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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 theconsumer (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 throughBlu-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 currentmarketing 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 23rd, 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 18th. The momentum of Netflix stock does not seem to be slowing either; its 52-week change in a percentage was 221.90%