MacroEnvironmental Change (Business)
MacroEnvironmental Change (Business)
Manycompanies have faced challenges that are externally related and thesefactors are called macro environment effects. They include economic,technological, political and socio-cultural effects and these factorsare usually out of company’s control. When affected by suchfactors, these companies face many challenges in a bid of getting asolution to these challenges. For the case of discussion, we shallconsider Netflix Company and how it was affected by economic factors.
NetflixInc is the largest online movie rental company on the planet. It isbased in Los Gatos, California and it has a selection of over 100,000titles that continues to develop. More so, it has more than 17,000titles available through internet streaming. It is availableinstantly either through a user’s TV with the use of an externalNetflix-friendly device. With its mission, which is “our appeal andsuccess are built on providing the most expansive selection of DVDs,an easy way to choose movies and fast, free delivery”. (Krengel,Dudek, Momboisse, Paik& Martin, 2010) Netflix makes the bestproduct and best consumer, which has made grow tremendously. However,it was once faced by economic challenges, which derailed its growth.These challenges are discussed below.
Changesin consumer behavior
Thesignificant decrease in the number of new cable subscriptions andsudden proliferation of cancellation of the existing accounts posed agreat challenge to Netflix. This was attributed to the fact that manypeople were focusing more on basic needs thus making them cut down onluxury services. These changes in consumer behavior left thecompanies within the pay TV circle to be negatively affected. Netflix Company was such companies that were affected since itsentertainment-oriented.
Thiswas the major economic threat that Netflix faced. Netflix competitorsinclude, Blockbuster, Time Warner, Comcast, DirecTV, Best Buy,Wal-Mart, Amazon, Apple, EchoStar, AT&T and Red box. Thesecompanies got some share of the market, which Netflix could haveoccupied. These companies sold their products at lower price andtheir products were easy to use. This made them dominate in themarket as they attracted most consumers in their business. Forinstance, Wal-Mart and Best Buy continued to command online, brick,and mortar purchasing which got most of the customers. Blockbusterstated that the rental market was worth $10.2 billion thistranslates to 81% of physical rentals (Krengel, Dudek, Momboisse,Paik& Martin, 2010). This means that Blockbuster had eatenmost of the online market leaving Netflix at a freaky marketposition.
Therewas also increased use of set boxes, which had increasedaccessibility and ease-of-use for all entertainment video, from VODservices to online rentals as well as sales.
Highcost of internet
Thishad been attributed to the fact that internet providers are notconcentrated this made them command high prices for serviceprovision. With this, many consumers considered accessing Netflixservices expensive and unaffordable. Consequently there were fewpeople consuming Netflix products since they were unable to affordgetting online and accessing their movies.
Anothereconomic factor that had affected Netflix Company is the increasinguse of televisions as mode of entertainment. There was increasingdemand for consumers for programming on their televisions. Statisticsshows that, 83% of film and television viewers preferred to viewtheir shows on television rather than from their personal computers.(Krengel, Dudek, Momboisse, Paik& Martin, 2010). This shift indemand made the online video rental segment is eaten away at othersegments of the market. This made Netflix to lose most of itscustomers.
Strategiesto cope with the economic challenges
Toaddress the economic challenges, Netflix improvised some strategiesin a bid remain relevant in the market.
Firstly,Netflix liaised with Network providers such as MSO. The ideaobjective was to reduce costs of accessing internet for theirconsumers. The aim was to attract more customers by eliminating thefactor of high internet costs. This made more people to accessinternet at an affordable rate, thus they were able to watch videosonline since high internet costshad been reduced.
Competitionbeing the major challenge affecting Netflix, it however reiterated tothis factor. Netflix reduced prices for their products. Although thismay seem to reduce their profits, this was not the case. Their aimwas to enjoy economies of scale. This was attributed to thestrategies used by their counterparts. For instance the Wal-Mart,which had its products sold at lower price. Instead of Netflixselling few products at a high price, they had opted reducing theirproducts’ prices, which would make them sell more. This madeNetflix to indeed enjoy economies of scale (Krengel, Dudek,Momboisse, Paik& Martin, 2010).
Forthe case of shifts in demand, Netflix made rigorous campaignregarding their products. They focused on improving their marketingskills which by convincing consumers on benefits of onlineentertainment over their counterparts. They used social media tocampaign for products as well as promotion tactics where they gaveout free products.
Justlike any other business, it is evident that Netflix faced economicchallenges. However, they were able to address them with the use ofthe above strategies. These strategies enabled Netflix to gainpopularity it attracted many customers, which lead to its immensegrowth. Thus, even though there are external factors facing anycompany, this should not be the reason for its failure sincesolutions lie within the company.
Krengel,A., Dudek, A., Momboisse, R., Paik, Trish. & Martin, T.(2010).Netflix: Company Analysis. Accessed on 6thApril 2010 from https://mgmtclarity.files.wordpress.com/2010/04/capstone_final_report.pdf