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Industry Analysis Using the Five Forces

Essay by   •  August 22, 2011  •  Study Guide  •  650 Words (3 Pages)  •  2,841 Views

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Industry Analysis using the five forces:

1) Supplier Power: Suppliers have great power; analyzing the case I quickly realize that strategic alliances with movie studios is a key factor with this industry. These alliances can cut costs and assure a steady stream of movies. The case points out that it is mostly a relationship-based industry when it comes with studios. Netflix has cleverly dealt with this situation in the way they allow smaller independent studios to use Netflix as their platform for distributing their films.

2) Industry Rivalry: It is a high rivalry industry with a high entry barrier. There are several big companies competing this market with distinct strategies.

3) Substitute Products: There are plenty of substitutes for Netflix, such as: Other DVD rental companies, cable TV, VOD (videos on demand), a night out at the movies and regular TV just to mention a few.

4) Customer Power: As I mentioned earlier it is a highly competitive industry, consumers have a lot of power. Technological advancements and change in consumer behavior can move very quickly, these factors can make or break you as evidenced in the Blockbuster example mentioned in the case.

5) New Entrants Power: New entrants are rare due to massive capital requirements, also the fact that relationships in the industry are needed and nationwide presence is a must. What I can point out is that the real threat may be current players evolving quicker

Is it an attractive industry?

Of course if we look at Netflix's 2006 gross profit it would be a very attractive market, but being able to get there and maintain the high levels of profits is another story. Revising the forces I conclude the following: it is extremely hard to enter, the presence of big players is more then enough to keep entrants away, there are plenty of substitutes, new technologies have big impact on the business model, and as if these were no t enough to keep you away from the industry, seeing what happened to the industries biggest player Blockbuster would definitely make you think twice before entering. In my humble conclusion I state that this will not be an industry that I find attractive.

Question Two

The resource based view theory is looking at the company's resources and from that point formulating a business strategy focusing on creating a competitive advantage through the company's resources. That being said in looking at the resources that Netflix has available to them I identify that their ability and willingness to evolve and maintain up to date with the latest movie watching trends has allowed them to create a competitive advantage, also the creation of the tool of recommendations for their customers, in a way customizing everyone's movie watching experience, has allowed the to differentiate themselves from the rest and create



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