Q:After reading the case Netflix, answer the following discussion question. "What would be your recommendation for Hastings regarding the VOD system (offering)? Why?"

Netflix was founded in 1997. It offered DVD home delivery services to target customers and received very limited competition in the market of DVD rentals. Its indirect competitors are merely those who still sold VHS cassette. Due to complaints about poor delivery efficiency and high fees, it decided to launch the “no late fees” program. It managed to survive during the dotcom boom. However, due to rapid technological development, VOD, pay-per-view, streaming are gaining popularity among customers. Netflix’s services are complained to have limitations in the connectivity between TV and computers. It may lose significant market share if it continues to operate only in the DVD segment despite the fact that VOD is proven to much more potential. For instance, according to the case study, “Most industry observers” believed that the emergence of the VOD technology has already been threatening the traditional Netflix’s businesses. Customers are no longer subject to “selection and impulse rentals” because they can view the videos immediately from the internet instead of waiting for it through mails or home delivery.

As such, one possible recommendation is that Netflix should offer online video streaming at no extra cost to potential and existing customers. Technology is developing very fast so Netflix should keep in pace with times. It should notice that the connectivity and easy to access online contents is the key to business success. Majority of Netflix potential competitors have already taken concrete steps to promote VOD model. Moreover, online video streaming should also be provided at no extra cost. The barrier of entry in the VOD market is not very high. In other words, the competition is very vigorous. Vongo, CinemaNow, etc, are all potential competitors in the new market. Target customers are highly price-conscious. They can switch to other companies if the price is considerably higher. In order to outperform the potential competitors, Netflix should focus more on providing online video streaming services at a much lower price in order to take the cost leadership and develop new competitive advantages. Netflix can even offer one month free trial for VOD in order to build brand loyalty among new customers.

However, one potential problem is that majority of the movie studios are very much concerned about the problem of pirated downloads. As a result, very limited movies or videos are allowed to be released in VOD websites. Besides, the increasing adoption of “Big-screen”, high-definition televisions allow customers to have promising experiences to watch DVDs instead of VODs on their computer. d