Question

What does your strategic group map of this industry look like? How attractively is Netflix

positioned on the map? please respond in a Case Analysis format.

Answer 1

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What does your strategic group map of this industry look like? How attractively is Netflix positioned on the map?

Your strategic group map would tell me that the two competitive factors are price and availability but would have to add that convenience would be factored in as well. Competitors would include local cable/satellite providers, vendors such as Blockbuster, Netflix, and Redbox as well as local vendors. Currently Netflix is best positioned. Although they don’t have stores, they offer free trials; such is a great marketing technique because most consumers forget to cancel them. Consumers have the option of mail orders, streaming online, which can be done on the go. Netflix also allows customers to steam videos through gaming systems, such as PS3 with a subscription. All inclusive Netflix has an edge over the competition, considering the prices are competitive and the services are convenient.

ALTERNATIVELY:

Strategic group maps are beneficial for determining relative company placement in the industry. A good strategic group map should utilize two strategic variables that differentiate the various competitors in the movie rental marketplace.

Students can choose among any of several strategic variables to divide the DVD rental industry into strategic groups and illustrate the different market positions they occupy. We have chosen to employ breadth of product line (in terms of number/variety of movies offered) and the type of distribution channel or approach to getting the movie rental to customers for viewing. Other possibilities for axes might include scope of geographic coverage and image/reputation/brand name recognition—there is not always one single best strategic group map.

A representative strategic group map is shown in Figure 1 (it matches what class members will be using in the Connect-based exercise for this case).

Once students have come up with a map, then we think you should press them for their evaluation of what we learn from the map. Any of the following questions can be posed to help draw out their views:

• Which company is better positioned—Netflix or Blockbuster? (We favor Netflix because of its lead in migrating to VOD technology and devices for delivering rented movies to subscribers.)
• Which other industry members are well positioned? (Our answer is that companies with the capabilities to be successful in the VOD channel are best positioned.)
• Which industry members are weakly positioned? (Traditional brick-and-mortar movie rental stores)
• Which industry members are likely to benefit from the impacts of industry driving forces? (Movie rental providers that have strong Internet streaming/VOD delivery capabilities)
• Which industry members are likely to be injured by the impacts of industry driving forces? (Traditional brick-and-mortar movie rental stores and movie rental kiosks)

The point here is that students should not stop their analysis with just drawing a strategic group map. The most important part of strategic group mapping is to draw some conclusions about the story the map tells.

On the whole we like Netflix’s position on the map, especially since it can move vertically over time and is rapidly enhancing its ability to migrate to an Internet streaming delivery system. However, Blockbuster is improving its streaming/VOD capabilities, but it trails Netflix in this regard. If Blockbuster got into VOD, it would be a potent competitor in the sense of being able to access the casual DVD movie rental customer (via its large network of retail stores and VOD) and the heavier movie-watching segment (via online ordering/mail delivery, Internet streaming, and VOD)—in other words, it would be positioned in all the delivery channel segments (local stores, movie rental kiosks, mail delivery/return, streaming, and VOD.

We are not particularly enthused about the attractiveness of the market positions of any of the brick-and-mortar-only or kiosk-only movie rental providers. This segment of the movie rental industry seems destined to lose sales and market share in the years ahead because it is most vulnerable to competition from Internet streaming/VOD providers and mail/delivery/return providers.

FIGURE 1

A Representative Strategic Group Map of the DVD Rental Industry

Class members should definitely like the position that Netflix has on the strategic group map shown above, for two reasons. It has both mail delivery and streaming capability. It has a wide variety of titles in its movie library. These put it in very strong position to come out a winner (the clear market leader) as streaming becomes the preferred method of delivery and as in-home movie watchers select a streaming provider.

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