MOVIE RENTAL INDUSTRY Five-force model of competition analysis on the movie rental industry today Force High Medium LowBuyer bargaining power √ Firms in other industries attempting to win buyers over to substitute products √ Supplier bargaining power √ Threat to new entrants into the market √ Strength of rivalry to attract customers among competing sellers in the industry √ The bargaining power of movie buyers is high because they have high sensitivity to prices and they have strength enough to demand for favorable prices and other terms. Customers in the movie industry are many and they keep growing with time.
This is what made Netflix’s customers challenge its management proposed strategy change (Hitt et al 152). The strength of firms from other industries trying to win buyers over to substitute products is low because movie watching is clearly preferred over other entertainment activities. Movies have the advantage that they can be watched either solely or alongside other programs on television. The other advantage with movies is that they come in different media including DVD and Blue ray (Hitt et al 152). Movie supplier bargaining power is low because the decision by one supplier to decline supplying materials or services to movie rental firms would not affect as much because there are multiple alternatives.
For example, if those supplying movie rental firms with materials such as discs on which to write movies or those supplying them with internet services withdraw their services movie firms would use their large economies of scale to contract other suppliers (Hitt et al 153). The possibility of having new entrants in the market of movie business is medium because potential entrants are not many but at the same time the possibility is significant and cannot be ignored.
This owes to the emergence of new options of providing movie service such as live internet streaming through the internet. Under the internet movie service provision option, there exists different alternatives including unlimited and per-view packages (Hitt et al 153). The results of the movie industry analysis indicate that the industry is a viable venture for making profits. This is because movies have a ready market owing to the ever-growing clientele and its diversity in terms of age and taste.
A firm could decide to specialize in either children or adult movie viewership or combine both sections. A movie rental firm could also decide to combine two modes of service provision like Netflix’s live streaming and order by mail (Hitt et al 154). Movie industry is changing in the modes used tending from order by mail to live internet streaming. Emergent technologies are one of the driving forces of change in the movie rental industry. Emergent technologies especially those that use the internet have the capacity to revolutionize movie viewership.
Android applications and personal computers with inbuilt internet accessory devices have brought about the need to modify the availability of movie rental services to suit the convenience of users’ devices. Internet options are a significant driving force of change in the movie industry. Continued changes in the internet service provision have been aiming at increasing internet speeds and reliability. Increase in internet speeds and reliability will increase movie viewership thereby increasing profits for the movie rental industry (Hitt et al 154). The future of the movie industry is tending to the internet especially live streaming.
Whereas there is still a good number of people today who watch movies from television sets, future possibilities are that cell phones will be the primary medium from which people will watch movies. This is evident in fast-growing advancement in the technologies such as smart phone applications that allow users to access internet and watch movies from different sites. Such changes will call for movie rental firms to build, continually, their capabilities in order to meet the diverse needs of their viewership.
Adapting to new technological advances will at first cause ‘movie rental firms’ to incur costs characteristic of new product launch followed by a subsequent increase in profits (Hitt et al 155). One of the key success factors in the movie industry is expertise in internet technology. Movie firms with excellent internet technology will do better than those with without. The brand images of different movie rental firms will play a key role in their success. For example, initially, customers had immense trust for Netflix’s brand image but its missteps caused the fallout of many of its customers.
Companies that will have large economies of scale will compete more favorably than other companies will. This is because large economies of scale will allow them to bear costs of adapting to changing customer needs and losses that could result. Movie firms that will afford their customers the convenience they will need will do better than those that will have poor convenient retail locations (Hitt et al 156). Netflix rented out its movies through both streaming and DVD-by-mail via the same website and in one price package.
Its customers made both orders at ago and they favored its convenience. In 2011, the management decided to separate the package in order to have order by mails done on a website and having a price separate from those of the streaming option. The separation also doubled the price and customers were not happy with the change and expressed their dissatisfaction by terminating their subscription with Netflix. The CEO’s apology and clarification did not save Netflix’s negative customer evaluation of the change (Hitt et al 160).
Netflix tried to resort back to its initial strategy but the damage had already happened and the change could have saved much. It also tried to change the strategy by expanding into other parts beyond USA but met new challenges. For example, new subscribers in Latin America had not embraced internet usage as extensively as those in the U. S had and it was not easy to make them adopt movie viewership without piracy. Netflix’s move to collaborate with television service providers was effective and helped to secure a sizeable subscription that helps to make up for the lost customers.
The reduction in Netflix’s subscription was because of the pride of the management that emanated from confidence that drew from the company’s previous profits (Hitt et al 162). Works Cited Hitt, Michael A, Robert E. Hoskisson, and R D. Ireland. Strategic Management: Competitiveness & Globalization: Cases. Mason, OH: South-Western, Cengage Learning, 2013. Print.