Business, Management
Updated on Updated on by Alex Williams
Netflix’s competitive strategy and growth strategies define the operational activities and tactics for developing the business. The competitive advantages based on the company’s generic competitive strategy support competitiveness against many large firms in the entertainment industry. Netflix’s intensive growth strategies use these competitive advantages to grow the business, such as by competing to grow the company’s market share. The company’s strategic objectives indicate the importance of low costs and a large international subscriber base. The combination of Netflix’s competitive strategy and growth strategies ensures that the company improves its financial performance and finds new ways to generate more revenues.
The appropriateness of Netflix’s competitive strategy depends on the industry situation and the competitive environment. The company’s strategic prioritization of cost effectiveness for competitive advantage is based on the industry environment where many firms compete based on price. As a result, Netflix’s growth strategies prioritize market share growth to ensure profitability despite low-cost measures.
Netflix’s Competitive Strategy
Netflix’s competitive strategy is cost leadership, which functions as the primary strategy for the company’s competitive advantages. According to Porter’s model of generic strategies, cost leadership ensures competitive advantage based on low costs that can be used to offer competitive prices to the company’s target customers, e.g., subscribers. The cost-based nature of this competitive strategy has wide-ranging effects on Netflix’s strategic objectives. For example, competitive prices facilitate market reach maximization, which is a strategic goal based on Netflix’s mission statement and vision statement. Low costs enable profitable operations despite low prices, which attract more subscribers around the world. This means that Netflix’s competitive strategy of cost leadership facilitates endeavors for growing the company’s market share.
Netflix also uses differentiation as a secondary competitive strategy. The goal of this strategy is to develop competitive advantages based on factors that make the company stand out when compared to rivals. For example, as one of Netflix’s competitive strategies, differentiation is implemented in the production of original content (movies and series), which ensures the company’s competitive advantages by retaining subscribers who prefer to watch content that is not available from competing video streaming services. These competitors include the entertainment production and streaming services of Disney, NBCUniversal, and Sony, as well as Google’s (Alphabet’s) YouTube, Apple, Amazon, Microsoft, and Facebook (Meta). The Five Forces analysis of Netflix demonstrates that these companies’ competitive strategies create a challenging industry environment. Netflix’s competitive strategy of differentiation helps address this competition and its strategic challenges.
Netflix’s Growth Strategies
Netflix’s growth strategy is market penetration, which is the primary driver of the company’s growth and expansion in the international market. In Ansoff’s matrix, this intensive growth strategy’s objective is to grow the business by selling more of current products to the company’s current market. For example, Netflix aims to gain more subscribers through its current operations in North America, Europe, and Asia. A bigger market share equates to higher revenues and a bigger market presence that can be used to launch new products. For this intensive growth strategy of market penetration, the competitive advantages enumerated in the SWOT analysis of Netflix are used to penetrate markets and gain market share despite competition. Also, the generic competitive strategies of cost leadership and differentiation enable attractive pricing and unique entertainment content, respectively, to attract more subscribers for this growth strategy of market penetration.
Netflix also uses product development as a secondary growth strategy. The Ansoff matrix states that this intensive growth strategy involves offering new products to the company’s current market. In this case of Netflix’s growth strategy, the company’s strategic objective is to produce new original movies and series, which are new products for current and new subscribers in current markets. New original content makes the company’s streaming service an attractive option for customers. The requirements of product development as an intensive growth strategy apply to Netflix’s operations management, such as in maximizing productivity in producing new movies and series. New entertainment content resulting from the application of this growth strategy contributes to uniqueness that enables the company’s generic competitive strategy of differentiation.
Netflix applies diversification as a minor growth strategy with a limited impact on the company’s current business growth. In Ansoff’s matrix, this intensive growth strategy’s objective is to produce new products for new markets. In this case of Netflix’s growth strategy, product development involves offering entirely new products other than the company’s initial core offerings. For example, the company now offers mobile games. The mobile gaming market can support new business growth by attracting gamers, especially those who do not yet have a Netflix account. As a growth strategy, diversification involves new teams, groups, or divisions in Netflix’s organizational structure (business structure), which influences the availability of resources for implementing this growth strategy. The generic competitive strategy of differentiation ensures that these new products are unique. Also, Netflix’s competitive strategy of cost leadership determines the cost structure and limits for these new products’ competitive advantage based on low costs that translate to affordability.
References
- Gómez, R., & Munoz Larroa, A. (2023). Netflix in Mexico: An example of the tech giant’s transnational business strategies. Television & New Media, 24(1), 88-105.
- Iordache, C., Raats, T., & Mombaerts, S. (2023). The Netflix Original documentary, explained: Global investment patterns in documentary films and series. Studies in Documentary Film, 17(2), 151-171.
- Leppänen, P., George, G., & Alexy, O. (2023). When do novel business models lead to high performance? A configurational approach to value drivers, competitive strategy, and firm environment. Academy of Management Journal, 66(1), 164-194.
- Netflix, Inc. – Form 10-K.
- Netflix, Inc. – Long Term View.
- Netflix, Inc. – Top Investor Questions.
- U.S. Department of Commerce – International Trade Administration – Media and Entertainment Industry.
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