inspired to start the company after being charged late fees for returning a
rented copy of Apollo 13 after the due date. The Netflix website launched in April 1998
with an online version of a more traditional pay-per-rental model (US $4 per rental plus
US $2 in postage; late fees applied). Netflix introduced the monthly subscription concept
in September 1999, and then dropped the single-rental model in early 2000. Since that
time the company has built its reputation on the business model of flat-fee unlimited
rentals without due dates, late fees, shipping or handling fees, or per title rental fees.
With more than 81 million streaming members globally, Netflix, Inc. (NASDAQ: NFLX)
is the world's leading Internet subscription service for enjoying movies and TV shows. It.
For about US$7.99 a month, Netflix members in the United States, Canada, Latin
America and the Caribbean can instantly watch unlimited movies and TV episodes
streamed over the Internet to PCs, Macs and TVs. Among the large and expanding base
of devices streaming from Netflix are: Microsoft's Xbox 360, Nintendo's Wii and Sony's
PS3 consoles; an array of Blu-ray disc players, Internet-connected TVs, home theater
systems, digital video recorders and Internet video players; Apple's iPhone, iPad and iPod
touch; Android and Windows tablets and phones; and Apple TV and Google TV. In all,
more than 700 devices that stream from Netflix are available

1.2 Objectives of the Study .

The main purpose or objectives of this study are as follows
To find out the business operation modality of NetFlix
To identify the marketing lessons gained from NetFlix
To identify the marketing tools used by NetFlix
1.3 Limitations of the study
As the study is done solely for the study and academic purpose, .The study will have
different constraints listed below:

Report is based only on secondary resources via internet, so reliability on

information cannot be assured.

The findings of this report cannot be generalized to other similar kind of

organizations.
1.4 Methods of data collection.
This research starts with the Secondary data collection via the company's website ..
Similarly secondary data includes different scholarly articles and review published on
different websites on the internet The data and information's are extracted from different
websites in the internet.

Chapter II
Literature review
When it comes to online movie, television, and video services, there are several service
providers that give the similar type of services. Some of them are as follows.

Hulu:
Hulu distributes video both on its own website and syndicates its hosting to other
sites, and allows users to embed Hulu clips on their websites. In addition to NBC,
ABC and Fox programs and movies, Hulu carries shows from other networks
such as Current TV, PBS, USA Network, Bravo, Fuel TV, FX, NFL Network,
Speed, Big Ten Network, Syfy, Style, Sundance, E!, G4, Versus, A&E, Oxygen
and online comedy sources such as Onion News Network. Each supplier gets 50

to 70 percent of advertising revenue resulting from its content.

Amazon Instant Video
It allows customers to download to any Unbox-registered PC or TiVo from any
Internet-connected computer. For example, a user can purchase an Unbox video
from a work computer and request that it be downloaded on a home computer. It
also allows users to create their own media library by adding or deleting most
large video files from their local hard drive when finished and store those in
Amazon's Media Library for later re-download. This allows people to download
more movies than their hard drive could otherwise store, and it provides a backup
in case of hard drive failure.

All of the online video services mentioned in this review are paid, premium services.
However, there are also many places on the web that offer free television and movies as
well. Most premium online television and movie offerings are run as a service. Thus, they
require a monthly fee. In many cases, however, these services are much cheaper than
cable television services. This is because online based video services are nationwide, so
they can offer a more competitive rate. Cable services are a monopoly industry, so they
are often more costly.
The one advantage that cable and satellite companies have over these companies is, the
offering of live television. While most of these companies are able to offer replays of
your favorite TV shows, they do not yet offer live TV, which is unbeatable when it comes
to sporting events and other live shows. Still, many consumers prefer savings over certain
features, and these internet based services offer maximum value. Internet services can be
streamed or played on televisions in a variety of different ways. However, HTPC (Home
Theater PCs) and media centers are among the most popular.

Chapter III
Data Analysis and Presentation
3.1 SWOT Analysis
Strengths

Netflix has the First Mover Advantage into the movies and TV shows instant
streaming which gives its brand higher recognition compare to other
competitors.

Netflix brand has Strong Brand Recognition and winning Emmy awards with
its House of cards show, Emmys best the Personalized Recommendation
Engines for Video Discovery award and many others making it the strongest
brand in the industry.

With the personalized recommendation system and a large selection of

content Netflix has managed to get high Customer Satisfaction

Netflix has the largest Streaming library compare to other competitors like
amazon and Hulu.

Netflix has the ability to adopt to various platforms like TVs, game consoles,
smart phones, tables and computers as well as flexibility to different internet
speeds which other competitors like Amazon do not have

Production of original content has increased Netflix brand equity, customer

loyalty and revenues for example House of cards and orange is the new black.

A huge database of customer data and a good system for analyzing the data
enabling them to have more accurate predictions and recommender systems.

Weaknesses

Netflix has a big window of time from when the movie is launched to
when it is adopted by Netflix library. Customers have to wait for 28 days
to have access of new content releases unlike Hulu who can provide them
earlier

Contractual restrictions on streaming content. Netflix is bound by the

contracts with the content providers restricting its flexibility on expansion
of the market and the content.

Expired contracts with Sony & Stars, resulting in lost videos about 1800
titles setting back the efforts to expand the video library. Also losing a
video provider EPIX to Amazon who is a competitor was a setback for
Netflix.

Damaged reputation after attempting to increase fees and separate DVD &
streaming video

Opportunities

Product Line Expansion of original shows may have a favorable effect to Netflix

subscriber base, profits and brand equity

More expansion in International market. There is a rapid growth of the number of

broadband subscription every year and this is a tremendous

Threats

Exclusivity agreements with content providers may affect availability of

movies for streaming.

More competition from big name companies (Apple, Microsoft,

Amazon) and global competition from companies operating locally
overseas. The Competitors offering streaming video are also bidding for
exclusive rights to content

Limits on Bandwidth usage from internet providers if the Congress will

not pass regulations to honor network neutrality.

3.2 Business Operating Modality:

Since the inception of Netflix, they have been constantly trying to fine-tune their business
model to make it as profitable as possible for the company, suitable for current market
situation and at the same time, create the most value for the stakeholders in Netflixs
business. Since Netflix started, they had already position themselves solely on the online
DVD rental space without a physical chain like blockbuster, rather, using mails to
delivery DVD rentals to its customers. As such, traditional video rental business model of
having a fix price per DVD rental would not work; as seen from Netflixs first business
model which it quickly changed not long after. The stakeholders in Netflixs business are
the DVD distributors and studios who will serve as Netflixs supplier, Netflixs customers
and an important factor unique to online DVD rentals and not traditional video rental, the
delivery mail which in Netflixs case, the USPS.
Netflixs current business model is very technology intensive but only has a simple
concept of operation attached to it. The main idea was for Netflix to offer convenient
access to movies. Customers subscribe for a fee through the website and they can start
adding movies to their wish list and recommendations for movies are even provided

based on individual customer preferences. Customers pay a flat monthly fee that would
allow them to rent any number of DVDs according to their subscription plan and keep
them as long as they wanted. There are no due dates and late fees involved. The DVDs
are received via the USPS (US mail services) and customers return their rented titles at
their own convenience with a postage paid return envelope from Netflix.
As mentioned above, it took Netflix a couple of tries before it managed to successfully
fine-tune its business model to the current version. The current model brings a sort of
balances between the three other stakeholders, the DVD distributors and studios, the
USPS and lastly, the customers. Previously, one of the main problems that Netflix faces
was the high acquisition cost of acquiring DVDs from distributors and studios. As a
result, the company had deals with these distributors that will greatly decrease the cost
for Netflix and yet increase customers satisfactory. As for the USPS, Netflix had
established a special relationship with them to further help decreasing delivery and
returning time. The fact that Netflix was one of USPSs fastest-growing first class mail
clients further illustrates Netflixs importance to USPS. The opening of more distribution
centers around the US and having a national inventory further make delivery faster to and
from customers (a key component in Netflixs business model); plus a special
understanding with USPS further help strengthen this area of Netflixs business model.
In this below presented business modality, first the customers get into their web browsers
and select the required Videos and DVDs through the single portal Netflix.com.
Customers have basically three alternatives (we assume) of electronic payment for the
subscription fee. They are EFT through their bank account, credit card, and e-cash
(digital wallet) system.
The general operating modality of Netflix.com is presented below.

Custome
r

Netflix.co
m

Database

Client Browser

Netflixs Server

Payment

Online third party

Gateway

Computes with links

To multiple payment system

Banks Accounts
Electronic Cash

e-Bill Payment

EFT payment

Credit cards

Fig: a general operating modality of Netflix.com

Pay Pal;

3.3 Finance and revenue Generation:

As a subscription-based company, Netflixs income comes almost exclusively from
subscription fees. Netflix provide the rental service of DVDs and TV shows to the
customers and charge the flat fee in return. In the immediate future, Netflix will continue
outperforming analyst expectations and maintain an edge over competitors by increasing
profitability through subscription based growth, reducing cost, and pricing competitively.
Netflix's revenue condition are presented below.

10

2010: In 2010, Netflix's stock price increased 219% to $175.70 and it added 8 million
subscribers, bringing its total to 20 million. Revenue jumped 29% to $2.16 billion and net
income was up 39% to $161 million.

2011: In April 2011, Netflix is expected to earn $1.07 a share in the

first quarter of 2011 on revenue of $705.7 million, a huge increase
compared to the year-earlier profit of 59 cents on revenue of $493.7
million, according to a survey of 25 analysts polled by Fact Set
Research.
2014 In May 2014, Netflix increased the fee for UK subscribers by
1.The price increase took effect immediately for new subscribers, but
will be delayed for two years for existing members. Netflix applied
similar increases in the United States (an increase of $1) and the
Eurozone (an increase of 1). According to Forbes,] "Netflix can add
roughly $500 million in annual incremental revenues in the U.S. alone
by

2017

with

this

move"

and

"roughly

$200$250

million

in

incremental revenues from price changes in international markets".

However, Reuters' Felix Salmon is critical about Netflix's financial
future, noting that "any time that Netflix builds up a profit margin, the
studios will simply raise their prices until that margin disappears".
2016 In April 2016, Netflix announced it would be ending a loyalty rate
in certain countries for subscribers who were continuously subscribed
before price rises.

3.4 Business Expansion:

The following table shows the business expansion of NetFlix.
2007 Netflix began streaming in the United States of America.

11

2010

The company first began offering streaming service to the international market on
September 22, 2010 in Canada.

2011 Netflix expanded its streaming service to Latin America

Netflix started its expansion to Europe in 2012, launching in the United Kingdom and
2012 Ireland on January 4. By September 18 it had expanded to Denmark, Finland,
Norway and Sweden.

2013

2014

The company decided to slow expansion in order to control subscription costs. It only
expanded to the Netherlands.
Netflix became available in Austria, Belgium, France, Germany, Luxembourg, and
Switzerland

2015 Netflix expanded to Australia and New Zealand, Japan, Italy, Portugal, and Spain.

Netflix announced at the Consumer Electronics Show in January 2016 that it had
2016 become available everywhere worldwide outside of Mainland China, Syria, North
Korea and the territory of Crimea.

3.5 Marketing tools used by Netflix

Netflix offers a free month trial for all of the new subscribers aiming at showing
the high value of service before the subscriber commit to Netflix. The objective is
to attract more loyal subscribers because people join Netflix with confidence of
what they are purchasing which increase trust and loyalty among subscribers. This
promotion sends a message that Netflix is confidence of the value it has to offer
and does not hesitate to let people have the Netflix experience before they decide
to buy subscriptions.
3.5.1 Advertising through mobile phones & tablets messages:

12

Ads includes notifications that the current free trial offer will run through the campaigns
first year and all other Netflix new features
3.5.2 Social media and internet advertising
Social media is extremely important for Netflix because the service is located on the
internet the same place where the social media is. Netflix provides opportunities for its
customers to share and interact with their friends in various social media while they are
on Netflix account. Netflix also collect the social media information to better serve the
customers and know how the customers perceive them. The biggest advantage to internet
advertising for Netflix is one click on an ad and the potential consumer is taken right to
the product. Internet users have come to accept and even expect banner ads.
3.5.3 TV commercials
Television reached more people than the internet However, considering that the location
of the product is on the internet, Netflix want to focus a good part of the advertising to
internet ads as well. Television have more money budgeted to it, due to the production
costs
3.5.4 QR codes
QR codes are becoming popular as smart phones become more standard. Netflix may
agree with a candy company to put Netflix QR codes on their movie size candy. They can
also arrange for the QR codes to be put on pop-con packages that are used in movie
theatres even those sold in stores. The QR codes will lead customers to Netflix.com and
YouTube clips of commercials. Netflix can also run a follow up campaign for Netflix
users to submit their own video of them using or advertising the Netflix. If their video
passes YouTube regulations, those videos can be put on YouTube with a QR code
attached the customers may be rewarded with discounted subscriptions for a month or
two. This creates consumer excitement and involvement.
3.6 Marketing Lessons From Netflix
3.6.1. Create Ubiquity - Overtime, Netflix created ways to distribute content in the
formats its customers wanted: DVDs, computer, tablet, smart phone, TV, etc. Netflix

13

understands that different customers and prospects have different needs. While working
to solve for customer needs, Netflix also built an ubiquitous platform for delivering
premium video content.
3.6.2. Market a Minimum Viable Product - Netflix was a DVD-by-mail business until
it made the bold decision to start streaming video content. However, when the Netflix
started its streaming service, it wasn't full of the same content that was available via mail.
Instead, it was only a small portion of its content, but that didn't stop the company from
actively promoting it to new and existing users.
3.6.3. Give Prospects What They Don't Know They Want - When Netflix began
streaming videos, their DVD-by-mail business was thriving and most customers were
happy to wait a day or two to get their next DVD. With streaming content, Netflix reset
customer expectations and solved a problem that customers didn't even realize they had.
By launching streaming before huge customer demand emerged, Netflix was able to
focus on how they wanted to solve the problem versus directly addressing customer
complaints.
3.6.4. Quickly Abandon Dying Platforms - What would Netflix's business look like
today if they were still only mailing DVDs? Netflix understood that usage and adoption
of DVDs would gradually decline and worked aggressively to increase adoption of
streaming

video.

3.6.5. Publish and Distribute - Recently, Netflix made an interesting announcement.

The company funded the production of a new show called "House of Cards," featuring
Kevin Spacey. This move marked a major transition for the company - it took them from
a mere content distribution company to a business that creates and distributes video
content. This move puts Netflix in direct competition with companies like HBO and
Showtime.

14

3.7 Client base:

Netflix have been providing the variety of DVDs and TV shows to satisfy the different
customer segment in a flat rate. These are demonstrated below in the presented table.
Segment

Product Offering

Children

Cartoons, Animated Movies

Teenager
Elder
Job Holder
Old age

Romantic Movies, TV serials, Sports, Musical Shows and so on.

Latest movies, Sports, Musical shows
News Channels, Sports, Business shows.
Spiritual shows, Reality shows

3.8 Customer Relationship Management Systems:

Netflix uses an intelligent agent to provide its consumers with their own personal box
office. The intelligent agent, called Cinematch, is a movie recommendation system that
constantly gives the customer suggestions on movies that he or she might enjoy.
Cinematch joins two methods (collaborate filtering and adaptive filtering) to predict
consumer preferences. First, Cinematch urges the customer to rate movies using a 5 star
rating system. The more movies the customer rates, the more accurate his or her
recommendations will become. By doing this, the system starts to find out what kind of
movies he or she enjoys . Cinematch collects the users rating and adds it to its huge
database of user ratings for movies. Then, Cinematch would take two movies and find
two customers who have rated the two movies similarly. Thus, when Cinematch gives
recommendations, it recommends movies that the customer has not watched and received
a high-rating from like-minded viewers. Cinematch is very valuable for the customers
because they do not have to waste time looking for movies. In fact, 60% of movies that
customers add to their list of movies come from recommendations.
Netflix also uses electronic catalogues on its website. The catalogue allows customers to
quickly search for movies and view movie information on its website. Customers can
search for movies by genre, new releases, top 100 or critics picks. The electronic
catalogue makes looking for movies quick and easy.

15

3.9 Supply Chain Management Systems:

Netflixs SCM systems are strategic to the company; thus, they are a trade secret.
Netflixs main SCM system is Web-based proprietary software that tells the workers
where to ship its inventory as soon as it arrives in the warehouse. This is how it works: as
soon as a disk comes in, the worker checks to ensure that the right disk is in the right
sleeve. Then, the disks serial number is scanned. Netflixs proprietary software then
checks many factors, such as the total inventory of the item, its locations, and the movies
on customers wish lists. It then retrieves a name and address of the next person waiting
for the DVD, prints out a label, and the disk is dropped back into the mail.
Netflixs SCM system also tracks inventory and determines the fastest route to get the
disc into customers hands:
For example, an order placed by a customer in Manhattan will be assigned to the
distribution center in nearby Flushing, New York. If the DVD is not available, the system
will poll the next-closest distribution center, in Stamford, Connecticut. If that center
doesn't have it, the system contacts the next closest, and so on until the DVD is located
(even if that means sending it from Netflix's main library in San Jose, California). If the
disc is not found, the system will look for the customer's second choice back in Flushing.
No matter where the disc is sent from, the system knows to print a return label to the
Flushing facility to minimize return-mail times.

Chapter IV
Findings and Conclusion
4.1 Findings
The following marketing takeaways can be derived from Netflix as the findings of the
report.
In a world of inbound marketing, it is important to create this same type of

distribution ubiquity with marketing content

"Netflix has taught us that "ready," really, never happens: many people are still
not satisfied with the content available through their streaming video service.

16

However, this has not stopped Netflix from meeting and exceeding its goals as a
company. Marketers should follow Netflix's example and release ideas early

and continue to improve upon them overtime.

Marketers spend a lot of time and money trying to figure out what potential
customers want. Often times, what is best for your business and for your
customers is not even on their radar. In a crowded social Web, sometimes

marketers must be the genesis of an idea and sell and distribute it to prospects.
Not all forms of marketing remain effective. As a marketer, you need to have
clear analytics and return on investment metrics for both outbound and inbound
marketing strategies. Once you can predict a prolonged decrease in results,
consider reallocating marketing budget to other tactics that are increasing in

value and adoption.

Value lies in vertical integration. The way Netflix is now in competition with
HBO and Showtime, every business should consider itself in direct competition
with their industry's leading trade magazine. The Internet has democratized
publishing. Marketers need to develop a strategy for creating content related to
their business and industry as well as building reach through blog subscribers,
social media and email lists..

4.2 Conclusion
With more than 81 million streaming members globally, Netflix Inc. is the world's
leading Internet subscription service for enjoying movies and TV shows. Netflix
members in the United States, Canada, Latin America and the Caribbean can instantly
watch unlimited movies and TV episodes streamed over the Internet to PCs, Macs and
TVs. It has become one of the most prominent entertainment cite providing the variety of
services like DVDs and TV shows among the industry. Since it expanded it's service
from TV, laptops, and other sophisticated hand devices like iPOD, it has gained further
popularity in this sector. Others blockbusters.com and hulu.com are also providing the
same sort of services to the customers. However, Netflix have been generating the

17

consistent revenue throughout the year and providing the best value to its customers in
the industry.
Netflix has been one of the most successful dot-com ventures. Netflix's growth has been
fueled by the fast spread of DVD players in households; nearly two-thirds of U.S. homes
had a DVD player. It capitalized on the success of the DVD and its rapid expansion into
U.S. homes, integrating the potential of the Internet and e-commerce to provide services
and catalogs that brick and mortar retailers could not compete with.