BUSINESS STUDIES ASSIGNMENT - NETFLIX

GROUP GAMMA-F
PESTEL ANALYSIS
Political Factors
The USA is one of the largest democracies in the world. Political influence on business is not as severe as
compared to the elections period’s impact. General elections are conducted every 4 years and they are
considered quite fair and less corrupt. The president sworn in may have polices that he/she may wish to
implement which may, in turn, affect businesses. An example of such policies may be higher employment
levels. Businesses would then need to become more flexible in hiring.

The political climate in the US is relatively calm, which allows businesses to operate more freely with
higher stability. This allows for free trade and easier foreign investment from countries such as Brazil,
India, South Africa etc.

Hence, politics plays little part in influencing the large scope of business in the United States.

Economic Factors

The US is the largest economy in the world in terms of GDP. This is the total market value of all products
and services produced in a country within a specific time period. The country had a GDP of $20.5 trillion
dollars as of 2018. This 5.2% increase as compared to 2017 saw firms hire more workers, pay more salaries,
gain more customers because of the GDP by purchasing power the consumers had.

The US is home to some of the largest multinational corporations in the world such as KFC, GE, Ford etc.
Their size and scale of operation enables them to benefit from economies of scale enabling lower average
costs and prices for consumers. Hence, more jobs are created as a result.

When the economic downturn/recession took place in 2009, businesses faced huge losses in business as
many firms laid off their workers. This led to an increase in unemployment which resulted to consumers
not having enough money and therefore, not buying as much. If a recession occurs, businesses tend to
increase prices and lay off more workers. On the other hand, if an economic boom occurs, there is less
unemployment and prices are relatively lower.
Socio-Cultural Factors

The US population has approximately 329million people. There are creation of products and services by
businesses each day in the US to cater for such a populous country. 82% of the population live in the urban
areas. What does this mean for business? It means that more and more businesses are (or will be) based in
the urban centers of the country. More service-based jobs are being created as a result of the urban
population demand. This may come about as the tastes and preferences of the consumers are becoming
more dynamic by the day.

The US is a very diverse country, and to serve the needs of each ethnic groups, businesses need to adapt to
their environment and provide user-friendly products and services. For example, African hair salons are
most likely to be found in regions such as the Bronx in New York. This is because of the majority in the
area, which are African American or of African descent.

Factors such as age also play a crucial part in business. For instance, fast food chains and restaurants are
more likely to target a region with a relatively younger age, as it is more appealing to the younger
generation as compared to the older generation who are very health conscious.

Hence, businesses must take demographics into consideration when identifying a target market.

Technological Factors

The US is known as the global leader in science and technology which is influenced by companies such as
Apple, Google, Microsoft, Amazon etc. Such technological firms have led to the increased wants and needs
met of Americans and businesses in general.

Advancement in technology has led to innovation in business. An example would be Uber- the taxi serviced
business. Technology has led to increased start-ups due to the little capital required as compared to other
alternatives. For example, blogging channels, online marketing, web design etc have benefitted from the
advancement in technology as there are less restrictions and barriers to entry are relatively lower.

The advancement of technology has enabled businesses to replace human labour with computer jobs or
machine jobs such as use of the combine harvester which is used in farming. This means that businesses
hire less as compared to the industrial age. Instead, businesses aim to invest in more technology rather
than human resources.

Hence, businesses continually must keep up with current technology to ensure they get relatively high
productivity.
Environmental Factors

The United States is one of the largest countries in the world by area. It serves various geographical regions
which experience different weather conditions. For instance, Texas is known to be one of the hottest states
in the US. Businesses in Texas must adapt to the environmental aspect of weather. This affects business
operations on a day to day basis.

Businesses that deal with air conditioning systems and fans are expected to increase because of the
increase in global warming and climate change. Businesses must learn to adapt and cope with this. For
example, car manufacturing companies might try to help the environment and community by providing
energy-efficient vehicles for its customers.

Industrialization greatly impacts the scope of the environment. The United States is one of the largest
manufacturing economies in the world. This means that there is continuous pollution and emission of
greenhouse gases. This plays a significant role in environmental conservation measures. This affects the
location of many businesses and the consumer reachability.

Legal Factors

In order to operate, businesses must conform to the legal requirements in their state of operation. In the
United States, each state is governed by varying sets of state laws and regulations. The state laws
sometimes differ from each other. For instance, the KFC at Kentucky has different legal requirements for
operation compared to the KFC in California. Businesses operating in any state must comply and adhere to
the stated operational laws. These may include licensing, taxation, community guidelines, equality,
ergonomics, consumer rights, minimum wage etc.

Such factors affect businesses as they build a plan in line with the legal obligations stated. Failure to adhere
to the legalities may bring about serious implications to the business.
PORTERS 5 FORCES ANALYSIS

Bargaining Power of Suppliers

Bargaining power of suppliers means the ability of firms to control the prices at which the suppliers provide
products/ raw materials to them. A higher bargaining power generally makes an industry less attractive
and trims down the amount of profit a firm can make and a lower bargaining power generally augments
the magnitude of the profit that can be generated.
The bargaining power of suppliers of Netflix’s content is considerably high due to Netflix not creating much
of its own content, rather relying on licenses and agreements made with the creators of the content. Many
of these licenses last just a certain period of time and thus whenever the period is over, Netflix may have
to bend over to the demands of the supplier in order to keep airing their content, especially if the
supplier’s content contains ‘fan favourites’ which if were lost would make the demand of Netflix reduce
considerably.
A lot of streaming services also get their content from the same networks. This leads to a few suppliers and
a lot of buyers thus creating a high supplier bargaining power which works to the demerit of Netflix.
To reduce the bargaining power of their suppliers, Netflix would have to make some changes in its current
working strategy which would comprise:
1) Creating a network of suppliers that would totally depend on Netflix to have their content aired.
2) Create more of their own original content to be aired as opposed to depending on content that
other firms created.
3) Find more suppliers to choose from, so as not to be limited by a few suppliers which leads to them
giving in to their demands.
4) Find out all information on the market so as to have more knowledge to avoid being taken
advantage of by the suppliers.
5) Increase their buying power- Netflix should buy more/ Have more contracts in bulk so as to reduce
the likelihood of suppliers being overbearing as most firms would not want to lose a large buyer, so
would more likely give in to buyer’s demands.

Bargaining Power of Buyers

Bargaining power of buyers is the extent to which consumers are able to pressurize firms/suppliers to yield
into their desires specifically aiming at the price of products the suppliers provide. A higher buyer
bargaining power would mean less profit for the supplier and is thereby not attractive to suppliers while
lower buyer bargaining power would translate to higher profits thus is attractive.
Netflix is attractive to many due to the low price-many alternatives approach on provision of its services.
This also means that a lot of pressure is put on Netflix to provide the best content for the lowest prices,
thus having an effect on profitability and market position as a slight increase in price would lead to losing a
large number of their customers
Many of Netflix customers tend to watch the same type of shows. This leads to customers dictating what
Netflix provides and sometimes who they get it from. This could lead to lower profitability as some shows
that the customers want may be highly priced or challenging to acquire viewership rights to.
Switching costs in the industry are relatively low. Netflix offers no cancellation fee thus one can simply
choose a new supplier for the service easily. Netflix has attempted to upsurge the switching cost by
creating some shows that one can only find exclusively on Netflix. It has also tried to do this by giving
better prices or delaying price increases to a later date, for long-time customers.
Netflix consumers also have lots of choices in the industry to consume from. This gives them a high
bargaining power as there are many suppliers in the market thus making it easier for consumers to opt for
other choices in place of Netflix. Netflix has been able to make it arduous for their customers to choose
other providers, by providing their own original content that can solely be found on Netflix and not on any
other streaming site.

Threat of new entrants

Netflix is recognized in the movie and television industry. In future, online streaming is likely to intensify.
Many new online streaming entrants such as Sony crackle, Vudu, Popcorn flix and Snagfilms are current
competitors entering on-demand streaming market to maintain market share and competence in a
changing media environment.
The new entrants to digital streaming have a competitive advantage in amount of content they already
have. Netflix may face new entrants within its sector, but it still remains unclear whether these new
entrants are a threat to them. This is because Netflix has an established reputation, brand equity and it has
already dominated in the digital streaming market. Another reason is that, some new entrants are only
available to customers of certain television providers, while Netflix is available to anyone within internet
access. Lastly, due to its vast amount of content, ease of access and predominant market share, it enjoys a
competitive advantage over its new entrants.

Threat of substitutes
Substitute products for digital streaming may include, satellite and cable television, DVDs and movie
theatres. After video streaming became popular means of accessing content, there has been a decline of
cable and satellite subscribers. The decline in popularity for traditional media outlets and a rise in
popularity for digital streaming lowers the threat of substitute products.
Although many of these substitutes offer benefits not offered through Netflix. For example; Movie theartes
provide an immersive viewing experience and provide viewers an opportunity to view movies immediately
upon release. Cable and satellite offer appointment viewing, where viewers view live events on certain
television and satellite networks.

Although many substitute products for on-demand video streaming are declining, they will remain ever
present in the entertainment industry and remain a threat to Netflix. Besides that, ondemand streaming
will continue to grow in popularity, thus the threat of substitutes may reduce. However, with the rapid
changes in technology Netflix will likely face threat of new substitutes in the future.
Competitive Rivalry