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Lecture 5

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Management Core
MGCR 331
Imad Mansour

Lecture 5– Netflix & Digital Goods Clicker Q: 1. Which of thefollowing is a source of bargaining power for buyers? 1) Greater choiceof products 2) High switching costs 3) Loyalty programs 4) Network effects 5) Differentiated products 2. A valuechain is a set of 1) similarly profitable firms competing against each other in any given industry 2) large firms that are vertically integrated 3) interdependent activities that bring a product to themarket 4) profitable products or services, the market for which is dominated by a large number of small firms 3. In an industry where nearly every major player outsources manufacturing to low-cost countries, Zara is highly _____, keeping huge swaths of its production processin-house 1) Privatized 2) Vertically integrated 3) Publicly traded 4) Subsidized 5) Autonomous 4. An information system consists of hardware, software, data, procedures, andthe people who interact with and are impacted by thesystem. 1) True 2) False 5. Zara’s dominance in thefashion industry is dueto its horizontallyintegrated structure accompanied by a globally dispersed production model 1) True 2) False  it’s vertically integrated and not globally dispersed 6. _____ are critical for capturing sales data, and are usually linkedto inventory systemsto subtract out 1) Point-of-sale systems 2) Legacy systems 3) CRM systems 4) Server farms 5) Data aggregators 7. _____ is a decisionsituation where one party has more or better information than its counterparty. 1) Strategic superiority 2) Positional awareness 3) Choice Three 4) Data redundancy 5) Operational precedence 6) Information asymmetry 8. In retail in general and fashion in particular, having _____ is considered thekissof death 1) Excess inventory 2) Too many storefronts 3) A large labor-force 4) Limited production runs 5) Dispersed production facilities 9. _____ are small chip-based tags that wirelessly emit auniqueidentifying code for theitem that they are attached to 1) PDAs 2) Smart adaptors 3) Trackbacks 4) Bar codes 5) RFID tags Today’s class - Netflix - Long tail - Begin economics of digital goods Netflix - What are Netflix’s sources of competitive advantage? - Leverage time and key resources to technology o What are those key resources?: - data o Based on the resources, bargaining power of supplier for netflix is low due to movie/no channels, but it starts to increase because they are trying to distribute their channel through other contents *** read books!! o Supplier: providing contents o Bargaining power of buyers are increasing because of o 4 forces: (reducing) threat of substitutes, threat of new entrants, bargaining power of buyers, bargaining power of suppliers How Netflix Works - Users make their video choices in their “request queue” at - Consumers use the Web site to: o Rate videos o Specify movie preferences o Get video recommendations o Check out DVD details o Share their viewing habits and review Tech and Timing: Creating Killer Assets - Building a great brand online starts with offering exceptional value - Advertising builds awareness, but brands are built through customer experience - Subscribers expectations from Netflix: o Huge selection o Ability to find what they want o Timely arrival o Ease of use and convenience o Fair price  Technology drives all of these capabilities. Technology is at the center of the firm’s brand building efforts Cinematch: Technology Creates a Data Asset that Delivers Profits - Netflix uses a proprietary recommendation system called Cinematch o How does it work?  Users rate movies they've seen & NetFlix recommends additional movies.  Each time a DVD is returned, Cinematch asks the customer to rate it o Collaborative filtering: A classification software that monitors trends among customers and uses this data to personalize an individual customer’s experience  It can be mimicked by competitors - The data provided by Cinematch is a switching cost - To see how strong switching costs are is to examine Netflix’s churn rate o Churn rate: The rate at which customers leave a product or service o In mid-2008, churn rates for Netflix’s most active regions were below 3 percent - Netflix’s marketing costs benefit from satisfied customers, as referrals are a better choice than advertisements - Netflix launched a crowdsourcing effort known as The Netflix Prize
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