Netflix changes strategy to try and regain share

Netflix has been in the news repeatedly for changing their market strategy, and then changing it yet again, back to what it was. First, it was one company, and raised prices, then it split into two units (still with the higher prices), and now they are one again. Confused? You’re not alone. Consumers and investors are still puzzled, and no one seems happy. No one that is except for the comic geniuses at Saturday Night Live– they put together a comedy sketch poking fun at the company which aired in October:

Let’s start with Netflix’s summer announcements: In July, prices were raised from $9.99/month to $15.98/month for unlimited movie streaming and DVD rentals. However, if a customer wanted only DVDs, that price was $7.99/month for one DVD, and $11.99/month for two DVDs. Customers do not like price hikes! According to various news accounts, Netflix lost anywhere from 600,000 to 1,000,000 subscribers in the three-month period following the July announcement.

In September, in an attempt to placate customers, Netflix released a letter from its CEO that (kinda sorta) apologized to subscribers and attempted to explain its actions. This letter announced the company’s plan to split into two different business units: movies online (still named Netflix) and DVDs sent by mail (named Qwikster). Once again, consumers made their displeasure heard by bombarding the message boards with thousands of messages to Netflix; by some accounts, more than 16,000 messages in the first day of the announcement!

Then in October, Netflix announced that is reversing its previous decision to split the business into two separate units and will remain a single business unit. Marketing strategy needs to be flexible, but this might be taking it a step too far.

Now it is a new year and Netflix is on the move once again, adding subscribers and original programming content. They have replaced 600,000 of the 800,000 subscribers they lost last fall, taking their subscriber base to 24.4 million. They have also invested in producing original content with a new series set to debut in February, launching all eight episodes at once. Netflix CEO Reed Hastings says his company’s strategy is to be “additive to cable, not competitive.”

Group Activities and Discussion Questions:

1. Start by having students examine the Netflix Web site. ( )

  • Click on the “how it works” tab for frequently asked questions.
  • In groups, have students examine competing services from cable companies and DVD rental services such as Red Box.
  • Compare prices and service offerings
  • Discussion questions:

i.      How do these companies differentiate from competition?

ii.      Link market needs to actions, and to marketing tactics?

2. Market segmentation exercise – Divide students into groups:

  • Have students identify different market segments that would be interested in either online streaming alone, DVDs alone, or combined services.

i.      Demographics, psychographics, emotions, attitudes, lifestyle, etc.

  •      2. What marketing tactics can be used for each segment?

3. Market strategy – class discussion:

  • Using the market strategy grid (current/new markets, current/new products), discuss the different strategies that Netflix is exploring.
  • How does Netflix compare to cable TV services?

(Sources: Wall Street Journal, Advertising Age,, Business Week, New York Times, Hulu)

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