Sequential Optimization in Changing Environments

Question: Discuss about the Sequential Optimization in Changing Environments. Answer: Introduction: Netflix is the American multinational company which provides media streaming and video online services and DVD by mail. Currently it is the leading provider of video streaming to customers worldwide and in the year 2017, Netflix reported over 93 million subscribers worldwide. Since the foundation of Netflix in 1997, the company has expanded internationally through its competitive marketing strategy and focus on innovation. The rise of Netflix has completely the transformed the way audience watch television and seek entertainment (Ir.netflix.com 2017).Its grab on the power of internet proved to be the right strategy step for them to achieve their business goal. Another factor highly responsible for the dramatic rise in Netflixs subscribers is that it has given the audience the freedom to watch shows at their own pace and will. The Netflix platform of video streaming allows varying running times for shows and it has eliminated the concept of season in entertainment. This flexibility in their business model allows shows to take time to get their audience. They have also influenced viewers expectation in entertainment and nearly 60% of Americans now claim that they have watched shows on their own schedule. They have capitalized on changing viewers habit to get success in their venture (Allen et al. 2014). The purpose of this report is to further examine the rise of Netflix in terms of changing technology, operating online, pricing strategies and their way of innovation. Finally the report takes a position on how Netflix is current performing and considers its position in realising their long-term objective in a highly competitive market. Institutional background of Netflix: Netflix is the leading provider of online television network and video streaming with about 93 million subscribers enjoying its service in more than 190 countries worldwide. It provides audience access to a range of TV shows, movies and other special documentaries. The American multinational company was founded in the year 1997 in California by Reed Hasting and Marc Randolf. Since then it has been leading the way for digital content and has revolutionized viewing of television. A year after the foundation of the company, Netflix launched the first DVD rentals and sales site. The second year it also introduced a subscription service for unlimited DVD rentals. It was followed by many other additions in its service like personalized movie recommendation system, online video streaming and many other feature. In the year 2008, Netflix entered into partnership with electronic companies to stream videos on Xbox 360, Blu-ray disc players, TV set top boxes, internet TVs and other connected de vices. By 2010, Netflix became available on ipad and iphones too and it launched its service in Canada too. Since, then Netflix has continued to expand its service internationally in places like Latin America, Netherlands, Australia, New Zealand, Japan and many countries in Europe. By 2016, Netflix became available worldwide in almost 190 countries. The gradual rise in its subscribers worldwide has mostly occurred due to its offerings of independent original content, successful dot-com ventures and rebranding of DVD rental and streaming services. From 2013, Netflix also started hosting its own award ceremonies and also allowed video streaming service on Facebook. Although Netflixs subscribers and income started rising every year, however a sharp decline was seen in the year 2011. It needs to be analyzed how their marketing strategy was challenged by new competitors in the field of video streaming. Changing technology Netflix has played a vital role in transforming the entertainment market. The shift in entertainment pattern has occurred because Netflix adapted to rapid technological change. It has replaced linear TV experience with internet TV which is on-demand and personalized way of entertainment according to customers preference. The partnership of Netflix with electronic providers helped in streaming programmes in smart phones, TVs and other connected devices. Netflixs subscription rate increases because of personalized experience given to consumer. Internet TV apps also gave the scope for frequent improvement updates thus maintaining the innovation in service. Netflix was launched with the hope to utilize internet and other digital technologies into their business objectives. They succeeded in their venture because they did not relied on the traditional brick and mortar store, rather they tried to form on online environment for entertainment (Ir.netflix.com 2017). There are several examples were Netflix gradually started launching new service in connection with internet and latest digital technology. For example it combined the web-based interface with U.Ss postal system to deliver DVDs to customers. With this form of unique and counter-intuitive approach, Netflix managed to stay ahead of other competitors and replaced the leading giants of video rental stores such as Blockbusters and the Lost Weekend. Its initial success was linked to blueprint provided by the retailers, later they shifted their attention to digital delivery model, a new streaming service. It lead to the coming up of the video on demand (VOD). Their adoption to latest changing technology resulted in rise in their subscriber base and about 7 million joined in 2010 itself. Netflixs strong hold on latest technology helped them to become the largest subscriber service in the country. Their expansion internationally became possible as they worked with software manufacturers to hav e those streaming software that is present in most of consumers electronic devices. There was great challenge in adapting to the new technology too as Netflix had to struggle with distribution rights with content providers (Ejumpcut.org 2017). Hence, the rise of Netflix was also associated with some tension and volatility. Operating online Netflix actions directly intersects with recent changes in home entertainment and it reflect how new technology and changing consumers preference can transform the entertainment industry. Netflix was struggling with how to keep up to the expectation of those customers who want to leave their DVD-by-mail service and watch streaming videos. As smart phones and tablets came into the market, viewer wanted to watch videos on their devices rather than sit in front of TV sets (Baugher and Ramos 2014). Introducing online streaming proved to be a controversial move because they had to raise their prices by 60%. The new deal of internet streaming meant customers had to pay more and it lead to drop in Netflix stock. There were negotiation challenges with movie studios and they did not give up on their quest to succeed in online streaming (Forbes.com 2017). Hence they finally decided to create their own content instead of negotiating with others. This move brought positive results for Netflix an d it gained 2 million customers in 2013. Some example of their most popular series includes House of Cards and Hemlock Grove (Ir.netflix.com 2017). Operating online and focus on original programming gave Netflix better opportunity to succeed in their business. By completely including internet in its operation, Netflix could ahead of other industry rivals like Blockbuster. The rise of Netflix mainly occurred because they adapted several business models and utilized innovative digital technology to get an edge over other competitor in the market. It capitalized on the weakness of the traditional video rental service and indentified hidden opportunities to evolve in their services (Gur 2014). Pricing strategies The rise of Netflix is also attributed to smart pricing strategies. When Netflix entered into streaming service, they considered numerous pricing models to introduce the service. Their first strategy was delivering the service through DVD subscription. In that way he wanted to built his library of offering which no other competitors could provide. Hence, only after 10 years of experimentation, it shifted to streaming only option for consumers. Therefore pricing strategy combined with the rise in broadband connections and video friendly smart phones helped in the success of the online streaming venture (Hinterhuber and Liozu, 2014). Netflix offered three pricing package to consumer- basic, standard and premium. The basic package offered one time screening and standard picture quality. The second package offered HD content and access to two screens. The last gave ultimate 4K quality and four screens in single log in (Blogs.harvard.edu. 2017). These pricing levels indicate that by offering variety of price tiers they want to add more value to their service. Hence they offer more values at higher and middle priced tiers. Their main strategy is to add more value to their content and services and raise average selling price slowly (ASP) over time. Netflix ASP is also low compared to other service providers like HBO Now and Sling TV. This underpricing is balanced by consumers subscription rate (Helo et al. 2017). Netflix is now putting more emphasis of original content and has spent $5 billion on content acquisition in 2016. Their new pricing strategy is to raise the expenditure on original spending from 10 % to 50%. They believe that will boost their brand and lead to increased viewing hours. Another motive of taking this step is to provide unique content to viewers compared to other rivals. There is long term vision behind this goals too as Netflix CEO explains that their focus is on original production due to decrease in cost of content production (Blogs.harvard.edu. 2017). Hence they want to take advantage of the demand for original content and also get an opportunity for content licensing. However everything was not smooth and by 2011 they had to raise its subscription cost for which the subscription rate automatically dropped. There might be many reasons for the raise in price but they could have prevented damage to their brand by informing consumers about the pricing change in advance. Netflixs innovation Netflix is a focused brand whose attention is not on all types of generic video streaming but only on movie and TV series entertainment network. Their commitment to improve the form of entertainment through innovative ideas has helped them become a successful firm. Netflix was launched in the 1990s dotcom boom and the main motive of this start-up company was to seize the power of internet and digital technologies. It main innovative moves was shifting from physical store to online streaming services. This helped them to reach a wider group of audience as well as provide customers with innovative viewing experience. Its most innovative venture was the introduction of personalized entertainment system which offered great flexibility to customers regarding preference of videos and control over it. This innovative move naturally was embraced by many subscribers and it lead to the boost in subscription rate of subscribers. Other innovative features launched by Netflix included VOD and partnership with electronic brands which helped them to make their streaming services available both on iphones and ipad. The expansion of the service internationally also provided them with the leverage needed to succeed on a large scale in their business. With the success of Netflix, many new entertainment companies were eager to do partnership with them (Ejumpcut.org 2017). Their main design principle for innovation included the following aspects- thinking big, starting small and scaling fast. Reed Hasting spent $ 10 million dollar a year on video streaming and he let go off small profits to think big and bring innovative thoughts to the forefront. This has helped him to junk those streaming projects which were not feasible. He also started dealing with content providers to evaluate what might work and what might not. Although his mail based DVD system was highly successful, still he thought of thinking big through his streaming video features. With the focus on innovation in their service, Netflix is scaling streaming video fast and maintaining its edge over other competitors. They are scaling fast as they have not attacked its core business in the name of innovation (Harvard Business Review 2017). Future of Netflix in competitive market Starting from the foundation of Netflix to current years, Netflix has seen a lot, tried to evolve, faced challenges and still coping with changes in the highly competitive entertainment market. The question now arise is that what is Netflixs future in a highly competitive market. To analyse this aspect, it is necessary to look into Netflixs long term business objectives and then the strategy can assist them in the long run (Bttger et al. 2016). According to the long-term strategy statement of Netflix, their main focus is on content that people will love. They expect to spend over $6 billion on content for their subscribers and then spend an additional $ 1 billion on marketing to attract customers to the new content. Through the power of internet, they aim to offer variety by learning user interface and individual user taste quickly. They want to fill the home page of their subscribers with titles and videos that they desire and watch out for. They are also putting their bids on subsc ription video on demand (SVOD) rights. They are also capitalizing on the advantage over linear video providers to launch new content. As they are competing for time slots to attract audience, they have the flexibility to nurture their show slowly (Ir.netflix.com 2017).Therefore, they are committed to whole season of a programme and not just on single episode. Looking into the future, Netflix strategy is to move ahead with their slot of original content. They offer unlimited commercial viewing on flat fee. Hence, their long-term vision is to be completely straightforward and their no-hassle online cancellation also depicts this approach. Their service offer flexibility at any time and the personal experience that every customer can enjoy. Their vision for the future is to compete for viewer time against other linear and internet networks. They strive to win viewers moment of joy so that whenever they feel bored and want to relax, they choose Netflix over other options. Based on Netflixs subscription trajectories, the target is to grow to 90 million members in the US. In terms of global expansion, they aim to expand to more countries and remain profitable too. They are confident that with their expenditure on content, they can delight more number of members (Ir.netflix.com 2017). Hence, they aim to keep leading by providing exceptional movi e and video viewing to consumers. Current performance of Netflix Currently Netflix is the leading video streaming provider with about 93 million subscribers in 190 countries worldwide. Due to the impressive growth in subscriber of Netflix, they have declared the best-performing stock in the year 2015. The question is whether they can sustain this momentum and continue to enhance its business. It can be stated that they can maintain their momentum through their hold on subscriber growth (Wu 2017). Although their profit margin is low due to high expenditure on content, however they can still make profit of their subscription rate goes on increasing. Majority of Netflixs subscribers are coming from international markets and the company is doing well in most of the new market that it has joined. It clearly illustrates that the company has build its brand and brand recognitions is giving them the desired results (Davtyan et al. 2016). Another example of Netflixs current performance can be done from its performance in Australia. Since launching its service in Australia, it has garnered 80% video subscribers in 8 months. The growth in such a small time is phenomenal. Hence banking on the value of brand recognition, they are increasing their target for new market entry (Wu 2017). Future of Netflix The entire history of Netflix is defined by abrupt transformation in the entertainment in the industry. First it came as a company that offered DVD by mails to consumers across the countries. Next Reed Hastings foresight to identify high speed internet access as the backbone of media industry helped them to shift to online streaming compared to traditional business model. Despite huge success in online streaming, they also faced competition from big players like HBO and Hulu. However, their focus to deliver original content helped it to differentiate their actions from other rivals and they made a unique brand value for the company (Smith et al., 2017).. The company is now fully committed to roll out original program and the future vision is to provide 50% original content (Ir.netflix.com 2017). Hence with their full focus on original programming and their goal to become HBO faster than HBO become, they have a positive future and they may continue to transform the entertainment marke t. Despite all the positive views regarding current performance, Netflix is also going to struggle with rising content cost and this is mainly due to high competition in the market. This may have an impact on the performance of stock in the coming years. Still there is great probability that they will manage to overcome the challenges in the way because they have unique strategies whereas rivals like Hulu and Amazon are not very aggressive in terms of international expansion plans (Wu 2017). It is predicted that Netflixs stock will shrink and they might struggle with their investors in the future. However, the focus on subscriber growth can take them a long way and help them to achieve their business goals. Conclusion: The strategy and case analysis of Netflix brought into focus the dramatic rise of Netflix in TV and movie entertainment. The description of the history of Netflix gave idea regarding how they started as a DVD-by mail Rental Company and then transformed to online video transforming. They were phenomenal in providing personalized video viewing experience to consumers and with their constant focus on innovation, they managed to get success eventually. The evaluation of the rise of Netflix revealed that their adoption to changing technology, focus on unique online operations, smart pricing strategies and their innovation has made them the leading video streaming provider around the world. Their future vision depicts that they aim to achieve high subscriber growth through investment on original content. Although currently it is challenged by many issues like content cost, licensing issues and rivalry from other competitors, it is predicted that they will continue to inspire others through their focus on innovation and use of digital technology. Reference Allen, G., Feils, D. and Disbrow, H., 2014. The rise and fall of Netflix: what happened and where will it go from here?.Journal of the International Academy for Case Studies,20(1), p.135. Baugher, D. and Ramos, C., 2014. The Relationship of Online Netflix user reviews to days to sale for new DVDs on Amazon.ASBBS Proceedings,21(1), p.68. 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