Value is created for the consumer because of the

Value is created for the consumer because of the choice and availability of the product, for less
time money and effort for the customer. Netflix has developed a user-friendly website that is
partnered with Cinematch technology. Cinematch is software used by Netflix in order to help
the customer find selections that match their demographic information and renting trends, which
saves them time and gives them recommendations that match their movie renting desires. It
organizes video choices into different categories creating a superior movie renting service for the
consumer (CNet News, 2009).
Netflix is expanding their selection of streaming content, of which they currently have
17,000 movies and TV choices (Marketlineinfo.com, 2009). Customers can stream movies
directly from Netflix website and watch them instantly. In 2008, they expanded the means to
stream content directly from the website. Now customers can flow “content to their TVs through
Blu-ray players (Marketlineinfo.com, 2009). The turnaround time for consumers to watch a
movie and the ability to view it on their computer provide the consumer with instant
gratification. Netflix can provide two ways to watch a movie for one low price. Although the
technology is advancing each day, Netflix expects both their streaming content as well as their
DVD-by-mail rentals to increase (Marketlineinfo.com, 2009).
Financially, Netflix three major strengths include a stable current ratio, a decreasing
subscriber acquisition cost, and a surging stock price. Netflix current rate is an important

measure. Netflix spends in excess of $300 million on postage for the past three years and is
expected to pay $600 million in 2010 (Knowledge at Wharton, 2009). This cost is only
increasing into the future as postage, and packaging expenses rose 23% between 2007 and 2008
(Netflix 10k, 2009). Netflix displays its ability to cover the exposure to the postage and
packaging price hikes, in the short term future.
Another major strength for Netflix is a decreasing subscriber acquisition cost. Netflix
defines subscriber acquisition cost (SAC) as total marketing expense divided by total gross
subscriber additions (Netflix 10k, 2009). SAC is used by Netflix to assess how proficient current
marketing programs are in gaining new customers. For the years of 2006, 2007, and 2008 the
subscriber acquisition costs were respectively $42.94, $40.86 and $29.12 (Netflix 10k, 2009).
The drastic change from year 2007 to 2008 can be credited to new marketing schemes including
a significant reliance on the customer’s word of mouth. By cutting total marketing costs, Netflix
was able to reduce the price of its most popular subscription plans by a dollar into 2008. These
new marketing schemes, including word of mouth, were efficient as revenue increased by 13.2%
from years 2007 to 2008 (Netflix 10k, 2009).
Netflix also finds strength in their surging stock price. On January 23 rd , 2004, Netflix
decided to split their stock when it reached $77.50. Five years later the stock is rising back
towards $77.50, as it reached $60.81 on November 18 th . The momentum of Netflix stock does
not seem to be slowing either; its 52-week change in a percentage was 221.90%