Foundations of Marketing 5th Edition by Ferrell,William Pride

Exercise 1

Netflix's Distribution Goes beyond Disks
Founded in 1997, Netflix was originally nothing more than an online version of a traditional video rental store. Customers could visit the Netflix website and choose movies to rent by mail. Each DVD rental cost $4, along with a $2 shipping fee, plus late fees, if applicable. However, with bricks-and-mortar video rental stores booming, Netflix quickly figured out that it needed a more compelling competitive advantage to attract a large and loyal customer base.
Instead of charging for individual DVDs, Netflix instituted a monthly subscription plan, charging customers based on the number of movies they want to have at home. Monthly packages range from one-at-a-time to four-at-a-time DVD rentals- no late fees, ever. Members create a list of movies they would like to see in order of preference, and Netflix delivers them. As soon as a customer returns a DVD in Netflix's prepaid envelope, the company sends the next one on the list.
As Netflix's cost-efficient subscription model became more popular, it expanded its film and television show collection and now offers more independent and foreign films, documentaries, and television shows than anyone else. It also added a "Play Instantly" feature, allowing subscribers to download movies from the Netflix website. Customers enjoy being able to click and watch a movie right away-and Netflix saves on shipping fees, not to mention lightening its physical distribution load.
To keep up with the high volume of rentals by mail, Netflix employees check in and mail out more than 600 DVDs every hour. Netflix maintains 58 distribution centers around the country. As a result, DVDs typically arrive one day after they're shipped to customers. Netflix knows that speed is critical because customers want to make the most of their subscriptions. The faster DVDs arrive, the faster they can be viewed and dropped in the mailbox, to be checked in by the nearest Netflix distribution center. Then the next DVD on the list is mailed, and the cycle begins again.
Today, Netflix invites subscribers to stream rented movies electronically through a variety of devices, including Microsoft's Xbox 360, Sony's PS3, Nintendo's Wii, selected Blu-ray DVD players, and web-enabled televisions from several manufacturers. Although a growing number of customers are opting for these digital rental options, the majority still prefer Netflix's original rent-by-mail offering. Within a few years, however, digital delivery could become the company's mainstay.
Now Netflix has grown into a major power in the movie rental business, ringing up $2.2 billion in revenue and serving more than 23 million members. During the past decade, it's adapted to an ever-changing competitive landscape. Blockbuster, whose superstores once dominated the industry, has been struggling financially and closing outlets. Even the mighty Walmart tried to compete with Netflix at one time, but it ultimately decided to exit the DVD rental business. Regional video rental chains and independent stores are disappearing, partly because of economic pressures and partly because of changing technology and customer behavior.
Meanwhile, Redbox is the rising star of in-person DVD rentals. Its 27,000 gleaming red vending machines are seemingly everywhere, in supermarkets, convenience stores, and other high-traffic retail outlets, inviting impulse rentals. Customers can see, at a glance, which movies are available for rent and swipe a credit or debit card to pay the wallet-pleasing rental fee of $1 per day. If they wish, customers can reserve specific movies online or via iPhone before heading out to the nearest Redbox kiosk to pick them up. Unlike Netflix, which lets customers keep DVDs for days or even weeks without paying additional fees, Redbox charges $1 per day for every rental, up to a maximum of $25 (at which point, the customer keeps the DVD).
Digital delivery puts Netflix into competition with sites such as Apple iTunes, which sell downloads of individual television episodes and other entertainment offerings. It also competes with free sites such as Hulu, which offer advertiser-supported viewings of movies, television programs, and video clips. Despite the competition, Netflix has been thriving, thanks to its vast selection, responsive service, and cost-effective subscription pricing. With ever-evolving technologies to take advantage of, the company sees plenty of room to grow and plenty of new customers to win over.
Can Netflix be considered a channel captain Explain your answer.