MBA+520-+Netflix+and+EHarmony

===[|__NetFlix and eHarmony__] === Please consider the following questions in preparation for our discussion next week:

__NetFlix:__

1. Why was Blockbuster so slow/ineffective at reacting to NetFlix?

PH Comments: Blockbuster failed to recognize the reality of the threat of Netflix; their ignorance allowed them to deny the circumstances of a changing business environment driven by the demands and needs of their customer base. They made a bad choice.

Lena Blockbuster thought that online DVD rentals were a niche market. They did not consider online videos a “threat,” and took too long to create a strategy to deal with the changing industry trends.

GA Blockbuster didn’t think that online sales would be a threat.

CG DVD online options were viewed as nonthreatening. Blockbuster underestimated the popularity of this option for its consumer base. Time is a critical factor because they failed to act quickly and with appropriate measures which made catching up to Netflix impossible.

NH Blockbuster was slow at reacting to Netflix because they were rigid in the way they did business. They had stores that you had to go to to rent movies. That was their business model. Netflix designed their model completely different from Blockbuster. When Blockbuster tried to react, they realized that they weren’t set up to be efficient with DVD by mail. Similar to how other companies trie to compete with Dell’s model and failed

2. What are the sources of NetFlix's competitive advantage? Why has  no other major player arisen to compete directly with them?

PH Comments: NetFlix developed a new “package” that yes toke time, but provided something new in a stagnant business. Customers had a expanded choice of movie selections (attributed to NetFlix’s vast library and profile database), customers had a greater sense of value and control over the subscription plan, and NetFlix had a great and timely distribution system (through a partnership with the USPS).

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Competition has been to late in establishing itself in the mail order DVD movie rental industry.

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Lena <span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Netflix was one of the first companies to offer the option of online videos, which put them at an advantage. They also considered different ways to compete against their competitors (redundant, sorry), and that way could develop a competitive advantage. The personalization factor made them the most viable to customers as well as other companies (when they chose to partner with them). Also, they found a flaw in their shipping techniques and perfect it by partnering with USPS.

<span style="background-color: #ffffff; color: #8e7cc3; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">GA <span style="background-color: #ffffff; color: #8e7cc3; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Netflix had a competitive advantage because it could offer a wider array of DVD’s. It also suggested titles according to the customers preferences. At a later time it was able to make deals with the studios which helped keep costs down.

<span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">CG: <span style="background-color: transparent; color: #cc0000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;"> Established in 1997, Netflix entered the US movie rental market with the aim of catering to the entertainment needs of the time-constrained US consumers. Netflix emerged as one of the first US companies to offer DVDs by mail, provide customers with ‘no late fees’ feature and give them the freedom of receiving and returning DVDs from the comfort of their homes.

<span style="background-color: transparent; color: #cc0000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Points: <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- wide array of choice <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- no fee rental <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- streaming option <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- varying price packages that were competitively priced <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- advantageous agreements with mail carriers and movie producers

<span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">NH: <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- no late fees <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- distribution centers set up regionally so there could be next day delivery. <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- personalized queues <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- lower shipping costs due to partnership with USPS <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- warehouses were less expensive than opening up stores <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- due to queue they could predict demand <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- didn’t have to worry about stocking stores <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- was able to procure older movies for less costs and persuade customers to rent them

<span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">No other major threat in the DVD by mail market has arisen because it is difficult to mimic their structure. They are so entrenched in different regions and have developed the software to keep customers content.

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">3. Should NetFlix be worried about RedBox? Why or why not?

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">PH Comments: NetFlix should always be worried about the competition. RedBox offers convenient DVD services at prime locations; and especially after the recent announcement by NetFlix to create a spin-off Quickster, some customers will probably switch over the RedBox for convenience and security. However, the VOD is predicted to have a strong future market and I believe that convenience of not leaving the house and the expanded choice selections will win out over the long run; as long as NetFlix is able to maintain competitive pricing structures for subscriptions though the studios. With respects to RedBox, I found there web site to be slow, inaccurate and having a limited library on several searches.

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Lena <span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Yes, Netflix should be concerned about RedBox as the service they offer is still in high demand. Not to mention, with brand loyalty (when it comes to RedBox), if RedBox decided to pursue VOD they already have a large, supportive customer base. Currently, customers are switching from Netflix DVD by mail to Redbox (because of the price hike), which is also something to be considered.

<span style="background-color: #ffffff; color: #8e7cc3; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">GA <span style="background-color: #ffffff; color: #8e7cc3; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Netflix should be worried about redBox. It is very easy for the shopper to pick up a movie from RedBox while shopping. There also isn’t much overhead cost associated with redBox. The cost of the machine, DVD costs and probably some Corporate support. It can be an impulse rental when a shopper sees it in the store. A person can also reserve the rentals online and pick them up at whatever redbox he or she wants.

<span style="background-color: #ffffff; color: #cc0000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">CG <span style="background-color: #ffffff; color: #cc0000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Redbox’s strengths lies in it’s cheap pricing and convenience to shoppers who are already at the market and at places where they frequent, such as CVS. I think that Netflix has the convenience of online services and streaming and Redbox cannot compete with these features. Netflix will lose customers who take advantage of the physical convenience offered and with the recent price adjustments of the DVD plans with Netflix, more customers will find alternatives to reduce expenses.

<span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">NH <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">No. RedBox offers new movies by DVD. Their market is impulse renters. This is similar to people that would go to a Blockbuster to rent a movie. True, rentals are just $1, but their selection is extremely limited. Furthermore, most of the titles they offer are new movies. This has been a segment that NetFlix shied away from due to the cost of obtaining the titles. Due to those two reasons, those customers aren’t really the customers that Netflix has been going after.

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">4. What are the key threats to NetFlix's competitive position?

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">PH Comments: The greatest physical threat is the potential failure/or reduction of services by the USPS. Also, the threat, like Blockbuster, of being ignorant to the changing environment has the potential for NetFlix to miss the changing demands of the customer that are being shaped by the changing landscape of technology.

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Lena <span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Other competitors offering the same service is a big threat. While Blockbuster did not follow Netflix’s lead, there are other competitors who can embrace Netflix’s poor image right now and do so. There are so many things like Amazon On Demand that can lure Netflix’s customers away.

<span style="background-color: #ffffff; color: #8e7cc3; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">GA <span style="background-color: #ffffff; color: #8e7cc3; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">The postal service cutting deliveries or personnel so it takes longer to sort mail. Netflix also needs to watch out for new competitors that can deliver services to the tablets or phones....

<span style="background-color: #ffffff; color: #cc0000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">CG: <span style="background-color: transparent; color: #cc0000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">In a niche market like the movie rental business, it is critical to stay abreast of competitors while focusing on the target customers. Garnering popularity, Netflix continued to climb the ladder of success with nearly 7 million subscribers in 2007. However, with strong competitors like Blockbuster Inc. and Wal-Mart foraying into the DVD-by-mail territory, Netflix faced stiff competition in its own turf. Further, with Amazon.com and Apple Inc., raiding the rental industry with their movie downloading facility, the challenges for Netflix intensified. The growing piracy culture amongst the US consumers, raises questions on the company’s survival in the long run. These growing apprehensions also raise doubts on the long-term survival of Netflix.

<span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">NH <span style="background-color: #ffffff; color: #ff9900; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">VOD.NetFlix has continued to do DVD by mail the best. Their website is quick, easy, and lets members save what DVDs they want to see next. The biggest threat is going to be competition in the VOD market. It is a lot more expensive to due business in that arena and there is a lot more competition. As explained in the case, to get rights to newer movies to stream is of significant cost. Netflix needs to continue to try and get older titles to be able to view streaming and to promote lesser known movies. They aren’t going to be able to stream newer movies.

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">5. Please read about the current situation at NetFlix by scanning recent news articles. Do you agree with the firm's moves? Why or why not?

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">PH Comments: I think their decision to spin off Quickster was a mistake. The DVD market still and will continue to hold value in today’s marketplace. Pushing off the DVD business to a separate company infuriated the NetFlix customer base. Many customers have both a PS3 and a DVD player, for NetFlix now to tell them they need to have two separate memberships will cause a revolt by a decent portion of its customer base.

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;"> Lena <span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;"> Their approach to first the price hike and then the company split could have been handled more smoothly. It’s almost like they didn’t even consider the PR perspective before releasing their statements. They also did not transition these decisions very well, instead of building up the idea they just (almost out of nowhere) decided to divide the company.

<span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;"> CG: Netflix’s recent agreement with DreamWorks Inc will provide customers starting in 2013 with movies and shows created by Dreamworks and marks the departure of a major studio from traditional agreements. This is one of the positives moves made by Netflix which could earn it firmer ground in this competitive industry. Although recent company split and price plan increases have caused a loss of customers and revenue.

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; vertical-align: baseline;">__eHarmony:__

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">1. Which strategic option presented in the case should eHarmony pursue? Why?

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">PH Comments: eHarmony should not sell itself out by compromising or manipulating its working formula. It is a company that specializes in developing long term (marriage) relationships. You alter that approach, you lose credibility and your existing customer base.

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">My recommendation would be to stick to the long term serious relationship market, but expand it to other countries after a careful review has been done to insure that the means, methods and approaches in the U.S. will also work in other countries with respect to cultures, religions and social standards. They could though also offer focus segments to help customers with specific demands, ie, religion, race, sexual preference when searching for that special mate.

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Lena

<span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">I believe that EHarmony should continue pursing the long-term relationship segment. As the article suggests, the customers are willing to spend more than the average person on memberships. In addition, it would be wise to spend more money on research and advertising for gay/lesbian couples, especially now with the military repealing “don’t ask, don’t tell.” It has become mre socially acceptable for gay couples to be open about their relationship and I believe EHarmony could thrive in this market.

<span style="background-color: #ffffff; color: #351c75; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">GA <span style="background-color: #ffffff; color: #351c75; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">EHarmony should not change from its original strategy. They will alienate their subscribers and risk losing them. They should look at other countries where dating and marriage styles are similar to the uS.

<span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">CG <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">eHarmony’s strategic position in its niche of providing higher quality matchmaker, research-based, scientific-based services can be further improved upon, but they should remain steady in this original strategy.

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">2. Why has eHarmony been so successful?

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">PH Comments: They had a business formula that produced results. Their product was carefully developed, they structured a careful set of processes and they aired on the caution side when matching folks. They protected their customer; while protecting their own reputation. They also promoted success in their marketing by demonstrating that their program was successful with all their couple stories.

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Lena

<span style="background-color: #ffffff; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">They have had a big focus on research on development. For example, the “Fast Track” helped with matching couples tremendously. They also were very focused on specific groups of customers, and this focus was beneficial to them (unlike Yahoo! Personals, which did not focus on a particular kind of relationship). Finally, they were conscious of advertising and what forms were successful.

<span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">CG: <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- long term relationship focus <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- scientific-psychological basis for their approach <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- good marketing campaign which solidifies them as a leader in this niche of the industry <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">- specificity of targeted customer groups

<span style="background-color: #ffffff; color: #444444; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">3. What threats do they face moving forward?

<span style="background-color: #ffffff; color: #0b5394; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">PH Comments: Their new leadership, membership/subscription practices, and the potential for another “long term” dating service player is inevitable.

<span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Lena <span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">The threat of competitors is high. Competitors can now clearly see EHarmony’s steps in matching up couples. More importantly, they can just make a membership and see how it works <span style="background-color: transparent; color: #ff00ff; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">However, the biggest threat to EHarmony (in my opinion) is social networking sites. For example, if Facebook were to incorporate a dating/matching option, it already has an established customer base as well brand loyalty.

<span style="background-color: transparent; color: #990000; font-family: Cambria; font-size: 10pt; vertical-align: baseline;">__CG:__ <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">The problem with eharmony for one is that it offers its 29 dimensional analysis, but if that is true, why would one need a subscription for more than a month if it’s so miraculous?

<span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">another thing to think about is that there are other dimensions to how couples bond and as everyone on this team has pointed out..there are other markets they can expand into which I agree with. I think eHarmony needs to focus on selling the science. It is not clear how this Joe smoe with Degrees x, y, and z...can suddenly solve one of man’s greatest mysteries...finding and keeping true love.

<span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">Really now, can that be reduced and simplified to dimensions, 29 dimensions to be exact?? <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">My point is this...if you’re going to sell that story...make the science clear....for all those non-science people,,, <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; vertical-align: baseline;">__,the threat I am identifying here is Self-Induced by eHarmony__ <span style="background-color: #ffffff; color: #990000; font-family: Cambria; font-size: 10pt; text-decoration: none; vertical-align: baseline;">....it must remain competitive by providing more evidence that their elixir works....