Netflix and Consumer Behavior Trends Essay

Netflix, Inc. is a subscription-based movie and television show rental service that offers media to it’s subscribers through on-demand internet streaming and DVD-by-mail service. Since its start in 1997, Netflix has taken the movie rental world by storm, becoming the world’s largest online movie rental service. As of January 2013 Netflix had a total of 29. 4 million streaming customers worldwide (Cohan). Netflix can attribute much of its success to its decisions to follow trends in consumer behavior, while its major competitors, namely blockbuster, sealed their fate by ignoring them. In the following paper I will tell you how Netflix was able to stay afloat while other movie rental companies failed, and gained success by following trends in consumer behavior. Background Netflix was founded in 1997 by Marc Randolph and Reed Hastings. Hastings had the idea for the DVD-by-mail service when he was forced to pay $40 in late fees after returning an overdue video. The company began its operation in April of 1998, with its core business being DVD-by-mail rental service. Besides being one of the first companies to rent DVDs by mail, Netflix also planned to capitalize on the fact that major brick and mortar video stores, such as Blockbuster, did not carry a wide selection of DVD rentals at the time. Netflix experienced much success with DVD-by-mail rentals, hitting the one million subscribers mark in February of 2003, and shipping over 1,000,000 DVDs by mail per day by 2005. In 2007 Netflix introduced it’s Video on Demand Service. This service was extremely successful, eventually making Netflix the number one online video streaming service in the world. Netflix, Inc. History) Consumer Behavior Trends Towards Entertainment There are several key trends in consumer behavior towards entertainment that Netflix was able to capitalize on. The first consumer behavior trend is convenience. The fast paced world that we live in has the average consumer seeking out anything that will save them the smallest amount of time or effort. Therefore, consumers expect entertainment fast, and at their fingertips. The next trend in consumer behavior is to limit spending. Due to the financial hardships our country has been experiencing in recent years consumers are looking to cut cost in whatever way possible. Before making a purchase decision, consumers are looking for a much higher cost/value ratio than they were in the past. The third consumer behavior trend Netflix was able to pick up on is the Smartphone/ tablet trend. According to Business Insider, â€Å"there are at least 165 million active Android and Apple iOS devices in the U. S. and that they are used by 78% of the adult population (Blodget). Today’s consumers are hardwired to participate from anywhere at any time; they use their smartphones for everything they can and expect to be able to do almost anything on it. Having the ability to stream media straight to their smartphones was almost expected by consumers. How Netflix Followed Consumer Behavior Trends Netflix was able to satisfy the consumers need for convenience at first by shipping unlimited DVDs through the mail for a month ly membership fee, instead of making consumers visit a brick and mortar location (Kang). Since then, Netflix has furthered adhered to the consumers need for convenience by introducing Video on Demand streaming in 2007. Through Video on Demand Netflix subscribers have their choice of thousand of new and old TV shows and movies to watch at just the click of the mouse. Customers can stream videos from netflix using a multitude of devices such as Xbox, PlayStation 3, Wii, Roku, their smartphone or tablet, or their computer, making Netflix easily accessible to almost all consumers. Netflix’s decision to incorporate Video on Demand into its service offerings was brought on by two factors- the decline in DVD sales starting in 2006, and the increase in the amount of consumers who were viewing video content digitally through websites like YouTube. These two factors demonstrated a fundamental shift in the way people consume entertainment that Netflix was quick to catch on to (Kang). Netflixs main competitor at the time, Blockbuster, chose to ignore these trends in consumer behavior, leading to its ultimate demise; â€Å"Netflix almost single- handedly wiped out the retail video rental business. Blockbuster went bankrupt last fall (Kang)†. The article â€Å"Why Blockbuster Went Bust While Netflix Flourished† found on Dailyfinance online states â€Å"Netflix’s corporate mindset has been key to its ability to adapt as people started gravitating toward online video streaming. It’s method is to put new technology at the service of customers while keeping a close eye on changing delivery costs and the competition (Cohan, 2010)† Netflix’s strategy of appealing to the consumers need for fast, convenient at home entertainment has proved to be successful. In the fourth quarter of 2012, Netflix reported customer growth of 2. 05 million customers in the United States, bringing its total US customer base to 27. 15 million. According to Brian Stelter in an article written for The New York Times â€Å"Netflix’s fourth-quarter success was a convenient reminder to the entertainment and technology industries that consumers increasingly want on-demand access to television shows and movies. Streaming services by Amazon, Hulu and Redbox are all competing on the same playing field, but for now Netflix remains the biggest such service, and thus a pioneer for all the others. Stelter)† The state of the US economy has caused consumers to seek out ways to cut corners with spending as much as possible. In terms of entertainment, this has lead to more people staying in and watching movies instead of going out as a way to save money (Crutchfield). From the beginning Netflix offered consumers an affordable means to entertainment by charging users a reasonable flat fee to have DVDs mailed to them as often as they want, without any late fees (Cohan). Today, Netflix’s more prominent service, instant streaming video, offers consumers the same affordability as its DVD by mail service. The company provides consumers with a very affordable subscription plan- unlimited streaming movie rentals for $7. 99 a month. CEO of Netflix, Reed Hastings believes that at this price â€Å"people who use it once or twice a month will still find value and come back and those who use it once or twice a week will rave about it to friends (Kim). Due to the rise in smartphones and tablets, and the amount of things consumers use theses devices for Netflix made the decisions to expand their service offerings to smartphones and tablets. In May of 2011 Netflix released a free application consumers can download on their smartphone or tablet that allows them to instantly stream movies and television shows to their smartphone anywhere there is WiFi, as long as they have a subscription (Brown). Consumers were very impressed with the quality of the video streaming Netflix was able to provide via smartphone or tablet, â€Å"Over WiFi viewing is superb– as though you were looking at a DVD not a video streamed off the internet (Brown). † Netflix’s integration with the smartphone and tablet market has proved to be wildly successful, â€Å"The company said revenue of $945 million, up from $875 million in the quarter in 2011, was driven in part by holiday sales of new tablets (Stelter). † The Netflix app Conclusion In conclusion, much of Netflix’s success can be accredited to the actions taken by the company to stay on top of and follow trends in consumer behavior. If the fate of Blockbuster is any indication, the level of attention companies pay to changing consumer behavior trends and the actions they take to be the first to satisfy the needs of those customers has the ability to make or break the company. Despite Blockbuster’s household brand name, Netflix, a relatively unknown company at the time, was able to win its customers by offering them the things they felt of value that Blockbuster did not.