Final answer:
Netflix's business strategy is impacted by macro-environmental factors including increased competition and customers' changing preferences. When Netflix misjudged the elasticity of demand and failed to consider close substitutes, it led to significant customer loss upon increasing prices. Its competitive strength against many rivals relied on understanding and adapting to these market dynamics.
Step-by-step explanation:
Analyzing Netflix's business strategy in 2018 within the macro-environmental context involves examining external factors that affect its operations, competition, and customer preferences. Netflix faced a rapidly changing industry with an increase in competitors, both large and small. Competitive strength is one key area in which Netflix needed to excel in order to maintain its market position against rivals like Vudu, Amazon Prime, Hulu, and Redbox.
The concept of elasticity, which refers to the change in quantity demanded in response to price changes, is crucial to understanding consumer behavior. Missteps by Netflix's management included misjudging the demand elasticity and failing to account for the availability of close substitutes, which led to a larger than expected customer departure when prices were increased.
With many consumers still preferring physical DVDs over streaming, as indicated by the convenience and popularity of Redbox kiosks, it's clear that preferences and tastes were evolving. Netflix's ability to adapt to these changes and offer value to consumers was essential to fight off aggressive competition.