2024S-T3 MAN 6043 -

LEADERSHIP IN
CHANGE
MANAGEMENT 02
(BMIM GROUP 2 &
GROUP 5)
TEAM
ASSIGNMENT 2
NETFLIX CASE
STUDY

DUE: JULY 2, 2024

GROUP H
PRIYESH RAJA
(C0890774)
CHIDINMA
EKWEGH
NETFLIX CASE STUDY: COMPETITIVE STRATEGIES (C0891099)
RACHIT GUPTA
(C0896465)
JASHANPREET
KAUR (C0895584)
JASLEEN KAUR
(C0907408)
SIMRANJEET
KAUR (C0897598)
AMAN NARULA
(C0907419)
Contents
Introduction....................................................................................................................................................2
1. NETFLIX'S COMPETITIVE STRATEGY: COST LEADERSHIP AND DIFFERENTIATION........3
Cost Leadership Strategy.......................................................................................................................3
Differentiation Strategy.........................................................................................................................4
Comparison of Netflix’s Competitive Advantage with Competitors.....................................................4
2. DID THESE STRATEGIES CHANGE WITH TIME? HOW AND WHY?.........................................7
i. Adopting Focus on Content Creation:..........................................................................................7
ii. Global Expansion:........................................................................................................................7
iii. Technological Innovation:............................................................................................................7
iv. Pricing Strategy Adjustments:......................................................................................................7
Reasons for Strategic Changes.......................................................................................................................8
3. WERE NETFLIX’S CHANGE STRATEGIES EFFECTIVE AT DIFFERENT STAGES OF
GROWTH? GIVE REASONS AND JUSTIFICATIONS.............................................................................9
A. Introduction Stage........................................................................................................................9
Effectiveness:........................................................................................................................................9
Reasons:................................................................................................................................................9
B. Growth Stage...................................................................................................................................10
Effectiveness:......................................................................................................................................10
Reasons................................................................................................................................................11
C. Maturity Stage.................................................................................................................................11
Effectiveness:......................................................................................................................................11
Reasons...............................................................................................................................................12
D. Decline Stage (Addressing Challenges).........................................................................................13
Effectiveness:......................................................................................................................................13
Reasons...............................................................................................................................................13
REFERENCES............................................................................................................................................15

Introduction
Netflix, a leading global streaming entertainment service, has transformed the way people consume
media. Established in 1997 by Reed Hastings and Marc Randolph, the company originally began as a

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DVD-by-mail rental service. It launched its website in 1998, offering over 925 titles for rental. Netflix
went public in 2002 at a share price of $15, but its current trading price stands at $660.02 per share as of
June 24, 2024. 1

Netflix's success can be attributed to its agility in keeping up with evolving technologies and shifting
consumer preferences. In 199, Netflix introduced a monthly subscription plan for its customers. The
company has since pivoted from DVD rentals to streaming in 2007 and has now concentrated on creating
its own original contents. Netflix produced its first original content with shows like "House of Cards" and
"Orange is the New Black" in 2011. Beginning in 2016, Netflix had commenced its global expansion to
130 countries and reached 100 million subscribers worldwide by 2017.

As at today, Netflix has over 269.6 million paid subscribers across over 190 nations. 2 The company has
also expanded its operations into areas like mobile gaming and keeps making significant investments in
creating original content. Netflix has caused a major shake-up in the conventional media landscape and
has motivated numerous rivals in the streaming sector. Despite facing growing competition from Apple tv,
Amazon Prime, HBO, Disney+, Paramount, Hulu etc, Netflix remains a frontrunner acknowledged for its
extensive content library and innovative approach to delivering entertainment.

1. NETFLIX'S COMPETITIVE STRATEGY: COST LEADERSHIP AND DIFFERENTIATION

Netflix has positioned itself strategically within the intensely competitive streaming market by leveraging
a blend of differentiation and cost leadership strategies. These approaches have assisted Netflix to remain
1
https://www.msn.com/en-ca/money/watchlist?
tab=Related&id=a1ygoc&ocid=ansMSNMoney11&duration=1D&src=b_secdans&relatedQuoteId=a1ygoc&related
Source=MlAl
2
https://www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-subscribers-worldwide/
#:~:text=Netflix%20had%20around%20269.6%20million%20paid%20subscribers%20worldwide,nine%20million
%20subscribers%20compared%20with%20the%20previous%20quarter.

2
at the forefront of other major competitors like Amazon Prime Video, Disney+, Apple TV+, HBO Max,
and Paramount+.

Cost Leadership Strategy

This is Netflix's foremost competitive strategy. The cost leadership strategy, in accordance with Michael
Porter's model, fosters competitive advantage through reduced costs, enabling the Netflix to provide its
services to its subscribers at a competitive rate.

I glossary look at Netflix’s operation will show how this strategy has been implemented:

i. Economies of Scale: Netflix uses its large number of subscribers to achieve economies of scale,
which in turn lowers the average cost for each user. This enables the company to provide its
services at more competitive prices than certain rivals.
ii. Efficient Content Delivery: Netflix has invested heavily in Open Connect, its own content
delivery network, which has resulted in improved streaming quality and lowered expenses related
to third-party CDNs.
iii. Data-Driven Decision Making: Netflix employs sophisticated algorithms and data analysis to
anticipate viewer preferences and improve content acquisition and production, ultimately
minimizing the chances of expensive failures.

Differentiation Strategy
Although Netflix primarily focuses on cost leadership as its main strategy, it also utilizes differentiation as
a secondary approach. Differentiation entails developing distinct products and services that differentiate
from those offered by competitors. Netflix's differentiation strategy includes:

i. Original Content: Netflix has made substantial investments in creating original content like
"Bridgerton”, Stranger Things," “Squid Game”, "The Crown," "The Witcher," and “Wednesday”.
This exclusive original content is designed to draw in and keep subscribers who are looking for
unique viewing experiences.
ii. User Experience: Netflix's recommendation algorithms provide a tailored user experience by
suggesting content based on each individual's viewing habits and location. This customization
improves user satisfaction and fosters loyalty.
iii. Global Reach: Netflix's broad global reach enables it to offer tailored content to various
audiences around the world, setting it apart from competitors with a less expansive international
presence.

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Comparison of Netflix’s Competitive Advantage with Competitors
A. Amazon Prime Video: Amazon Prime Video combines cost leadership and differentiation
strategies. Nonetheless, Amazon uses its larger ecosystem, which includes e-commerce and cloud
services, to support its streaming service. This enables Amazon to provide competitive pricing
and package Prime Video with other services, strengthening its value proposition.
B. Disney+: Disney+ places great emphasis on standing out by offering a wide range of popular
franchises such as Marvel, Star Wars, and Pixar. The success of Disney's approach depends on its
powerful brand and unique content to draw in subscribers. Unlike Netflix, Disney+ advantage lies
in its well-developed library content library and loyal customer base.
C. Apple TV+: Apple TV+ uses a differentiation strategy centered on producing top-notch original
content and utilizing its range of devices and services. Apple's approach prioritizes providing
premium content that resonates with its brand identity rather than focusing on cost leadership.
D. HBO Max: HBO Max sets itself apart with its high-quality content, such as the highly praised
shows "True Detective,” “Game of Thrones" “Veep” and "Succession." Additionally, HBO Max
has an advantage with access to WarnerMedia's vast content collection. Nevertheless, its prices
are typically higher than Netflix, aligning with its premium status.
E. Paramount+: Paramount+ integrates a strategy of cost leadership and differentiation through its
provision of live TV, sports, and original content. The company's approach involves utilizing its
parent company, Paramount Pictures’ vast contents and offering competitive pricing to appeal to a
wide range of viewers.

Netflix has successfully maintained its market leadership by implementing a dual strategy of cost
leadership and differentiation. Competitive pricing is essential in a price-sensitive market, and Netflix's
cost leadership strategy enables them to achieve this. Additionally, Netflix's differentiation strategy
ensures that the platform remains appealing to subscribers who are interested in unique and high-quality
content.

As of 1st quarter of 2024, Netflix has over 270 million subscribers worldwide, demonstrating the success
of its strategies in attracting and retaining users. 3 Netflix's annual content budget exceeds $17 billion,
highlighting its commitment to producing original content and differentiating itself from competitors.
Netflix operates in over 190 countries, showcasing its ability to penetrate international markets and cater
to diverse audiences.

3
https://apnews.com/article/netflix-subscribers-first-quarter-earnings-2024-d0e9759a1bc73419fb2b5047f216b071

4
The following diagram shows how Netflix's competitive advantage in the streaming industry is
formed by the interconnectedness of its cost leadership and differentiation strategies.

NETFLIX COMPETITIVE ADVANTAGE

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 Cost Leadership Differentiation

Economies of Original
Scale Content

Data-Driven
User
Decision
Experience
Making

Lower Pricing Global reach

Reduced Risk Lower Pricing

Efficient Optimized
Content Streaming
Delivery Quality

Personalized
Exclusive
& Localized
Content
content

2. DID THESE STRATEGIES CHANGE WITH TIME? HOW AND WHY?

Netflix has changed its competitive strategies to keep up with shifts in the market, technological
progress, and what consumers want. In the beginning, Netflix concentrated on both cost leadership and

6
 differentiation, but as the streaming market grew up and competition got tougher, Netflix changed its
strategies by adding the Focus Strategy to its existing ones in the following way:

i. Adopting Focus on Content Creation: Netflix made a significant move towards content
creation by acknowledging the value of unique content and making substantial investments in
producing original programming. This shift in strategic focus represented a major transition in its
strategy to stand out from competitors. Netflix's original content made up almost 55% of its total
viewing hours by 2023. This strategy allowed Netflix to distinguish itself in a competitive market
and decrease its dependence on licensed content from other studios.
ii. Global Expansion: Netflix’s focus shifted to a strong determination in targeting international
markets, adjusting its content, and pricing approaches to match local preferences. The company's
reach extended to more than 190 countries, providing content and user interfaces tailored to
specific regions. This extensive global presence set Netflix apart from competitors that had a
smaller international footprint.
iii. Technological Innovation: Netflix has kept investing in technological improvements to improve
user experience. The company created advanced recommendation algorithms to customize
content suggestions. Additionally, it improved its streaming technology to deliver high-quality
video on different devices and network conditions.
iv. Pricing Strategy Adjustments: Netflix adapted its pricing strategy to tackle market difficulties
and optimize its earnings. New measures were implemented in 2023 to restrict password sharing
and generate revenue from shared accounts. Additionally, Netflix unveiled a cheaper, ad-
supported subscription tier in order to appeal to cost-conscious customers and capitalize on
advertising income.

Reasons for Strategic Changes

The below factors have been identified as the driver for Netflix’s strategic shift to the focus strategy:

i. Increased Competition: Competition has become more intense with the presence of big names
such as Disney+, Amazon Prime Video, and Apple TV+, leading to the need for a greater
emphasis on original content and standing out from the competition.
ii. Changing Consumer Behavior: Netflix adjusted its platform and content strategy in response to
the increasing trend of mobile and on-demand viewing.

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 iii. Market Saturation: After Netflix attained the maturity stage in developed markets, it pivoted to
new opportunities for growth, prompting the company to expand internationally and diversify its
sources of revenue.
iv. Content Costs: Netflix's move towards creating original content was driven by the increasing
expenses of licensed content and the desire to have exclusive control over their programming.
v. Technological Advancements: Netflix was able to improve its service and personalization
capabilities thanks to advances in streaming technology and data analytics.

Netflix has shown its capacity to adjust to a constantly changing market environment by continually
improving its cost leadership and differentiation strategies. This has helped the company to remain a top
streaming service. Netflix's willingness to re-shape its strategy by focusing on investing significantly in
original content and expanding its global presence. This has been essential for its continued success in the
midst of rising competition and evolving consumer preferences.

3. WERE NETFLIX’S CHANGE STRATEGIES EFFECTIVE AT DIFFERENT STAGES OF

GROWTH? GIVE REASONS AND JUSTIFICATIONS.

A. Introduction Stage
Strategy: Cost Leadership and Differentiation

Effectiveness:
 Cost Leadership: Netflix's subscription model without late fees was very successful in the early
stages. This approach focused on a primary consumer frustration linked to regular rental shops
such as Blockbuster, where late fees were a major hassle. The consistent income from
subscriptions helped Netflix improve financial planning and resource allocation.
Justification: The swift increase in the number of subscribers, surpassing 4 million by 2007,
highlights the success of this approach. Getting rid of overdue charges and providing a more
convenient service resulted in a large portion of the market moving away from traditional rental
services.

 Differentiation: Netflix's ability to allow customers to order online and have items delivered to
their homes set it apart from traditional rental stores with physical locations. This advancement

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 attracted tech-savvy consumers and offered a convenience that traditional shops could not rival.
Moreover, the implementation of a customized suggestion algorithm improved user interaction
and boosted customer happiness and loyalty.

Justification: The customized recommendation system, launched in 2000, greatly enhanced user
satisfaction and loyalty through improved user experience. This system was a key factor that
distinguished Netflix from its competition.

Reasons:
 Tackling Customer Concerns: Netflix removed late fees, a major source of frustration for clients
of traditional rental shops. Netflix successfully drew in numerous customers who were unhappy
with the current rental choices by tackling this problem. For example, customers often
complained about Blockbuster's late fees, but Netflix's no late fee policy offered an attractive
alternative.
 Convenience: Convenience was provided through home delivery and online ordering, making it
more convenient than going to a brick-and-mortar store. This appeal to consumers' preference for
ease was a crucial element in the early triumph of Netflix. For example, consumers have the
option to explore and purchase DVDs on the internet from their own homes, offering a unique
and convenient alternative to visiting a physical rental store.
 Personalization: By implementing a personalized recommendation system, user satisfaction and
retention increased as content suggestions were tailored to individual viewing preferences. For
example, the recommendation system employed algorithms to evaluate watching patterns and
propose films and series, improving user satisfaction and promoting ongoing subscriptions.

B. Growth Stage
Strategy: Market Penetration and Product Development

Effectiveness:
 Market Penetration: Netflix's introduction of its streaming service in 2007 was a revolutionary
move. This decision took advantage of the increasing popularity of internet use and streaming
technology, which made content more easily available and attractive to a wider range of viewers.
Streaming has removed the need to wait for physical DVDs, satisfying consumers' need for
instant entertainment.

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 Justification: The significant rise in Netflix's stock value of 3052% from 2002 to 2011 indicates
robust investor trust in the success of the company's market expansion approach. The transition to
streaming services drew in a lot of new users who liked the ease of watching content online.

 Product Development: Launching new and unique content, starting with "House of Cards" in
2013, signified a strategic change that drew in fresh subscribers and strengthened loyalty from
current ones. The exclusive content offered by Netflix set them apart as the sole provider of must-
watch shows and movies not available elsewhere.
Justification: In 2016, Netflix had more than 50 million subscribers, showing that creating
original content was successful in attracting and keeping subscribers. The original content was
crucial for increasing subscribers and standing out from competitors.

Reasons
 Technological Adoption: Netflix took advantage of the increasing use of the internet by
transitioning to streaming platforms. This change improved the service's attractiveness to a
technology-savvy audience and delivered a smooth viewing experience. For example, the
introduction of the streaming service enabled users to view content whenever they wanted,
eliminating the need to wait for DVD deliveries and catering to the growing demand for
immediate access.

 Exclusive Content: Investing in unique content such as "House of Cards" gave Netflix exclusive
series that were not available on any other platform, attracting new subscriptions and keeping
existing ones. For example, Hit TV series such as "House of Cards" and "Orange is the New
Black" drew in many new subscribers and established a devoted audience.

 Consumer Demand: Netflix made their service more appealing to users by meeting the need for
instant entertainment access and removing the delays linked to physical DVD rentals. For
example, the rise of instant streaming catered to the growing need for instant satisfaction among
consumers in the digital era.

C. Maturity Stage
Strategy: Global Expansion and Diversification

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Effectiveness:
 Global Expansion: By expanding its presence to more than 190 countries, Netflix broadened its
sources of income and reduced the dangers of depending solely on the US market. Netflix's
ability to reach a worldwide audience helped the company access different markets and cultural
sectors, resulting in an increase in subscribers. It also allowed Netflix to distribute its expenses
for creating and obtaining content among a greater number of subscribers, enhancing economies
of scale.
Justification: In 2019, Netflix boasted 159 million viewers in the United States and had
established a strong international presence, showcasing the effectiveness of its global expansion
plan. The substantial global subscriber count led to continuous expansion and less dependence on
the US market.

 Diversification: Consistently investing in unique content helped keep the platform exciting and
interesting, guaranteeing subscribers always had fresh viewing options. By incorporating
functions such as offline viewing and interactive content, the service became more adaptable and
appealing to various user groups, ultimately boosting user interaction and happiness.

Justification: The fact that Netflix's market capitalization hit $163 billion in March 2020
highlights its robust market position and the success of its strategy to diversify. Ongoing
subscriber growth was ensured through continuous innovation in content and features, which kept
user interest and engagement high.

Reasons
 Risk Mitigation: By expanding internationally and diversifying revenue sources, Netflix
lessened its reliance on the US market and decreased risks related to market saturation in its
native country. For example, entering the global markets brought in a wider audience and more
sources of income, which counterbalanced any possible decreases in the American market.
 Economies of Scale: Netflix's worldwide growth helped distribute expenses of creating and
obtaining content among more subscribers, leading to lower average costs per user and increased
profits. For example, creating high-quality shows and movies for a worldwide audience allowed
for the expenses to be spread out among a larger subscriber base.
 Innovation: Consistent investment in fresh content and new features helped the platform stay
appealing and interesting, which brought in and kept subscribers. For example, characteristics
like the ability to watch offline and interactive elements, like "Black Mirror: Bandersnatch,"
offered distinct experiences that retained users' interest and loyalty to the service.

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D. Decline Stage (Addressing Challenges)
Strategy: Cost Management and New Revenue Streams

Effectiveness:
 Cost Management: Netflix implemented measures to limit password sharing and introduced a
cheaper subscription option with ads in response to growing competition and financial pressures.
These tactics were designed to change free users into paying subscribers and draw in customers
who are concerned about prices.
Justification: In 2023, the implementation of a plan supported by ads and the enforcement of
restrictions on sharing passwords resulted in a notable rise in subscribers and historic earnings of
$8.187 billion in the second quarter of 2023. These actions efficiently dealt with loss of revenue
and targeted new user segments that had not been reached before.

 New Revenue Streams: The introduction of the ad-supported subscription tier created a fresh
income source from advertisers, enabling Netflix to generate revenue from viewers who did not
want to pay for an ad-free service. This plan increased Netflix's income sources and added an
extra level of financial security.
Justification: Although there was some pushback at first, these tactics effectively turned
numerous non-paying users into paying subscribers, which had a positive impact on Netflix's
financial well-being. The growth in profits and number of subscribers show how these tactics
help Netflix stay strong in a competitive market.

Reasons
 Revenue Optimization: Restricting password sharing and adding a tier supported by
advertisements, has enabled Netflix to reduce revenue loss and increase profits by targeting new
user groups. For example, restricting password sharing increased the number of viewers required
to have their own subscription, while the ad-supported tier offered a budget-friendly choice for
users who are mindful of costs.

 Market Adaptation: Netflix was able to draw in cost-conscious customers who may not have
signed up otherwise by adjusting to financial challenges and competition. For example, the
cheaper, ad-supported subscription option allowed a wider range of people to use Netflix,
including those who didn't want to pay for the regular subscription.

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 Diversification: Creating additional income sources through advertising brought more financial
security and broadened Netflix's revenue streams. For example, the incorporation of
advertisements enabled Netflix to earn money from sponsors, diversifying its revenue streams
and offering financial stability in case of changes in subscriber numbers.

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