Netflix is an online streaming service founded in 1997. It has its headquarters in Los Gatos, California, United States. As an online streaming service, Netflix has seen a lot of growth and success in recent years. The brand enjoys heavy popularity in most corners of the world. One of the main reasons that the company is seeing so much success is the huge amount of original content that is available across a wide variety of genres and languages. This has allowed Netflix to differentiate its services from other online streaming services providers and build a strong source of competitive advantage. As of year-end 2019, the subscriber base of Netflix had grown larger than 167 million. Its services are available across 190 countries and users can watch Netflix shows and movies on their cellphones as well as tablets, laptops, and television.
The growth and proliferation of the internet have also supported the faster growth of Netflix. However, the online entertainment industry is experiencing intensifying competition. Apart from subscription-based online streaming services, social media channels and gaming networks also compete with Netflix. To overcome the competitive pressure, Netflix has focused on generating original content for growing its user base worldwide. The net revenue of Netflix in 2019 grew to $20.15 billion from $15.8 billion in 2018.
This is an analysis of the generic and intensive strategies used by Netflix to find faster growth worldwide.
Generic and Intensive Strategies for business growth:
There are three generic strategies given by Michael E. Porter which include cost leadership, differentiation, and focus. Cost leadership is the strategy of leading on the basis of lower prices as Walmart does. It is the market leader in the retail industry. The second strategy is that of differentiation where you create an outstanding and sufficiently differentiated product to find the popularity and win market share. For example, Apple has followed the strategy of technological differentiation to create an iPhone that is outstanding in terms of features and performance and caters to the higher end of the market. The third strategy is the focus strategy which has two subdivisions – cost focus and differentiation focus. Cost focus is when you reach a specific market segment through a cost leadership strategy. Differentiation focus targets a specific market segment through differentiation.
Generic Strategies adopted by Netflix
The generic strategy adopted by Netflix is a mix of cost leadership and differentiation. While the business model of Netflix is not entirely built around the cost leadership proposition, it has used competitive pricing to reach a larger customer base worldwide.
Cost leadership is the strategy of leading on the basis of prices to gain market share Under this strategy, companies price their products lower than competitors to encourage switching. Lower pricing can be a source of competitive advantage as in the case of Walmart.
The pricing strategy of Netflix is not entirely cost leadership. However, to ensure that customers from all segments can gain access to its services, it has priced them competitively. The company has brought three different plans that allow users access to Netflix content across a wide variety of screens. While there are two higher-priced plans, the company has also brought a cheaper basic plan. This plan allows users to access content in SD and the number of screens on which they can access content is limited to one. The users willing to spend extra can access content in HD as well as UHD and on two to four devices. So, Netflix offers both premium and basic services. Competitive pricing has allowed the company to grow its customer base faster. Cost leadership is a secondary strategy that the company has adopted.
This is the primary strategy Netflix adopted for faster growth worldwide. The company has differentiated its services on the basis of quality and type of content. Apart from higher user convenience and overall improved customer experience, the company has focused on creating a large amount of original content that is not available across other platforms. In this regard, the company has also partnered with several famous vendors. The company invests in technological innovation to offer its users a superior customer experience. It has developed an algorithm called Cinematch that provides its users with suggestions based on their choices and previous activity. This algorithm is known to be highly effective in terms of generating suggestions for the viewers.
Intensive Growth Strategies used by Netflix:
Market penetration is the strategy of selling more to your existing customers. However, this is not the strategy that Netflix has used. The company does not sell other products apart from the subscription and the prices have not changed a lot either over time. It is selling just one service which comes with a fixed monthly fee and without any extra charges.
Market development is the strategy of entering new markets to grow your customer base, Netflix used this strategy initially when it started expanding outside the United States. However, now it has achieved global market expansion and its services are available across 190 countries. Market development is now no longer an option before Netflix. However, more and more new users will join each year which is mainly because of the demographic changes worldwide.
Product development is the strategy of developing new products to gain higher sales and revenue. This is one of the main strategies used by Netflix and it has enabled the company to acquire enormous growth worldwide. Netflix primarily focused on the content it was generating to achieve higher popularity and superior user engagement. The brand has a wide collection of original movies and shows. This has enabled Netflix to differentiate its services from others and build a larger customer base. With time, the number of users that use online sources mainly for their dose of entertainment has grown and this has resulted in faster growth of the user base of companies like Netflix. However, apart from the content that the brand offers, Netflix has also focused on the use of technology for higher user convenience and to offer a better user experience.
Other sources: Netflix form 10k 2019.