III Current Environmental Analysis A Current Marketing

III. Current Environmental Analysis

A. Current Marketing environment

• Economy

Netflix is an American company founded by Reed Hastings and Marc Randolph in 1997 in Scotts Valley, California. It provides its subscribers with streaming entertainment (movies and series) via internet. In 2013, Netflix expanded into film and television production. The company is headquartered in Los Gatos, California and has offices in the Netherlands, Brazil, India, Japan and South Korea.

• Socio culture

With digital tools, internet and online services, a new way of consuming has developed: product customization, unlimited access, speed of acquisition, etc.

Netflix illustrates and perfectly accompanies this change by responding to the needs and expectations of customers. Indeed, the American society provides a video library with very rich choices and unlimited access for those who have a subscription. In addition, entertainment is available on many media (smartphone, computer, tablet, etc.) and respond to the hyper-connectivity demanded by consumers and especially young people, which we call digital natives.

Digital natives have grown up with the internet and have built different benchmarks from previous generations.

Thus, access to content via the internet seems self-evident and is considered free. For them, content piracy seems to them almost natural and not prejudicial. To fight against this same hacking, Netflix offers its subscribers a pricing evolving according to the risks hacking specific to each market. Thus, the more hacking a country encounters, the more Netflix services want to be affordable.

• Technology

Netflix depends on technology, since its mainspring is based on the digital and internet. Also, American society has every interest in being extremely creative and at the cutting edge of progress.

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For Netflix technology is the nerve of war.

Technology is also used by Netflix to make its offer more attractive, more innovative, more personalized to its customers; Netflix offers a smooth and intelligent user experience through a simple and ergonomic software interface. Indeed, by means of artificial intelligence, Netflix is able to know the preferences of its customers and thus offer them a target and adapted offer.

• Legal

Each country has its own legislation. Netflix being present worldwide; it is up to it to comply with the different legislations. The films and series thus offered to subscribers change according to the location of the consumer since the latter, with its IP address, is geo-located. Therefore, the catalog proposed to the customers will vary according to the licenses, the rights of diffusion etc.

B. Current Target Market

• Clients

Netflix today has more than 137 million of subscribers worldwide. To reach this figure, the company has relied on target users that she knew how to seduce. If its potential market represents anyone interested in the watching video content and having access to the internet, almost everywhere in the world, its targets market is focused on the 18-39 age group. This category of the population, Netflix has targeted three distinct typical profiles but sometimes intersect:

– First and foremost, the most important are so called the “digital natives”. They were born in the late 1980 and have grown up in connected world or being connected.

– Second segment on which Netflix strongly relies is that of the families with young children, who were seduced by the selection offered for kids in addition to one that suits their parents.

– Finally, the last target is that of professionals with busy schedules, who they appreciate the convenience of Netflix.

The common point that brings these three groups together is the fact that they are people with variable schedules, for whom television is not suitable because they do not schedule.

• Customer relationship

Netflix today has a modern and innovative brand image. It is highly appreciated by its users who identify with it. The company has even entered in the vocabulary of younger generations with phrase like “Netflix and Chill”, an expression that describes the desire to rest at home by viewing content on Netflix rather than going out.

Platform considered very functional and customizable gives Netflix a corporate image that offers quality to its users. For example, Netflix has a support that works continuously 24/7 but who tends to very little use, the platform adapting to all types of media with ease and being very robust.

• Key Partners

In its business model, Netflix uses several types of partnerships. First of all, to be able to offer such a wide and varied content, Netflix can rely solely on its content creation, and must offer titles from other productions studios. That’s why the company is committed partnerships, to obtain the rights to broadcast foreign content to the company.

The second type of existing partnership is with internet suppliers; Netflix offers some of them to offer their user access to Netflix application on their internet box, for example orange.

C. Current marketing objectives and performance

In order to maintain its position as the world in the VOD market, Netflix has chosen to invest all over the place in original content and to offer it anywhere in the world. If this strategy allows it to find valuable growth driver, it is also very expensive. And the path of profitability outside the united states looks harder than expected.

• Worldwide market, an absolute objective for Netflix

The ambition of the company

Netflix does not hide its ambition to continue growing and conquering the global market. Whether to settle in new markets or to convince relative non-consumers, including marketing and advertising. If the markets have reacted so well, it is because to success internationally is an absolute necessity for Netflix, which is beginning to fell cramped in USA. “The United states is a mature market for Netflix, its margin of progress is low,” says Vincent Teulade a PwC analyst.

Economic potential of Netflix

The market

In theory, the market is almost unlimited, everyone is a consumer of audiovisual and cinematographic products in one way or another. There are no geographical limits, and quite a few absolute non-consumers. However, in practice, not everyone has the technical means to enjoy a streaming service via the internet, especially in developing countries. As a result, the market is changing as technology, internet access and broadband become more widespread. There are also legal constraints related to the legislation of different states concerning the distribution of content and audiovisual works, but also concerning the use of the internet. Today, Netflix has a very important coverage in the global market, and it has grown exponentially in the last ten years.

D. Stage in sales and profit life cycle

Recently the Netflix claims about 117.5 million users in over 190 countries, thanks to 8.3 million new subscribers in the last quarter of 2017, this subscriber gain is the largest over recorded by Netflix in a quarter. Throughout 2017, Netflix has attracted 24 million new users and hopes to attract another 6.35 million in the first quarter of 2018.

Some highlights include growing its streaming revenue 36% to over $11.3 billions, adding 24 million new memberships (compare to 19 million in 2016), achieving for the first time a full-year positive international contribution profit and more than doubling its global operating income.

Growth stage

Netflix had more subscribers than expected in the first quarter, confirming its ramp-up, and announced plans to invest up to $8 billion in series and movies in 2018. So, this confirm that the company is in its growth stage, characterized by a strong growth in sales and profit, and because the company can start to benefit from economies of scale in production, the profit margins, as well as the overall amount of the profit, will increase.

E. Competitive Environment

Competition

The VOD market, in general, is very complex and many actors evolve there. However, it is necessary to distinguish the market of the VOD (purchase/rent) and the SVOD (subscription). The VOD market is drawn by Netflix, which enjoys a monopoly form, and which is estimated to have about two-thirds of the market in 2019. In the global market, the main competitors are Amazon Prime, Hulu Plus and streaming service of HBO. On the French market, canal Play is trying to compete.

Beyond the financial success signed by a market capitalization, support has become a cultural phenomenon: on the one hand by its growing presence in connection with the rise of customers, on the very nature of what Netflix is a producer/broadcaster of content. But al is not necessarily obvious or rosy for the company, as shown by a study of the Porter’s five forces.

Threat of substitution

Very important element from the beginning of the reflection. VOD is a novelty that upsets video consumer habits, which in itself means that it is itself a substitute for the other possibilities. Illegal streaming is one, as are physical media (DVD, Blu-Ray…), television, and movies theaters.

Buyer Power

Given the number of substitute products, we can say that the bargaining power of customers is certain, not in the sense that it can affect the price, already very low, of the Netflix subscription (no more than $11 per month for the most expensive package), but in the one where he can turn to other ways to consume audiovisual products.

Supplier Power

The advantage of Netflix is to be your own supplier when the company produces its original content. Which does not mean that the platform is free, because to produce requires large investments that Netflix assumes for the moment only through very large loans. Debt to the financial “provider” is important.

In additional, for non-original content, negotiation may be difficult with production studios, broadcasting, which can sell expensive broadcast rights or even require exclusivities.

Competitive Rivalry

Netflix has a pioneering posture: it is the one who has launched the VOD market to a great extent, well beyond the more confidential attempts. The platform is therefore a leader and almost a monopoly, with no particularly formidable competitive pressure at the moment.

Threats of New Entrants

However, the success of Netflix puts the VOD market into a real hen with golden eggs. If it can turn out for a potential generalist actor to shake the brand with red typography, a blow is to play for everything related to niche culture. Especially, web behemoths like Amazon, Apple or Youtube do not expect to leave the market to Netflix for a very long time.

F. SWOT Analysis

• Market positioning

As we have previously mentioned it, Netflix benefits from a situation leading market position, with a value proposition that seems to be the most interesting. Indeed, it seems that his offer manages to satisfy the three market characteristics such as diversity, cost and customization.

Diversity

For this which diversity, even if Netflix offers fewer titles than amazon Videos, the company nevertheless remains one of the platforms offering te most complete content.

Cost

In terms of cost, despite recent increase in monthly subscriptions, the amounts remain low and still considered as cheap by users.

Customization

Finally, in terms of customization, the algorithms designed by Netflix on its platform allow it to be able to boast of being at the forefront on the customization.

However, as we have seen, Netflix’s position as a leader market is now being questioned. The upcoming arrival of Disney on this sector, which at the same time is likely to refuse to extend the agreement binding it to Netflix, could cause a decline in the variety of securities proposed by the company. Netflix will therefore have to fight in the coming years, not to move its value proposition towards a perfect balance, but rather will have to try to conserve somehow its current balance despite the arrival of several potential threats.

SWOT Matrix of the Netflix market

We decided to bring out these points with SWOT analysis, available below, which classifies them under four themes: forces and weaknesses, which make to highlight the key facts of the positioning current situation, and the opportunities and threats, which point to the challenges would be put to the company in the coming years.

It appears that Netflix stays on good years during which the company reigned almost unchallenged over the VOD sector and saw its number of subscribers grow at a remarkable speed, notably through its pioneering position of the sector. Netflix is now enjoying a good image of brand and continues to expand globally with this level of new growth opportunities for the future.

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