VRIO Analysis of Netflix

The resources and capabilities of a company are its drivers of competitive advantage.

Nearly all that a business owns can be classified as a resource or capability.

By understanding the resources and capabilities of different enterprises, one can understand why overall performance differs from one firm to another.

To generate a sustainable competitive advantage, the resource or capability that a company owns needs to be valuable, rare, inimitable, and organized.

The VRIO framework helps managers when they are analyzing their company’s resources and capabilities.

VRIO is an acronym for Valuable, Rare, Inimitable, and Organized. These are the four bricks of VRIO.

They represent the four properties that core competencies must have to give rise to sustainable competitive advantage.

When the core competency arising from a combination of resources and capabilities satisfies the four requirements, the competitive advantage thus generated will be sustainable.

If it meets fewer standards, the competitive advantage will be temporary.

Core Competencies of Netflix:

Technological Innovation:

One of the key competencies that support the fast growth of the Netflix platform is its focus on technological innovation.

The growth of Netflix has been driven mainly by the company’s focus on continuous technological innovation.

The most critical difference comes from technological innovation.

While good quality content is essential to attract a large audience, the entire user experience matters.

Netflix offers a superior customer experience, which it has made possible through recommendation systems that make it easier for the users to select the best titles to watch.

Its recommendation system is admired industry-wide for its level of precision. Innovation also affects user engagement and continuous innovation is essential to keep users engaged.

While a vast array of quality content is at the core of the Netflix experience, it’s the design of the platform and its other features that distinguish the experience from others.

Netflix is known industry-wide as an innovative brand that has established an organizational culture with innovation and creativity as its core pillars.

However, to foster faster growth, it spends a heavy sum each year on research and development.

Focus on innovation has helped the firm build a source of sustainable competitive advantage.

Brand Equity:

The brand equity of a business is also a leading core competency driving superior growth through stronger brand recognition and higher user loyalty.

It is the users’ perception of the brand that has a long term effect on demand and sales globally.

Netflix enjoys stronger publicity and word of mouth driven by stronger brand equity.

The company has proved excellent in terms of marketing an innovative and customer-oriented image.

Its focus has remained on catering to diverse choices of people from various regions.

With time, as it continues to add more good quality and original content, the brand equity of Netflix keeps growing stronger.

Over time, stronger brand equity has started translating into higher brand recognition and brand recall.

Netflix finds it easier compared to its rivals to grow its penetration of existing markets, attract new suppliers, and to retain subscribers for longer.

Apart from getting its positioning strategy right, the company also adopted a great branding strategy.

Brand equity is also based on brand identity and how your customers recognize your brand.

While there are more brands in the market, that are serving the entertainment needs of millennial users, Netflix has proved itself more dynamic and customer-oriented in terms of understanding their expectations.

Through a higher focus on user experience, the company achieved higher credibility and reliability, resulting in stronger brand equity over time.

It gained a significant lead over its competitors and this will have a positive impact on its bottom line in the longer term.

The result is a strong and lasting source of competitive advantage for the online streaming platform.

The level of resonance that Netflix gained among its users will be difficult for its rivals to imitate.

Overall, in the longer term, Netflix will be less vulnerable to competitive pressure and to pricing changes or competitive marketing by its rivals.

Large user base:

A large user base is also a critical source of competitive advantage for the brand.

The company has experienced a sharp improvement in its user base over the recent years.

In the second quarter of 2020, its net number of memberships has reached 193 million and could be past 200 by the third quarter.

This is a lot larger compared to any other rival.

Netflix is a global brand and so is Prime, but the competitive advantage of Netflix is stronger.

Matching its large user base will remain difficult for the competing players and the subscriber base of some rivals is a lot smaller compared to Netflix.

While YouTube has a vast user base, most of its users spend their time watching user-generated content on the platform.

Moreover, YouTube’s core product is not movies and shows despite its large collection of movies.

With the growth in its user base, the revenue and operating margins of the company have expanded.

Another major factor that favors Netflix is the higher user engagement and retention rate.

Overall, it has achieved a sustainable competitive advantage which will grow stronger as the company produces more localized content to engage users worldwide in various regions.

Global presence:

Netflix streams its movies and shows worldwide in 190 regions.

There are few rivals in the global market that stream movies and shows globally.

The main rivals that serve the global markets include Prime, YouTube, and Disney+.

The global presence of the brand also offers it an extra advantage over rival players trying to grow locally in the US or one of the emerging markets like Voot in India.

The paid subscriber base of the company has grown to 193 million from around the world.

However, Netflix has achieved deeper penetration of most of the leading markets than its rivals.

While America and Canada account for the largest portion of its revenue or around 50%, the company has also experienced substantial growth in its revenue from the other market regions.

Global expansion has also helped Netflix overcome the competitive pressure from rival brands.

Product Mix:

The product mix of Netflix is also a critical source of competitive advantage for the online streaming platform.

It is one of the core sources of competitive advantage for Netflix and also one of the main differentiators that differentiates Netflix from the other online streaming brands.

Netflix offers a large number of movies and shows in around 30 languages targeted at audiences in different regions of the world.

It has more than 13,900 titles overall.

The company has focused on developing its own original content that stands out from the content found on the other platforms.

While Amazon Prime and Disney+ also offer original content, their libraries of originals are comparatively a lot smaller.

It offers movies in several genres that suit the preferences of various audience segments .

Netflix also offers TV shows and documentaries.

Several of its originals have achieved very high popularity among both the eastern and western audiences.

Until now, the company has invested most of its revenues and profits in producing original content.

However, that has helped it draw people from all over the world to its platform in larger numbers.

During the pandemic, the number of subscribers of Netflix grew sharply.

However, quality content plays a central role in driving memberships and user loyalty.

Overall, the competitive advantage it has gained by focusing on producing original content has helped it take a substantial lead over the rivals.

User experience:

User experience is also a major source of competitive advantage for digital entertainment brands.

A large number of users are accessing entertainment and other products and services through digital channels.

However, the user experience offered by a platform marks the main difference.

It depends on several factors including the quality of content, its variety as well as the overall quality of the user interface.

While Netflix has already accumulated a vast library of great quality content, it has also continued to improve the user experienced through the use of algorithms.

Its recommendation system is the best of all the streaming content providers and has helped the company grow its user retention.

The users can watch Netflix shows and movies on various internet-enabled screens.

The company makes its content available around the globe using cloud technology.

It ensures a seamless user experience and higher user satisfaction.

HR Management:

The human capital of a tech organization is also a fundamental driver of competitive advantage for the company.

For many tech organizations, managing their human capital strategically has helped them grow their competitive advantage stronger.

Netflix has also focused on managing its human capital strategically and engaging employees so they can deliver superior results.

It has established an organizational culture that fosters innovation and higher creativity.

Apart from that, its focus is also on maximizing employee satisfaction through training, performance management, and a better work life balance.

Overall, the company has been able to gain higher loyalty from its employees, while also ensuring that they find faster career growth and success.