Netflix, Inc: DVD Wars

October 24, 2011

We have already discussed the more obvious ways for Netflix to increase its value to their customers through the technology-based advances such as offering more ways to access the unmatched library of available video titles through the offer of VOD, instant streaming, as well as leveraging the customers database and unique Netflix search engine to do better matches to general customer base as well as niche segments.

Even though these strategies seem like the most obvious and promising ways for ensuring company’s continuous growth, we think that Netflix has other intangible assets that should be tapped in and leveraged in order to not just stay competitive, but also to propel it into the future.

One of the greatest assets of the company, besides its enormous selection of video titles and its biggest customer base of any video-by-mail companies, is its brand. Netflix has developed from a novice player in the video rental industry to a prominent contender to such long established and well entrenched companies as Blockbuster and Movie Gallery. And along the way the company has managed to create a very distinct and recognizable brand. As Reed Hastings said in his interview to MotleyFool.com in 2003: “We have got a very clean brand. We have got a brand that really represents something special”.[i]

This clear brand was instrumental in attracting and retaining very loyal and enthusiastic following. To some degree we can argue that the brand has become an icon in the marketplace.  That’s why we believe that Netflix has great opportunities in forging very successful strategic partnerships to leverage that cult-like brand. There are three basic directions where we can see Netflix to be able to benefit from building strategic alliances:

  • Building up on the customers perception of the company being “cool” and “hip”. There are a number of possible partners that are perceived in the same way by the customers.  One of the potential partners, who are also known for their distinct “cultish”brand, that come immediately to mind is Starbucks. These both companies have been very particular about building and safeguarding their innovative and somewhat hip images. Therefore it could prove beneficial for both companies to cross-promote each other to their existing very loyal and devout customers. There is little doubt that these companies can come up with some very effective ways of promoting each other given their creative and innovative character.
  • Building partnerships with technology-driven companies that are working in the area of VOD, but do not attempt to compete in providing content. This would be a beneficial partnership when both companies in the alliance deliver added value through convenience and enhanced customers experience.  The partnership would allow the customers to access Netflix library directly from the internet enabled DVD-players, TV sets, set-top boxes, and game consoles. The companies that should be considered are those that are known to be at the front lines of video entertainment technology: Samsung, Sony, Dish Network, DirecTV, TiVo, Roku, Xbox, Nintendo and the likes.
  • Given the rise of the sustainability and corporate social responsibility issues in the early 2000s, the company should actively seek establishing itself as a good corporate citizen. This could be achieved through many venues, but in the light of building partnerships, and enhancing brand perception the company should select a few high-profile non-profit organizations and actively support their cause through direct donations as well as donations of their services. The most obvious social causes would be in supporting arts, culture, education. As a subset of these partnership activities, Netflix could support local programs in these three most relevant to their core business areas.