A Market Entry Proposal Into Japan Marketing Essay

A Market Entry Proposal Into Japan Marketing Essay With more than 16 million members in the United States and Canada, Netflix.com Inc. is the worlds largest online service company for streaming movies and TV-series over the Internet and sending DVDs by mail.    Founded in 1997 by Reed Hastings and Marc Randolph in California, Netflix.com operated as an Internet-based unlimited rental subscription service for movies in DVD format. As a simple online DVD rental service, Netflix.com provided same-day shipping with customers receiving their DVDs within two or three days for sale or a rental period of seven days. In February 2010 Netflix.com became the number one ecommerce company for customers satisfaction  [2]  .   Over the past decade, Netflix.com has revolutionized the way of renting movies for people: with few simple clicks, members can stream movies online, watch them via devices on TV or have it the classic way: receive a DVD within one business day and watch it on TV without worrying about due dates and late fees. Company Background The DVD format, introduced into the market in 1997, was able to store a high quality copy of an entire feature film on a single five-inch disc. Even with the risk of not many Americans owning a DVD-Player by that time, Hastings and Randolph could see the potential of the disc replacing the videotape. Taking advantage of the newly introduced DVD and the small size and light weight of the discs, they could ship the DVDs cheaper than VHS-Tapes. After reaching its economics of scale in September 1999, NetFlix introduced the subscription plan for its customers. With a monthly fee of $15.99, customers could rent four DVDs at the same time with the possibility of renting a new one each time they return a title and put themselves on a queue list if a desired DVD was not available. In December 2000, revenue sharing agreements were made with Warner Home Video and Columbia Tri-Star. NetFlix got a better price for large amounts of DVDs in exchange for a percentage of their rental receipts with the movie studios. Soon after, Dreamworks and Artisan signed up as well. After attaining a subscription figure of 500.000 in February 2002, NetFlix went public and sold 5.5 million shares in late May, raising a more than expected amount of $82.5 million fund. In conjunction with its IPO, the company changed the name to Netflix, Inc with a lower case F. As Netflix gained more success and media attention, competition started to form.  [3]   With the constant growing of subscribers, Netflix announced in January 2008 to provide unlimited movie streaming for their more than 7 million members without any additional fee.  [4]  Ã‚  Subscribers could watch unlimited movies or TV Series on their PC. In 2010, Netflix announced partnerships with Funai, Panasonic, Sanyo, Sharp and Toshiba to provide customers to view their streaming content via a device on TV.  [5]   Netflix announced its expansion to Canada on September 22nd 2010, initially offering its streaming service outside the US. Netflix Canadian members can instantly watch movies and popular shows right on their TVs via Nintendos Wii, Sonys PS3 game console, and coming later this fall, Microsofts Xbox 360, as well as models from Sharp, VIZIO, Haier and Best Buys Insignia brand. Plus, they can instantly watch via Apples iPhone or iPad and on PCs and Macs.  [6]   Market Research Targeting Country and Market Conditions The rationale for exporting is to reach new customers and to use economies of scale. Netflix already has some international experience from when they entered the Canadian market. So we think Netflix is ready for the next step; to go overseas. The main reason for targeting the Japanese market is that Japan is the second biggest film entertainment market in the world after the United States of America  [7]  . What this shows is that there are enough potential customers for the streaming and DVD rental service.    The internet speed in Japan is 61 megabits per second, nearly 30 times faster than the broadband speed in the US  [8]  . Therefore the buffering before the customer can watch a movie or program will be short.   This will help satisfy the streaming subscribers expectation to watch the program immediately.    Japan also has a high internet penetration rate of 78%, which is nearly 100 million potential customers for the Netflix on-demand video streaming  [9]  . Paid streaming is not yet well-established in Japan  [10]  . There are a few webpages but they offer streaming for a higher price than Netflix. If the streaming business increases, Netflix has a good chance to be number one in Japan, especially if Netflix is able to bring the good quality service and cheap price to Japan that they offer in the USA.   However, there will be more competition soon; Apple, YouTube and Yahoo announced that they will enter the streaming business, and Netflix should expect more Japanese companies to enter the market as well. The systematic governmental factors can also be valuated as positive. The economy is stable even though Japan is struggling with the deflation of the 1990s. The market segment of video streaming is expected to grow strongly. Japan has a functional legal system and the Japanese law about illegal downloads has changed and was put into effect in January 2010  [11]  . Even though the law is still not very strict, it may be enough to catch those who download and stream illegally, and convert them into legal users as our future customers. The Japanese infrastructure is one of the best in the world. This is positive for the DVD rental service. It would be possible to deliver the DVD quickly like in the USA.   Furthermore, Netflix can expect that the percentage of Japanese households, who have a DVD or Blue Ray player, is higher than in other countries  [12]  . Another reason to invest in Japan is that the new Blue Ray format is growing strongly in Japan.   The market share of Blue Ray recorders exceeded 50 percent for DVD recorders in unit terms  [13]  . So there would be a possibility to benefit from that trend and offer more Blue Ray discs than other established Japanese DVD rental companies. Netflix probably cannot deliver DVDs all over the country, but a strategy could be to start the DVD rental business in just the two centers of Kanto and Kansai. The competition in the DVD market is very high in Japan. There are already some established companies like Posren and Tsatuya discas. These companies offer the same service like Netflix (DVDs by mail). A possibility to enter the market could be to introduce the Netflix service with unlimited DVDs and no due date. Netflix Strategic Options for entering the Japanese market When we considered Netflix entering the Japanese market, we mainly contemplated four options of entry: a greenfield strategy, a joint venture strategy, an acquisition strategy and buying shares of a Japanese company. All those options are called equity modes, i.e. ways of entering a foreign market that involves the use of equity  [14]  . Greenfield Strategy One foreign entry option for Netflix is to establish greenfield operations, i.e. start up the business in Japan from scratch by building storage facilities and offices on its own  [15]  . The greenfield strategy, if successful, gives Netflix a complete control of the business since it is wholly owned by the firm, and with no involvement with other actors, the firm has a good protection of its proprietary technology and know-how  [16]  . It is also a very favorable option if Netflix wishes to coordinate global actions from its U.S. headquarter  [17]  . This is also something that they are familiar since they entered the Canadian market in this way. However the cultural distance between USA and Japan might cause big problems in the Japanese market, especially in the start-up phase. Although appealing, greenfield operations are associated with high development costs, and if Netflix wishes to offer their customers rental DVDs for home delivery it would make them face problems such as locating storage facilities and delivery partners. The high resource commitment would, as in the case of wholly owned subsidiaries, serve as an exit barrier and result in a loss of flexibility  [18]  . This would be a both time-consuming and costly process, which would delay Netflix entry. The industry-based view suggests that a firms performance is a result of the firms actions in response to the industry structure. In this perspective, the intensity of rivalry among competitors (one of Porters five forces) is directly affected by how many competitors there are in the industry. The fewer competitors in an industry, the more unlikely the rivalry explodes into e.g. frequent price wars, since the competitors will be mutually interdependent. If Netflix would have chosen to enter the Japanese market by a greenfield operation, it would obviously increase the rivalry in the industry which would make the business more difficult for the competitors as well as for Netflix itself. This would probably be even more difficult to handle for Netflix than for the other participants due to the heavy investments it already has to manage related to the entry on the market. Furthermore, the central coordination that the greenfield option enables, could be an advantage as well as a disadvantage. Lack of local knowledge in the management or different ideas and priorities might cause fractions between the American part and the foreign located part of the firm.    Entering a foreign market involves many challenges and difficulties to overcome. Netflix needs to have extensive knowledge of the Japanese market dynamics and the consumer behaviour to be able to arrange its business. This knowledge is difficult to acquire without being a part of the market. The greenfield option would probably be a disadvantage to Netflix in terms of market knowledge relative to its competitors. Majority stake in Japanese Company and Joint Ventures If Netflix were to invest in a Japanese company through majority stake, this strategy would enable the Netflix to learn from and take advantage of the firm-specific capabilities that the Japanese firm possesses. The drawback of this strategy is, compared to wholly owned subsidiaries, that Netflix would not have full control of the Japanese subsidiary  [19]  . Overall, the advantages and disadvantages of partially owned subsidiaries like this are the same as for joint ventures. The option of performing a joint venture includes the possibility of sharing risks and profit with a local company. This creates a certain bit of safety against losses if the venture, in this case in Japan, does not prove to be profitable. Furthermore the local company can contribute with knowledge about the market which otherwise might be difficult to get hold of. The downside of joint ventures is that the different cultures and goals of the MNE and local company can cause conflicts and cause difficulties in operational control. These problems in controlling the foreign subsidiary can cause difficulties in global coordination. Acquisition Strategy An acquisition is an example of an equity mode, which results in a wholly owned subsidiary (WOS). This option of entry is a question of purchasing one of the already existing media home entertainment firms. By purchasing an existing firm, Netflix would obviously eliminate one of its competitors in the Japanese market. This consideration alone is appealing since, compared to the greenfield option where a firm is added to the market, Netflix would instead become one of the actors that is already a participant on the market. Establishing a WOS through acquisition could yield the same advantages as the greenfield option (control, protection and coordination abilities), but it also offers a fast entry. By eliminating a competitor, Netflix would not have to deal with costly e.g. marketing activities to introduce themselves to the market and convince potential customers to choose them. Furthermore, if Netflix chooses to acquire a partner that has a similar business model it would make the transition to the Japanese market smoother. An option is also to acquire a competitor that focuses on rental DVDs only and not online, with this they would receive knowledge about the Japanese customer, get access to existing customers, acquire already functioning storage facilities and delivery services and use their knowledge in streaming to start up a similar homepage in Japan. By purchasing a Japanese competitor Netflix might be able to avoid some vital obstacles of entrance, e.g. parts of the liability of foreignness. Since the Japanese firm is already a known Japanese firm which the inhabitants are familiar with, Netflix may not be perceived, by the Japanese customers, as a foreign firm. The acquisition also gives Netflix needed and desired knowledge about the Japanese market and consumer behaviour. Our recommendation Foreign entry decisions should be based on several strategic considerations including Porters five forces. Our analysis of Netflix entry options into the Japanese market is the acquisition of a pure DVD rental company for the DVD rental service and complement this with a Greenfield strategy for the online streaming service. Although this strategy is costly, it has the most favourable impact on the market structure and dynamics. Netflix would get hold of a delivery spots in attractive locations and take advantage of already established relationships, storage facilities and perhaps most important, they would get a knowledge about the Japanese consumer. Since, Netflix already is a late entrant in the DVD rental market, it is important for the firm to carry out a fast and extensive entry in order to show its competitors and market as a whole that it is committed to its venture. Marketing Decisions Falling under the umbrella of E-commerce and operating as a business-to-consumer (B2C) company Netflix had to develop unique marketing strategies in order to become successful in the American market. The core marketing strategy at Netflix in fact, the company strategy overall is to provide a great customer experience. We dont want our customers liking the service; we really want them loving it.  [20]  Being an E-commerce company Netflix uses marketing and advertising methods such as intense online banner ads, television commercials, and ads before the start of movie trailers during the pre-show time in theaters. Netflix executives claim that While our paid channels such as television and direct response vehicles like direct mail, online banners and search engines like Google and yahoo work extremely hard for us, word-of-mouth is our best channel. Its a combination of costing the least and performing the best. You cant over-invest in it.  [21]  Ã‚  Historically consumers i n the Japanese market are known to be very critical and selective. They demand superior quality, premium customer service, and top of the line after sales service even when they purchase second tier products. Netflix can use this to their advantage with their overall business competency and must make their capabilities aware to consumers as they market their service in Japan. The incredible ease and convenience of renting movies online and having them delivered to your home or even being able to stream and watch them online from your computer anywhere is universal in its appeal. Netflix aims to make enjoying movies easy and to put the joy back into watching them. Netflix even applies the strategy of marketing to the emotions of its consumers and can do the same in the Japanese Market. The Netflix logo and trademark incorporates the color red and when the company sends rental movies to consumers home they arrive in red disc sleeves. The color red embodies the red carpet and curtains in a movie theater. Red is a wonderful color to evoke the emotional response around movies and the color red is extremely important in Japanese culture. The color is seen in the Japanese Flag representing the sun and is synonymous with certain ancient deities and symbolism in Japanese Buddhism and Japanese Shintoism.  [22]  Ã‚   The Four Ps   Product, Price, Promotion and Place are extremely important for marketing in terms of Netflix entering the Japanese Market. Netflix already has a unique product and service but there are current competitors who offer similar services in the Market. Netflix could aim at niche markets if they wish to try out the Japanese market before full direct investment. Another strategy would be to team with a current player in the market to build the brand awareness for Netflix. An acquisition would allow Netflix to learn about the market and gain the necessary valuable information for long term growth of the company in a foreign market. Netflix has always been a low price and high quality option for people wishing to rent movies on high frequency levels. Netflix offers the promotion of a free one-month trial for consumers and pricing options start at low as $8 equipped with ability to stream TV shows and movies online and also one DVD at a time sent to your door. It would not be hard or expe nsive for Netflix to establish web servers and domains online in Japan to introduce themselves to Japanese consumers. The rapid growth and technological advancements of the Japanese market will allow Netflix to have advanced and unique distribution channels. Currently in America subscribers of Netflix can also stream and download movies on popular Japanese video game consoles such as the Nintendo Wii and the Sony PlayStation 3. In Japan many people purchase theses devices and if Netflix can successfully enter and navigate the waters of the Japanese market they can easily incorporate the video console channel into their overall distribution channels because of the already well established relationship in the US market.    stream_plus_dvd Promotion In order to make a successful Japanese market entrance, effective advertisement is crucial. We now suggest the strategy with following the steps of objective setting, resource about the market idiosyncrasies, message decision, and media decisions. The familiarity of the brand Netflix in Japan is yet trivial. So we suggest setting the objective in the short and long term, respectively. Considering that foreigners are more aware of the brand than Japanese customers and that Netflix stores outnumbering movie resource which are less accessible in traditional Japanese movie rentals, we set the short term perspective target to be the foreign residents in Japan. According to the 2009 report by Japans National Statistical Office, the number of registered foreigners doubled in 10 years. Taken a closer look, the number of Philippines and Americans, the two English-speaking nationalities, could be our major target.   So a niche strategy could be to enter the movie streaming market, with focus on movies in English with Spanish and Japanese subtitles to get a customer basis and then to expand the Netflix business to Japanese movies and programs. So Netflix could first use the same English webpage like in the United States and Canada, bef ore introducing a Japanese page. An important step would be to sign contracts with Japanese movie studios, in order to get the right to have Japanese movies in the collection.   Since the English-speaking customers are the ones who are familiar with the brand name Netflix, in addition to spending the budget on running the traditional advertisements (television, newspapers and such), we could use the Word of Mouth strategy. The 2009 report and Newsjapan mention additional information that the occupation of the foreigners, specifically the Americans and the British, are mostly businessman registered in the big cities such as Tokyo and Osaka, or related to the United States Forces Japan in Okinawa.  [23]  Ã‚  For the residents in Tokyo and Osaka, we should spread the words by getting cooperation with the Registry and the famous Japanese language center where foreigners mostly go to study Japanese in relatively cheap price, called Volunteer Japanese Class. In Okinawa, we can use the local English newspaper and run the commercial in the US army network. The Japanese market is in the top three in the world. Among the advanced countries, Japan has the least gap in spending habits and house incomes nationally, which means that most of the Japanese consumers can afford recreational services. Japanese customers have tendencies to be exceptionally aware of the name of the brand. More expensive it is, more likely they will favor it.  [24]   Since Netflixs previous advertisement in the US were online banners, we should consider the fact the accessibility to the Internet in Japan recently proved to be 64%, ranking 16th in the world.  [25]  Ã‚  Based on these facts, we should accentuate the partnership Netflix has with Panasonic and Toshiba making the brand even more recognized. As for deciding the media, we should use both the internet banner and the newspaper, including TV commercials. According to the Dae hyung Jong, KOTRA Regional manager in Nagoya, reports that the TV commercial expense has increased 12% compared to last year, when the Internet commercial expense remained steady yet, but expected to rise in the near future.  [26]   Most of the marketing budget should be spent on printing newspaper flyers, since the number of subscribers of newspapers in Japan is high. Among the five top nationwide distributed papers, the best suggestion would be the Sankei newspaper. Although it ranks fifth, the subscribers of Sankei are considered to be the frontiers in the Japanese consumer market. Their income level is considered quite high and the Sankei have the highest circulation rate in Osaka, where most of the foreigners are populated. It will be the best choice for Netflix, being able to aim both targets.   Ã‚  Ã‚  Ã‚  Ã‚   Conclusion A Netflix move to Japan could prove to be very successful if the company is able to establish its brand image and build its brand awareness in the japan market in a fairly quick time. We have concluded that this can be done if Netflix is able to acquire existing firms in order to use their distributions channels to reach customers and enhance its overall market presence. The effort to focus on various niche markets in Japan will also greatly aid Netflix in this transition.   Superior promotion strategies such as a one-month free trail and one free movie rental with the purchase of a video game aimed at console players in hopes that in the near future they will use our service to stream movies to their video games will support its efforts. Even with its various avenues for marking and advertising such as, promotions, television commercials, and internet adds, Netflix greatest advertising tool will be word of mouth. The word of mouth advertising will be derived from Netflix superior customer service and after sales service. These are a must for obtaing success in a rough Japan market.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   References