ASSIGNMENT 2 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 32: Business Strategy (574)

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Student name Nguyen Ngoc Long Student ID GDH190072

Class GBH0809 Assessor name Nguyen Thuy Linh

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Table of Contents
I. Introduction.........................................................................................................................................................5
II. Netflix’s strategic capabilities.............................................................................................................................5
1. Primary value chain activities..........................................................................................................................5
1.1. Inbound logistics (Inputs).........................................................................................................................6
1.2. Operations...............................................................................................................................................8
1.3. Outbound Logistics..................................................................................................................................9
1.4. Marketing and Sales...............................................................................................................................11
1.5. Services..................................................................................................................................................13
2. Supporting value chain activities...................................................................................................................13
2.1. The firm’s infrastructure (accounting, finance, management)...............................................................13
2.2. Human Resources Management............................................................................................................14
2.3. Product and Technology Development..................................................................................................14
III. Netflix’s strategic capabilities analysis by applying VRIO framework.........................................................15
IV. Netflix’s Strengths and Weaknesses.............................................................................................................19
V. Conclusion.........................................................................................................................................................20
Reference list.............................................................................................................................................................21

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 I. Introduction
This assignment is written to analyse the internal environment and capabilities of Netflix by using
benchmarking as well as its value chain in the field. On top of that, the VRIO framework would be utilised
to further critically evaluate the internal environment to assess strengths and weaknesses of Netflix’s
capabilities, competences and structure.

II. Netflix’s strategic capabilities

There is a variety of method applying to figure out the strategic capabilities of companies, which
companies can take into consideration several tools such as Benchmarking, Value Chain and Value
System or numerous methodologies.

Benchmarking is a strategic tool taking place for comparing the success of an organization with its
competitor in terms of performance, product, service, and so on (Anand and Kodali, 2008). There are
four main types of benchmarking: internal, external, performance, and practice. Performance
benchmarking involves compiling and comparing quantitative data (i.e., measures or key performance
indicators). Performance benchmarking is usually the first step organizations take to identify
performance gaps. Whereas benchmarking of practice includes capturing and comparing contextual
information on how an action is carried out by individuals, procedures, and technologies. The third type
of benchmarking is internal benchmarking, which compares metrics across the company (performance
benchmarking) and/or activities (practice benchmarking) from multiple divisions, product lines,
departments, services, geographies, etc inside the business itself. And last but not least, external
benchmarking measures one organization's metrics and/or activities to one or several others industry-
equivalent companies (Yeung, 2016).

In this part of the essay, benchmaking and the value chain analysis would be majoring applied as a tool
to Netflix, which helps people understand and clearly identify Netflix’s strategic capabilities.

1. Primary value chain activities

A value chain is a business model that defines the full range of activities required for a product or service
to be created. A supply chain includes the phases that include taking a product from creation to delivery,
and all in between, for firms that manufacture products, such as sourcing of raw materials, processing
functions, and marketing operations.

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 Figure 1: Visualisation of the Value Chain (Caredda, 2020)

When it comes to benchmarking, the main competitors of Netflix in the field of online streaming
platform should be taken into consideration for the purposes of comparing. They are, such as, Disney
Plus, Amazon Prime, Hulu and so on. The main reason why these are going to be chosen simply out of
the sheer strategic capabilities that they are using to state their position in the market sectors and apart
from that, improve their business operation. On top of that, Benchmarking should only be applied with
diferent organisations but identical or equivalent field of operating. Netflix could use this methodologies
to strengthen their business activities by assessing, evaluating to further enhance their products and
services in order to obtain the leading in the market field.

1.1. Inbound logistics (Inputs)

Depending on the business model, inbound logistics operations require the transfer of raw products,
manufactured products, and services from a supplier or other delivery system to a fulfillment center,
factory, or retail store (Lopienski, 2020).

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Netflix works with content providers, distributors, producers, and creators to acquire licensing for TV
shows and movies to stream on our service. When content is not available to stream, it can be for a few
different reasons, including: The content rights are currently exclusive to another company. Netflix has
been possessing a huge number of content suppliers, and some of the main content suppliers of Nerflix
can be pointed out such as Walt Disney Corporation, Time Warner Inc, Fox Corp or Comcast and so on
(Netflix, 2019a). Developing good partnerships with suppliers is crucial as their assistance is required to
receive, store and deliver the product. Netflix will face diverse difficulties in product production
processes without evaluating the in-bound logistics. In-bound logistics research allows a business to
concentrate on any aspect of transition from raw material to finished goods. Retrieving raw material,
storing the inputs and internally delivering the raw material and components to begin production are
some examples of inbound logistics.

As regarded the inbound-logistic benchmaking, Disney Plus, Comcast and other streaming competitors
would be an epitome of how its example would affect how Netflix operate their main content. Disney is
releasing its subscription channel, Disney+, next year along with its soon-to-be bought Fox, and
withdrawing its content from
Netflix, including Pixar and
Marvel movies (Kafka, 2018).
When its own streaming
service gets off the ground at
the end of 2019, the merged
AT&T/Time Warner, which
has licensed its famous TV
series "Friends" to Netflix,
could even remove its movies
and TV shows from Netflix
(Flint, 2018). Comcast, already
a part-owner of Hulu, but
likely to start its own
subscription service in the
next year or so, will also pull
content from Netflix to launch
another one.

As we can see from the

adjacent pie chart, it is clear
Figure 2: Netflix's share of TV and movie content hours by production
that Netflix utterly depends onMolla,
company (Rani outsoured
2019) providers in terms of videos’ content, with only 8 percent of
content was created by its own streaming platform, but the majority of them was from other outer
suppliers.

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Unlike Netflix, other streaming platform such as Disney Plus does not depend on other providers but it
owns. All of which means Netflix could lose a large chunk of its content. Comcast, Fox, Disney and
WarnerMedia currently account for about 20 percent of Netflix’s content library, according to data from
TV industry research company Ampere Analysis. This calculation is based on the number of hours of
shows and movies that Netflix carries from a given production company. It doesn’t take into account
show popularity, which means that 20 percent number likely underestimates the value of that content to
Netflix.

1.2. Operations

This entails both- development and operation functions. To increase competitiveness, optimize
performance, and ensure the competitive success of Netflix, review of organizational activities is
important. Increased productivity will help Netflix achieve sustained economic growth, improve
sustainability and build a solid competitive edge base. That is why they focusing on a huge amount of
R&D budget cap to strenghten this fact.

Figure 3: Netflix Research and Development Expenses 2014-2019 (Pratap, 2020)

The research and development expenses of Netflix grew to $1,673 million in 2019 from $1,218 milllion in
2018. The research and development expenses of Netflix mainly include the payroll and related costs
incurred in making improvements to its service offerings.

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As for benchmarking purposes, other streaming platforms also spent a host amount of cash on its
Research and Development. For example, as for Amazon Prime, in 2019, the research and development
expenses of Amazon were around $36 billion compared to $12.5 billion of them in 2015 (Pratap, 2020a),
which explains for the treble of Amazon’s R&D expenses in just 5 years.

1.3. Outbound Logistics

Outbound logistics include the activities that deliver the product to the customer by passing through
different intermediaries, which related to the movement of end products to the end user, often
originating in a distribution or fulfillment center and then delivered to its final destination (Lopienski,
2020). Material storage, warehousing, arranging, order collection, transport and distribution to the
destination are outbound logistics operations. The outbound logistics can be studied and streamlined by
Netflix to discover areas of comparative advantage and meet its market development goals.

Netflix‘s main goal is to provide their miliions of Subcriber the highest-quality viewing experience
possible. Netflix achieve this goal by partnering with Internet Service Providers (ISPs) to deliver their
content more efficiently. They are now partnering with a thousands ISPs to localise theie substantial
amounts of traffic with Open Connect Appliance embedded deployment (Netflix, 2019). Some of the
Netflix’s internet services providers are Spectrum, Cox, Optimum, Verizon, Compast, etc (Netflix, 2019).

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As clarified from the chart, it is clear that cable provider Comcast streams Netflix the fastest, followed by
Verizon FiOS, and Cox, Spectrum and Optimum respectively. All of these carriers are within a few small
decimal points of one another, though, so you're unlikely to encounter the dreaded Neflix spinning circle
with any of them.

Figure 4: Netflix's internet service providers by speed (Holmes, 2020)

Developing good partnerships with suppliers is crucial as their assistance is required to receive, store and
deliver the product. Netflix will face diverse difficulties in product production processes without
evaluating the in-bound logistics. In-bound logistics research allows a business to concentrate on any
aspect of transition from raw material to finished goods. Retrieving raw material, storing the inputs and
internally delivering the raw material and components to begin production are some examples of
inbound logistics.

Regarding the outbound-logistics benchmarking, Amazon Prime is taken into consideration as this
streaming platform has their own internet service provider but not being dependant on outsourcing
provider, which is the Amazon - its mother corporation. Amazon is lauching its internet service. The E-

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Commerce and digital retail giant recently revealed their plans to offer a high speed home Internet
service under a subsidiary called Kuiper Systems, driven by Rajeev Badyal, former vice president of
SpaceX. Current plans for Amazon include sending 3,236 satellites for their network into Earth's low
orbit. With several spacecraft, Amazon’s broadband services would cover about 95% of the world’s
population, reaching even remote and rural areas (Kline, 2020). As a matter of fact, unlike Netflix,
Amazon do not have to pay to much attention on the rrelationship with their Internet Suppliers, but still
can manage the streamlines with their loyal customers.

1.4. Marketing and Sales

At this point, to reassure consumers that its service is better than rivals, Netflix will emphasize the
advantages and distinguishing points of the products sold. Until Netflix spends in promotions and
distribution efforts, merely delivering a high quality product at reasonable prices and distinctive features
does not generate value. Here, sales agents and marketers play a significant role.

Netflix is now using Multi-channel Marketing to Connect with People Online and Offline. When it started,
Netflix was a delivery DVD service. Over time, the company has diversified to offer their products to
people on a range of devices. Now, many Smart TVs already have Netflix installed. You can watch Netflix
on your TV or computer, smartphone, or tablet (Haughey, 2019). Netflix understands how to get the best
out of Facebook, Instagram, and Twitter. For that, they produce surveys and ask questions that are
entertaining and that easily stimulate a response from audiences. Five minutes of Twitter fame will result
in one cheeky reaction from Netflix, be it a snarky response or a GIF. Furthermore, this invites fans to
continue the dialogue below their posts (Maheen Siddiqi, 2019). Here is an example of how Netflix do
their marketing for the products:

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 Figure 5: Twitter Netflix U.S.

Also, Netflix Personalizes Everything. Based on the aforementioned considerations, Netflix not only addresses its
customers with their first names, but also sends out highly customized content. Unlike its main competitors such
as Hulu, HBO, Amazon Prime, the concise approach to email templates, which helps readers to easily locate the
call to action without being stuck in the rabbit hole of feedback, is the most appreciative element in the way
Netflix capture their clients. Netflix will never bombard users with the majority of their suggestions for
movies/shows, when their catalog of content is massive. Instead, they tend to support a simple television program
that has a straightforward call to action button, helping users to break through the clutter. Netflix also throws push
notifications to users who’ve permitted them (Rodriguez, 2019).

Regarding Benchmarking, unlike its main competitors such as Hulu, HBO, Amazon Prime, the concise approach to
email templates, which helps readers to easily locate the call to action without being stuck in the rabbit hole of
feedback, is the most appreciative element in the way Netflix capture their clients. Netflix personalizes everything
to their clients. Based on the aforementioned considerations, Netflix not only addresses its customers with their
first names, but also sends out highly customized content. Netflix will never bombard users with the majority of
their suggestions for movies/shows, when their catalog of content is massive. Instead, they tend to support a
simple television program that has a straightforward call to action button, helping users to break through the
clutter. Netflix also throws push notifications to users who’ve permitted them (Rodriguez, 2019).

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 1.5. Services

In a new report by APCO, a public relations company, Netflix's commitment to customer service may
have contributed to its status as one of the most loved brands (Heine, 2019). Its serices gain reputation
throughout the period of time, and the brand equity is also strong from then on.

The pre-sale and post-sale services offered by the Netflix will play an important role in developing
customer loyalty. The modern customers consider post-sale services as important as marketing and
promotional activities. The power of negative e-WOM due to poor support service cannot be
undermined in the current technologically advanced era. The company must analyse its support activities
to avoid damaging brand reputation, and instead use it as a tool to spread positive word of mouth due to
quick, timely and efficient support services.

When it comes to benchmarking, both Netflix and Amazon provide 24/7 hotline and live chat customer
service, while Hulu Plus agents are available during working hours by phone or email (17 hours on
weekdays and 16 hours on weekends). It takes a few steps online to contact an Amazon agent on the
phone, and the company contacts consumers, rather than sending a phone number. An immediate
response via phone resulted from a recent inquiry to Amazon's customer support line. A call to Hulu
required a quick stop, but the online quotation was not near the approximate seven minutes (Stenovec,
2019).

2. Supporting value chain activities

The supporting activities are exactly what it claim, support for the primary activities to operate. The
supporting activities do not necessarily bring in profit for the company but they do help to keep the
competitive advantage competitive.

2.1. The firm’s infrastructure (accounting, finance, management)

A variety of activities are defined by the company's infrastructure, such as quality control, handling of
regulatory affairs, accounting, finance, forecasting and strategic management. Efficient infrastructure
management would allow Netflix to optimise the efficiency of the entire value chain. To improve the
strategic positioning of the market, Netflix may control infrastructure operations (or generally
considered overhead costs) (Netflix, 2018). As a matter of fact, the Netflix financial organization provides
the company with the foundation it needs to accomplish the major initiatives laid out by Netflix. The
volume and complexity of financial operations are also growing as the company expands rapidly globally
and leans into content production. Whether it is accountable to its millions of users for Netflix content
streams, or understanding the internet (Netflix, 2018). Moreover, Netflix has the Strategy, Planning &
Analysis (SP&A) team, who is a core group within Netflix that, through financial, operational, and
strategic analysis, guides critical business decisions across the business. The team works across all
functions side-by-side with business leaders and serves as the key point of contact in the areas of

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business performance and strategic insights. The team is highly visible throughout the organization, and
in particular to Netflix's senior management, who rely heavily on the team's insights and perspectives to
inform important business decisions in the company's ongoing growth. The Netflix's FP&A team is also an
embedded organization across all functions of Netflix that helps support and partner with all functional
departments of the company in the areas of financial planning, budgeting, forecasting, and business
analysis. Collectively, the overall P&L outlook for the company is owned and managed by this team and
serves as the key point of contact for business partners in the areas of financial planning, analysis and
support for decisions (Netflix, 2018).

2.2. Human Resources Management

Through analyzing various HR aspects, including recruiting, selecting, training, rewarding, performance
management and other staff management practices, Netflix will evaluate human resource management.
Effective HR management will allow Netflix to minimize competitive pressure based on its workforce's
enthusiasm, dedication and expertise. Through analyzing recruiting and training costs and their
proportional return, the organization will also accomplish its expense minimisation targets. The strong
reliance of Netflix on the skill of employees would enhance the relevance of this operation of value chain
help (Anderson, 2019). Also, Netflix is an industry pioneer not just because a top-quality entertainment
network has been developed, but also because it has an unprecedented working culture that
compromises nothing. The staff behind the growth of Netflix, thus, contains some of the most creative
minds who aspire for excellence. Needless to mention, there is a great deal that HR administrators will
gain from the pioneer of the media services sector (Sharma, 2018). Netflix, in addition, always priorotise
Recognition and Common sense of their employees on top. These are most important since employees
are made judgement calls overtime, and decisions are msde depending on not only the interest of
managers but also their staffs’ perspectives. As of December 31, 2019, Netflix had approximately 8,600
full-time employees (Netflix, 2020). For benchmarking, in contrast, the number of employees in Disney
Plus is well-rared, just only over 1700 personnels (Disney, 2020).

2.3. Product and Technology Development

In a modern, advanced technological age, nearly all operations in the value chain depend on
technological support. Netflix is expected to understand the value of technology advancement through
technical convergence of manufacturing, delivery, marketing and human resource practices. It can be
categorized into technical growth practices of goods and processes. Any examples are: tools for robotics,
customer care assisted by technology, analysis into product design and data analytics. In this division, the
Netflix research and development department is classified. Netflix has an online ordering model and
therefore devotes a large number of money to the creation of the right algorithms for recommendation
and referral. This makes sure that without much thought, clients can find their favorite movies. In
addition, it also spends significantly in streamlining the distribution process and has succeeded to
automate a large portion of the postage and packing process effectively. To be more specific, Netflix had

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spent approximately $1,5 million onto their Research and Development expenses in 2019, Such expenses
are included under the heading of research and growth expenses and these investments ensure
customer loyalty at high levels (Team, 2018).

As for Benchmarking, a case study of its competitor- the Disney plus would be predented to see how
they expanded the product development. Disney plus have learned and done so through wonderfully
imaginative products, unique filmmaking, and by combining a "unique blend of entrepreneurship,
creativity, innovation, and a relentless drive to bring out the best in the team, resulted from mother
company - Walt Disney, created one of the most successful ventures in business history (McCullen,
2019). Most of its product development derived from its original content in the animational aspects,
such as Snow White and The Seven Dwarfs, which is so popular among viewers. And their ambition of
product development is to move these infamous movies into the live actions (Cox, 2020). On top of that,
they bought a technological platform to regulate its content rather than build their own identical one. As
supposed to The Walt Disney Company (2017), Disney had acquired majority ownership of BAMTech for
$1.58 billion in 2017 (The Walt Disney Company, 2017).

In a nutshell, benchmarking and value chain has been greatly utilised as tools to indicate the first
strategic capabilities of Netflix, which is Reputative brand images. Its distinctive high-quality content is
the driving reason behind such a huge rise in brand equity. This is combined with a special algorithm that
offers a truly tailored interface for consumers with its marketing skill in social media platforms. Another
key reason for the popularity of Netflix is the distinct voice of its brand in terms of original content.
Netflix's PR unit enjoys a strong relationship with its clients. As a result, they do research and polls in
order to communicate with their clients through all social media platforms. That is why they have huge
customers’ platform, and as a result, to cope with a huge amount of viewers worldwide and to retain
them using the services, they have to work with producers, content creators and films makers as well as
the information technologies assets possessed. That is also the reason why continuous technological
innovation are so important in the online streaming field as this is a basic threshold helping
organisations to put their first step in the streaming industry. Accompanying with above factors, working
with the content creators and copyright holders, Netflix also has to gain support and licensing from
them. This is also an explanation on the reason behind the high dependence of Netflix onto their third-
party entertaining content, resulting in an undeniably competitive disadvantage against Disney Plus. And
lastly, with the emergence and the current situation of Covid-19 pandemic, the social-distancing and the
high possibility of self-isolation help Netflix to be beneficial regarding the potential of being an online
textual distributor.

III. Netflix’s strategic capabilities analysis by applying VRIO framework

The VRIO framework is a strategy research tool designed to help companies identify and protect the
resources and capabilities that give them a competitive advantage over the long term. After the
development of a mission statement, but before the strategic planning process, the structure should be

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 put into play (Smith, 2019). VRIO is an acronym for a system of value, rarity, imitability, and organization
of four questions. It is used to disclose "sustained competitive advantage”.

The Netflix's VRIN/VRIO analysis provides a resource-based perspective of the on-demand video
streaming market and determines the most relevant resources and capabilities for sustainable
competitive advantages. If the objectives of Netflix alter, so do the variables that relate to core
competencies important to the framework of strategic planning process. These competencies represent
the resources and capabilities of the online business that facilitate long-term competitive advantage in
the VRIO/VRIN research context.

Strategic Capabilities Value Rarity Inimitatable Organisational Strategic

Support Implications
Original contents Yes Yes Yes Yes Long-
Term/Sustained
Competitive
Advantages

Continuous Yes No No Yes Competitive Parity

Technological Innovation
Marketing skills Yes No No Yes Competitive Parity
Information technology Yes No No Yes Competitive Parity
assets
Support and licenses Yes Yes No Yes Temporary
from entertaining Competitive
content creators and Advantage
copyright holders
Global online platform Yes Yes Yes No Unused Sustain
Competitive
Advantages
Reputative brand images Yes Yes Yes Yes Long-
Term/Sustained
Competitive
Advantages

Diversed Content Yes Yes Yes Yes Long-

Producers Term/Sustained
Competitive
Advantages
Huge Customers’ Yes Yes Yes Yes Long-
Platform Term/Sustained
Competitive
Advantages

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The first internal resource is original contents which Netflix main strategic capabilities that help Netflix
success in streaming media industry. There are over 65 original series and the number of them is still
rapidly increasing until now (Lynch, 2018). Since 2012, Netflix has already conquered a lot of original
contents worth hundred of hours and receiving nomination for 45 Emmys, 10 Golden Globe and three
Academy Awards (Whitten, 2021). The original contents are very valuable to Netflix because that is the
main reason why people subscribe to Netflix and it is very rare and hard to imitate by the competitor
because an original content is a protected by copyright. Competitors like Hulu and Amazon Prime Video
need to innovate by themselves which very difficult to produce good original contents that can attract
people to subscribe to their service. The organisational support itself of Netflix is one of the reasons why
Netflix is a success right now because there is a culture in the company that treats every employee is
grown up (Stenovec, 2015).

The marketing skill that Netflix has is incredibly valuable but still is imitated by the competitor easily, with
the assistance of organisational support Netflix can make a novel advertisement that may attract
customers to observe their new series. For example, the advertisement for brand spanking new Netflix’s
original series The Stranger Things is incredibly unique, it is seen in Twittter in the way that Netflix
connect and communicate with its subscribers. However, eventhough gained the organisational support,
these types of advertisings are easily imitatable and it is very popular seeing others competitors doing in
the same ways.

While its value chain includes its own original movies and TV shows, the company also distributes content
on the platform from third parties, with the strategic goal of acquiring and retaining more viewers. With
respect to the resource-based viewpoint, this aspect makes Netflix vulnerable to manufacturers' strategic
changes and competitive powers. The competitive advantages of Disney and other corporations that have
the right to sell their content on their own distribution services are noteworthy. This aspect in terms of
content from outsourced creator had been clearly justified in the Value Chain section.

In Netflix's value chain and business operations, the VRIO/VRIN research table describes resources and
capabilities that are threshold for the company. For instance, the continuous technological innovation of
the streaming business is a valuable resources, however, these are not rare as well as they can be easily
imitable since other major corporations such as Amazon Prime and Disney Plus have identical capabilities
(Venkatesan, 2019). And getting adapted to the fast-changing pace of entertainment, most corporation
have to spend their budget on the R&D expenses on the innovativeness, that is why this strategic
capabilities also plays an important role in the Netflix sustainable growth and they have to put their
support on this throughout the time.

The information technology assets of Netflix Inc. also only provide comparative balance or parity when
most organizations have comparable technological resources and capabilities in order to join hands in a
the field of streaming industry. For example, as explained in the value chain, Disney had acquired a

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BAMTech companies in 2017 for taking over the management of its streaming content on newly-bought
techonogical system.

In the context of the VRIN/VRIO research system, contracts, licenses, and support from film content
manufacturers and copyright holders are a temporary strategic advantage. Since this strategic aspect
gives Netflix a competitive edge, these are realistic value for Netflix. Manufacturers and copyright holders
in the on-demand digital media streaming industry can enter into agreements with other companies (Lu,
2018). In the resource-based view, the competitive advantage of such contracts may not last long
eventhough they are rare due to the copyrights holder that cannot be signed for two or more companies,
as Netflix's rivals expand their respective online platforms and value chain (Kübler, Seifert and Kandziora,
2020). That is why Netflix has to give efforts on its relationship with the manufacturers to maintain the
contract so that their advantages in terms of content would be expanded.

Netflix Inc. has prospects for more growth as a global player in the digital video distribution industry,
based on the unexploited strategic advantages found in the VRIO/VRIN review table. The international
scope of the consumer base of the organization, for example, provides the ability to deliver video. The
value chain and network of Netflix also have the ability to sell literary material or books to the same client
base. In the resource-based perspective, this capacity relies on the internationally open web portal of the
organization as a resource that helps large-scale business reach. These business advantages, however,
remain unexploited, as the corporate management strategies and value chain practices of Netflix
concentrate on streaming films and TV shows. The leaders of the company continue to concentrate on
increasing this streaming service. The traditional strategic edge approach, business model, and intense
growth strategies of Netflix Inc. focus on these skills and strengths even though they are non-core
competencies.

The key competencies of Netflix Inc. identified in the VRIO/VRIN comparison table meet the VRIO
requirements. For illustration, the Netflix’s brand is one of the most popular in the world (Spangler and
Spangler, 2019). This is an uncomparable aspect that other competitor cannot have, when discussing
whether which streamings platform people know among the three big boy in the streaming services –
Netflix, Prime and Disney Plus, Netflix is spoken out ten out of ten (Berman, 2020). No doubt, the
reputation of Netflix is really rare and also hard for its main competitors to imitate. In the resource-based
view, the Netflix brand is a value chain resource that the company have to focus to build up their images,
which encourages long-term competitive advantage.

In addition, the company’s global online platform is a core competency based on the VRIO framework.
For instance, in terms of the scale and consumer penetration of Netflix to a broad subscriber base, this
network is difficult to imitate based on its popularity and with its global reach, it has more subscribers
worldwide than all other pure streaming services combined (Brennan, 2018). This is really rare when it
comes to other streaming platform, with the global presences are still limited (Brennan, 2018). As a key
competency, the network helps the company to maintain the efficacy of the value chain in providing the

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subscription service. In the VRIO analysis model, the high potential for original content production is also
another of Netflix's key competencies. Considering the multinational size and financing of the streaming
business, most entrants will be able to generate content, but not at the scale and frequency that the
business currently does.

IV. Netflix’s Strengths and Weaknesses

Based on the above explanation, to sum up about Netflix’s key strategic capabilities, the followings are its
main strengths and weaknesses.

To begin with, weaknesses are inevtiable and it showed up in all organisation. Nothing is perfect, and
people just keep working and analysing their weaknesses to learn from them. Netflix’s heavy reliance on
entertainment content producers is a significant competitive drawback of Netflix Inc. Eventhough that
this should be listed in the analysis, however, due to the fact that this part is actually accompanying with
the support and licensing from content creators, so it should be also considered to be a strategic
capabilities and further enhance it. On top of that, while Netflix has effectively developed its profitablity,
the organization needs to bear powerful working costs every year to work productively. Aside from the
significant expense of incomes, which mostly incorporates the amortization of streaming substance
resources and expenses related with the obtaining, authorizing, and creation of substance, the
organization likewise brings about hefty advertising and R&D costs. In 2019, the expense of incomes of
Netflix was around $12.4 billion, or 62% of the net income of the organization for the year. It had a total
compensation of $1.9 billion, and its negative free income for the year came to $3.3 billion or around
$250 million higher than the earlier year (Feldman, 2019). The organization has been consuming money
vigorously. While its income is required to improve this year, it might in any case take some time before
Netflix can accomplish impartial income.

However, its strengths would rather outweigh its weaknesses. One of the core sources of competitive
advantage for Netflix is the high-quality original content it offers. The company’s key reason for creating
its own content is that it will eventually help it lower its content costs in the longer term. It is a good idea
since by creating original content, the company might save a lot on its licensing costs in the longer term.
In the future, the company will need to invest very little in licensing content from others. However, Netflix
will continue to fill the gap using others’ content. Still, the costs will be much lower, and the platform will
have strengthened its profitability by combining higher subscriber income with lower operating expenses.
Another benefit of creating its own original content is that that company has more control over the
quality of the content it offers. With higher quality original content, the company also gained extra user
loyalty, strengthening its competitive advantage in the online streaming industry. Original content draws
subscribers in larger numbers and increases profitability. The company also invests in marketing the
original content and promotes them online, through media and social media. The intensity of competitive
rivalry within the online streaming industry has grown stronger in recent years. However, the subscriber
base of the corporate has also expanded plenty driven by an enormous amount of original content, a

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better specialise in customer experience, and therefore the availability of an oversized type of content in
various local languages. The main focus of the brand has remained on driving user engagement higher
through increased specialise in technological innovation. But content quality, the opposite aspects of the
Netflix viewing experience also matter in terms of user retention and engagement. The corporate has
continued to boost its platform through higher focus and investment in research and development. In
exactly the past three years, the research and development expenses of the firm have near doubled
showing how technological innovation is driving continuous change at Netflix. In 2019, the research and
developed expenses of the corporate reached $1.7 billion from $981 million in 2016.

Marketing is additionally a driver of solid competitive advantage and recognition for the web streaming
brand, strengthening its presence within the global market. Netflix has created a powerful brand image,
and it's established itself as a definite brand within the industry. The corporate has successfully generated
strong brand recognition through its concentrate on marketing. It is positioned itself as a contemporary
brand that aims to satisfy the entertainment needs of millennial users. Most of the content available on
the platform is targeted at millennials. However, it's also included a pleasant range of content for
teenagers. Strong brand recognition already drives strong brand recall and word of mouth, and thru the
employment of technology and data and analytics, it can retain more users. Except for that, Netflix spends
on digital advertising and promotions to plug its brand and individual movies and shows. In fiscal 2019,
the corporate spent around $2.65 billion on marketing, of which around $1.88 billion were spent on
advertising. With growing competition within the market, Netflix has also increased its marketing
expenses. Its marketing expenditure grew by 13% in fiscal 2019 compared to the previous year.

And lastly, Netflix has become a world brand and offers its services to around 193 million subscribers
worldwide. The quantity of memberships at Netflix has continued to rise fast in recent years
accompanying with its brand equity. Its popularity overseas has grown driven by several factors including
the standard of its content, differentiated and superior viewing experience, and an improved computer
program. The pricing strategy employed by Netflix has also helped the corporate grow its popularity and
revenue base in various markets. Aside from that, the supply of content in various local languages has
also drawn subscribers from different regions within the world.

V. Conclusion
To sum up, Netflix possesses a host number of strategic capabilities that mainly contribute to its success
in the past, present and expected in the long-term future. Eventhough the costs and expenses for
managing and operating such huge business is not necessarily ideal, but the profitability obtained from
its diversed background of subscribers as well as original contents can help it to curb others to surpass
and take over the mighty crown from Netflix in the online streaming industry.

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