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Netflix Leading with data

Business Analytics Section A


Group 8
Divyanshu 2016PGP124
Kshama Shetty 2016PGP356
Shailendra Tiwari 2016PGP351
Shreya Sikaria 2016PGP364
Sukrati Gupta 206PGP389
Viraj Sanghavi 2016PGP333
Q1. In its competition with Netflix, where did Blockbuster go wrong? How was the use
of customer data a key differentiator?
Blockbuster dominated the video rental industry in late 1980s. Its business model was buying the movie
licenses from the studios, storing the products (VHS, DVD, Blu-ray discs) in its warehouse and then
distributing it throughout its network of stores and franchisees. It sold other products in its stores such as
video games and snack. It had a good reputation with the studios and was the first one to get copies of the
movies from studios.
Netflix came in with a business model in which it directly distributed the copies to customers from its
warehouse without having to go through stores.
The main area where Blockbuster went wrong and the key differentiating factor between Blockbuster and
Netflix was the use of customer data which Netflix did extensively
Unlike Blockbuster, Netflix was more flexible as it charged fix fees and did not impose any late fee charge;
hence customers could watch movies on their own schedules
Netflix created a highly customized experience for its subscribers by creating massive amounts of data about
their viewing habits and leveraging this data into an innovative recommendation engine
Netflixs algorithm found out the movies that might appeal to the customers
Netflixs strengths derived from its success executing its innovative business model and delivering greater
value to more targeted sets of customers than Blockbuster
Q2. Customer insight was one of the core competencies of Netflixs business model.
How did it work, and how did the company leverage business value from this
competency?

Experiences of very customer were uniquely customized, and every time they visited the website, further
customizations were done.
The next movie that a customer gets was decided by complex algorithms. The algorithm decides which
movies are in demand and which movies to be recommended to which customer
Ratings that the customers gave were used to understand their movie preferences.
Friends allowed movie buffs to share reviews and recommendations
Created audience for movies Hollywood would not bother with
Recommended lesser known movies due to precision of preference knowledge of subscriber
Maintained and leveraged partnerships with movie houses to release movies sooner on video rental
services.
Helped in product acquisition costs, by estimating its demand based on customer preferences.
Q3. What opportunities data and analytics might provide to Netflix if the company
switch from DVD to VOD? Can Netflix best leverage this competency as a competitive
advantage in VOD and is it sustainable?

Enhance Customer Satisfaction: Data analytics will allow Netflix to reduce risk of renting movies that
customers wouldnt enjoy
Inventory Management: It will help Netflix manage its inventory in a better way by avoiding recommending
movies that are out-of-stock.
Customer Clustering: Netflix can cluster its customer and using different parameters like age, demography,
geography etc. and push relevant offers to retain and acquire customers.
Recommendation Optimization: With Friends component, Netflix can optimize its recommendation
engine to suggest movies based on friends reviews and their recommendations.
Cost Effectiveness: Netflix can use data analytics to predict which movie will have approximate how many
rentals and thus can negotiate better rates, hence saving expenditure and gaining cost advantage.
Competencies of Netflix Competitive Advantage to Netflix

Moving from DVD => VOD existing database will prove beneficial
Huge Database: Recommendation Engine: Will become means to better customer
satisfaction
Recommendation Engine:
Wider and Relevant Offering: Netflix can offer movies and
Wider and Relevant Offering: documentaries that never got released in theatres
Cost Advantage: Cost Advantage: Subscription business model ensures steady
R&D Budget: stream of Cash Flows
Cost Effectiveness: R&D Budget: RE optimization and better promotions
Cost Effectiveness: Knowing assured rentals for any movie, Netflix
can better negotiate rates for the movies.

Physical film rental market grew @ 1.22% where as Digital film rental market grew @ 27.62% yoy from 2007
to 2008. Netflix has right competencies to take advantage of changing market environment and should sustain
in new market space.