Instruction: Read the following case studies carefully. Then answer ALL the questions.

Case Study 1

It All Started with a Late Fee

In the 1980s and 1990s, consumers who wanted to watch movies at home headed to their neighborhood movie rental store. Blockbuster was the clear leader in the market. Consumers were able to rent a movie for a flat fee of several dollars, but late fees were steep. In 1997, California entrepreneur Reed Hastings incurred a $40 late fee at Blockbuster. It was six weeks late he admits. I had misplaced the cassette [and] I didnt want to tell my wife. I was embarrassed about it. After locating the Apollo 13 movie that he had rental several weeks before, he dropped off the VHS cassette and paid the late fee on his way to the gym. As it turns out, his itinerary for the day was quite opportune: In the middle of his workout, he recalls, I realized [the gym] had a much better business model. You could pay $30 or f 40 a month and work out as little or as much as you wanted. Thus, the idea for Net-flix was born. But Hastings knew he needed to starts slowly. So, when was launched in 1997, its only innovations involved the convenience of ordering movies over the Internet and receiving and returning them by mail; Net-flix merely rented movies for $4 apiece plus f2 for postage (and, yes, it charged late fees). Basically, the customer base consisted of people who wanted to watch movies without having to leave the house. But Hastings and co-founder March Randolph quickly decided to test a subscription- based model, unlimited rentals by mail for a flat fee and, perhaps most important, no due dates (and thus no late fees). Current customers were first offered the opportunity to shift from their pay-per-rental plans to subscription plans on a free-trail basis and then given the chance to renew the subscriptions plan on a paid basis. We knew it wouldnt be terrible, says Hastings, but we didnt know if it would be great. In the first month, however, 80 percent of Net-flix users whod tried the no-cost subscription plan had renewed on a paid basis. Having unlimited due dates and no late fees, said Hastings back in 2003, has worked in a powerful way and now seems obvious, but at that time, we had no idea if customers would even build and use an online queue. The queue, as any Net-flix user will tell you, is the list of movies that the customer wants to watch. Net-flix maintains your queue, follows your online directions in keeping it up to date, and automatically sends you the next movie you want each time you send one back. The essence of queuing and of the Net-flix business model is clearly convenience. Although the ability to enhance customer convenience, even when combined with cost savings, often gives a company a competitive advantage in its industry, it doesnt always have the industry-wide effect that its had in the case of Net-flix. Not only did the Net-flix subscriber model improve the service provided by the industry in an unexpected way but ultimately it also weakened the competitive positions of companies already doing business in the industry notably, Blockbuster. How had Hastingss upstart company managed to put itself in such an enviable position? For one thing, it got off to a fast start. In 1997, when DVDs were just being test- marketed in the United States, Hastings and Randolph decided that the new medium would eventually overtake videocassettes as the format of choice for both the home-movie industry and the home-movie renter. They were right, of course. By 2002, one in four U.S households owned a DVD player, but the number today is close to 9 in 10. Most important, as the first company to rent movies by mail, Net-flix was the first to establish a rental-by-mail customer base. At first, says Hastings, people thought the idea was crazy. But it was precisely because it was contrarian idea that [it] enabled us to get ahead of our competitors. As Net-flix has continued to expand and nurture its subscriber base, its also generated both brand recognition and brand loyalty. Net-flix has customer loyalty. Its a passion brand, explains Hastings, who hastens to add that keeping customers happy is crucial because the more someone uses Net-flix, the more likely they are to stay with us. Today, Net-flix continues to be at the forefront of innovation and has established a strong position in the emerging video-on-demand market. Net-flix continues to innovate, developing original content such as wildly popular House of Cards and Orange Is the New Black.

Source: Ebert, R. J. & Griffin, R. W. (2017). Business Essentials, I I'h Edition. England: Pearson.

Questions:

a. Explain TWO (2) primary reasons Net-flix has been successful.

b. Net-flix is a corporation. Describe TWO (2) reasons why do you think the firm uses this form of ownership. (6 marks)

c. Explain ONE (1) threat might derail Net-flixs success. (3 marks)

d. Suggest ONE (1) step the firm might take today to thwart those threats. (3 marks)

e. Suppose Reed Hastings asked you for advice on how to make N e t f l i x better. What would you tell him? Decide FOUR (4) suggestions on how N e t f l i x can be improved. Give example for each.