Electronic Commerce Strategies for the New Economy
“Marketing of an E-Commerce Giant and the Uncertain Future of Atoms to Bits” (Chapter 4)
In this chapter of the online textbook, our main goal was to understand how technology helps firms craft and reinforce competitive advantage. The big firm, Netflix will be used as our main example. In order to understand the big picture, it is crucial to understand the basics of the two services operating under the Netflix business model. Also we will talk about how the firm experienced wild swings in technology shifts from obsolete models to the firm’s ...view middle of the document...
The first section will be about the original obsolete technology method; “DVD-by-mail strategy” and the second part will talk about how technology kicked in and advanced the overall system. Main parts that technology helped create was that it allowed the firm to develop assets such as scale, brand, and switching costs that combined to place the firm at the top of its industry. The second method that they decide to use is the “atoms and bits” method which is sending bits over the internet. Although Netflix was successful, the success was through much struggle.
Netflix’s start-off method was through manual DVD-by-mail service at a flat rate subscription fee. Under this method the customers only had to pay the fixed price and no late fees or mailing fees were charged. The customers get to choose their movie online at Netflix.com and they would receive the DVD by mail in less than coupe days. On the website, the consumers can rate the movie or see recommendations base on previous choice of movies and check out details and share viewing habits. Although this breakthrough method abled Netflix to grow into a giant, it was still not enough to continue its atop position in its industry. Hastings knew that he would have to change the method into streaming. He adopted the new method of streaming and now when customers go on Netflix.com, the default option is unlimited streaming and not a word about DVD mailing service could be found. Nowadays the streaming service is not only available on TV but through PCs, tablets, smart phones and interned connected televisions, etc.
Customer Data: Key to success and building trust
One of the reasons why Netflix was successful is due to its management in customer data. Data is collected when customers rate movies they have seen before and the customer’s preference is fed into a proprietary Netflix recommendation system called Cinematch. Cinematch uses a software technology also known as collaborative filtering. Collaborative filtering is a classification of software that monitors trends among customers and uses this data to personalize an individuals’ experience. It turned out that customers really enjoyed and trusted Cinematch. 60% of recommended movies were chosen by customers.
Cinematch data not only benefits customers but also helps Netflix as well with operational advantages. The firm examines inventory availability in the warehouse closest to a given customer and tailors recommendations to favor movies that are in stock so that customers do not get frustrated for the delay. Additionally, by leveraging...