Question

when netflix determined that the lifestyle needs of its customers called for more convenient methods to receive entertainment, it implemented a business model that led to a reduction in the company’s labor costs. the company then passed those savings on to consumers. in comparison, blockbuster video stores did not pay enough attention to competitor movements, permitting netflix to quickly capture this market share and as a result, blockbuster shuttered its doors. which external environment probably had the least effect on netflix's success?

Answer 1

Netflix's customer leaving estimates were off due to a misjudgment of the elasticity of demand, an underestimation of close substitutes, and changing consumer preferences. Physical DVD rental kiosks like Redbox remained popular, suggesting that streaming had not yet completely overtaken physical rentals despite the growth in streaming services.

Step-by-step explanation:

The estimate of customers leaving Netflix was far off because the company did not accurately account for the increase in close substitutes for their service. Over two decades, consumer options expanded to include Vudu, Amazon Prime, Hulu, and Redbox, among others. Some customers even found Redbox's physical kiosks, within a short driving distance, to be more convenient than using Netflix's streaming service. In 2012, many still preferred physical DVDs over streaming video, indicating a misjudgment in customer preferences by Netflix. The market dynamics suggested that while Netflix underestimated the impact of these substitutes, they might yet have the last laugh as the preference for streaming videos could, over time, surpass the demand for physical DVDs as the population increases.

Answer 2

Netflix misestimated customer departure due to a miscalculation of market substitutes and a misjudgment of consumer preferences for physical DVDs over streaming. Despite past challenges, trends suggest streaming could become more dominant, potentially benefiting Netflix in the long term.

Step-by-step explanation:

The reason why the estimate of customers leaving Netflix was so far off is primarily due to the underestimation of the number of close, but not perfect, substitutes in the market. With a variety of choices like Vudu, Amazon Prime, Hulu, and Redbox, as well as the continued demand for physical DVD disks, Netflix initially misjudged the elasticity of demand for its streaming services. Jaime Weinman's observation about Redbox's convenience highlighted that many customers still found a five-minute drive to pick up a DVD more convenient than streaming a movie online in 2012.

Netflix's failure to consider these close substitutes indicated a misstep in their understanding of customer preferences and tastes. However, as trends evolve, it is possible that the increasing population's preference for streaming video could overtake the desire for physical DVDs. Despite the criticism and jabs Netflix received in 2011, the company had the potential for a comeback given the shifting consumer behaviors toward online streaming.