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Netflix Case Study Analysis - Hbr

Netflix Performance
Netflix is a winner in the home video rental industry. It is successful because of its strong external performance and high organizational health. Netflix’s external indicators show strong growth and profitability. From 2003 to 2006 it had revenue growth of 55% CAGR and operating income growth of 143% CAGR. During the same period its subscriber base grew by 62% CAGR. In 2006, Netflix’s subscriber base of 6.3 million was significantly higher than Blockbuster’s online subscriber base of 2.2 million, which also speaks volumes about Netflix’s performance.
Netflix’s organizational health is high due to several factors. Netflix exercises careful hiring practices. It believes in continuous learning and performed thorough time and motion studies to significantly improve its distribution center operations. For example, its distribution centers utilize individuals who are trained to open and restuff on average 800 DVDs per hour. Netflix’s procurement team is also passionate about movies and has its “pulse on the market.”
Other factors that contributed to Netflix’s success were increased adoption of DVD players and late response from Blockbuster.

Market Segments
There are two segments in this industry. The first segment is the “avid movie watcher” segment. Avid renters like to have a large selection of movies as they are frequent movie watchers. They are price sensitive and prefer longer rental durations with no late rental fees so that they can watch movies at their own convenience. They make movie choices based on reviews and recommendations from other viewers and are more planned in terms of what movies they want to watch and when.
The second segment is the “impulse movie watcher” segment. Impulse renters make last-minute decision to watch a movie. They are occasional renters who rent fewer movies and typically watch newer releases. Impulse renters are not as price sensitive as avid renters because of their low rental volume but do care...