Netflix Value Chain Analysis
1. Introduction
Value chain Analysis visually describes various business activities and processes involved in creating a product for gaining a competitive advantage. Value chain analysis covers the complete lifecycle of creating a product or performing a service. Michael Porter coined the concept of value chain analysis in the 1980s in his book The Competitive Advantage: Creating and Sustaining Superior Performance. Netflix Value Chain analysis is an interesting study because of the company's innovative business model based on digital content sales.
A comprehensive value chain analysis allows the companies to determine what activities efficiently convert the inputs into final products or services and help the company gain a competitive advantage.
2. Background of Netflix
Hastings and Randolph founded Netflix in the late 1990s. Its business model was based on offering movie rentals over the internet as the internet was booming in that era like a wildfire. It matured into Netflix.com eventually in over a year. As a way to offer movie rentals over the internet. At this time, it focused on DVD rentals and sales. Later, they became a subscription service that charged once a month for unlimited DVD rentals.
3. Netflix Primary Activities
Porter's value chain model is based on five primaries and four secondary activities. Primary activities aim to create profit and value in the business that exceeds the cost incurred on developing products or services. Five primary activities in Porter's value chain analysis are:
- Inbound Logistics
- Operations
- Outbound Logistics
- Marketing and Sales
- Services
Inbound Logistics:
Inbound logistics in the Netflix value chain are related to receiving, storing, and disseminating the inputs of the products. Now, the information in the Netflix value chain is digital media. Netflix has strong relationships with the content developers like WarnerBros and others. Content developers and Netflix have come to a middle ground for more significant profits. The digital content companies provide their media to Netflix at optimum costs, so Netflix gains and increases its profits. At the same time, Netflix gives easier access and marketing opportunities to the media companies so that they gain a competitive advantage by making their movies blockbusters.
Operations:
In Porter's value chain analysis, operations are the processes or services that transform inbound logistics into outbound logistics. The key terms here are efficiency and cost-effectiveness—Netflix stores all its content on its servers. So the ease of access, quick search, stability, and security of the server is the primary concerns.
Netflix uses cloud architecture on its servers that store the content. Users can connect to Netflix servers through multiple devices. Cloud architecture provides a reliable foundation for all these operations. It includes searching and organizing features.
Outbound Logistics:
Outbound logistics are the activities related to the distribution of products or services to the customers. It is a broad term encompassing product delivery, storage, and distribution both internally and externally. The Netflix value chain model includes wholesalers and retailers order fulfillment, distribution, scheduling, processing, and storage.
The company operates a digital media rental business. In that case, the outbound logistics include services that deliver digital media to customers through downloads or streaming.
Marketing and Sales:
Netflix marketing is an innovative, agile approach based on brand development through customer relationship management. Constant analysis and optimization are the foundation of marketing the Netflix model.
In the last few years, Netflix has increased its marketing budget drastically. In the year 2019, Netflix spent 2.65 billion USD on marketing endeavors alone. It included promotions and advertisements to expand the customer base.
Service:
Netflix delivers its products and services online. Therefore, the after-sales services need to be quick yet robust. It includes a wide range of activities, including training, part supply, installation services, repair of products, and post-sales maintenance.
Netflix provides customers with the best and prompt after-sale services. Its support team helps customers with their queries in real-time, which may include account issues or payment issues. Since the company's operations are spread worldwide, it is crucial to be available 24/7 and in many languages to connect without any problem.
4. Netflix Support Activities
Support Activities in Porter’s value chain analysis are aimed at supporting the company's primary activities. Support activities are divided into four categories including:
Infrastructure
Firm infrastructure support activities consist of activities such as – planning, general management, quality management, legal services, along with finance and accounting.
Firm infrastructure activities in Netflix value chain analysis are managed through diversification and distributed management. Since there are no brick-and-mortar stores, the business model is somewhat different from the typical businesses. The transactions are online, and the products are digital, so data security and management are critical. The finance and planning at Netflix are managed at the corporate level. The quality management, accounting, and legal issues are looked after at the business unit level.
Human Resource Management
Netflix human resource management is based on employee participation and rewards. Netflix is very supportive of its employees and includes them in all decision-making. The reward programs for employees are also an excellent incentive for them. Employees must involve themselves in innovation and provide superior customer service for the company to grow. Effective HR management has gained an edge over Netflix.
Technology Development
Netflix is committed to giving its customers the most advanced and the best user experience for a reliable online video rental service. Netflix's complete business model is based on advanced technology. It uses cloud infrastructure to perform all its operations. Similarly, the company invests a lot in research and development aimed at creating value for the business. This is the basis of a company's competitive advantage.
Procurement
Procurement in Netflix value chain analysis involves obtaining copyright licenses for the digital content it sells. Netflix makes sure that it has access to original and in-demand content. An example of competitive advantage by procurement is the Friends TV series. It paid around a hundred dollars to acquire the copyrights for this popular series.
Netflix also creates original content creation. This way, Netflix attracts more value and more customers.
5. Key Takeaways
Netflix value chain analysis is based on primary and secondary activities to gain competitive advantage and set differentiation basis. Netflix has earned tremendous profit because of the efficiency of its value chain to gain a competitive advantage. So far, we can say that no other digital media company has come close to the success of Netflix. It would be best if you gained insight into Netflix's value chain analysis to learn more about value creation. A visual tool is the best way to analyze the model. EdrawMax Online is an excellent tool for creating and studying value chain analysis for different scenarios and companies. It has a comprehensive library of pre-built templates that you can use for a robust foundation for your diagrams. Also, you can find substantial value chain templates in our template community to have a quick start.
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6. References
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Netflix Value Chain Analysis | BStrategy Insights. Accessed August 25, 2021. https://www.bstrategyinsights.com/netflix-value-chain-analysis/
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NFLX - Netflix Inc Company Profile - CNNMoney.com. Accessed August 25, 2021. https://money.cnn.com/quote/profile/profile.html?symb=NFLX
