In 2007 Nettling introduced streaming, which allowed members to watch instantly television shows and movies on their personal computers and in the following 3 years Nettling partnered with consumer electronics companies to stream on the Oxbow 360, Blue-ray disc players, TV set-pop-boxes, ASS. Finally, Nettling launched an app on the Apple pad, phone and pod Touch. The company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per title rental fees.
The expansion of Nettling into International Markets first occurred in 2010 when streaming became available in Canada. The following year the company underwent its largest expansion to date, entering Latin America and in 2012 began its expansion to Europe. Currently, Nettling is available in 14 European countries including the UK, Scandinavia, the Netherlands and recently this year 6 additional European countries: Germany, Austria, France, Belgium, Luxembourg and Switzerland were added to the list.
However, Nettling is not available in any of the Central and Eastern European countries. Our group is analyzing if it would be beneficial for Nettling to enter the Central and Eastern European market, particularly the Czech Republic. For this analysis two methods will be used. Porters Five Forces will be the initial method utilized because it is an effective and simple tool for evaluating a micromanagement. Secondly the Pest method will be used.
The Pest method essentially helps in describing the framework of macro-environmental factors Macro- environment Analysis: Pest Analysis Political environment The Czech Republic has undergone major economic reforms and has privatized a majority of its sectors such as telecommunication, banking, and others. It is a stable economy registering double-digit growth over 2001-201 1, asking it a favorable destination for investment.
The main factors that should be considered when it comes to political environments are: Rule of law: In 201 2, several scandals involving senior government officials highlighted ongoing corruption and lack of transparency and caused the European Commission to cut around $650 million of EX. aid to the Czech Republic. The judicial/s independence is largely respected. Property rights are relatively well protected, and contracts are generally secure. Limited government: The Czech Republic’s top individual income tax rate is 15 percent, and the corporate tax rate remains at 19 percent.
Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden is equivalent to 35. 3 percent of GAP. Tax increases and budget cuts have yielded surpluses in recentness, and government spending has stabilized at 43 percent of GAP. Public debt is around 45 percent of the domestic economy. Regulatory efficiency: Incorporating a business has become less time-consuming, and licensing requirements have been eased. The minimum capital requirement is now less than 30 percent of the level of average annual income.
Labor regulations are relatively flexible, although the non-salary cost f employees can be burdensome. Although a range of price controls are maintained, the state has taken steps to reduce subsidies for state pensions and green energy. Open markets: ELI members have a low 1. 1 percent average tariff rate and, in general, few non-tariff barriers to trade. Restrictions on foreign land ownership have been phased out. The relatively well- regulated financial market continues to grow steadily. The banking sector remains competitive and resilient, offering a wider range of financial products.
Economical Environment Czech Republic has one of the most developed industrialized economies mongo the emerging democracies in Central and Eastern Europe. It is one of the most stable and prosperous of the post-communist states of Central and Eastern Europe. The Czech Republic has a well-educated population and a well-developed infrastructure. The country’s strategic location in Europe, low- cost structure, and skilled work force have attracted strong inflows of foreign direct investment (FED). The Czech GAP is forecast to reach US $279. 8 billion by the end of 2017.
The open investment climate and huge potential in sectors such as energy, automotive, retail, and construction is expected to rive the economy over the forecast period. In the third quarter of 2013, real GAP expanded at a modest pace of 0. 2%, and grew by 1. 6% in the fourth quarter, confirming the recovery that had started in the second quarter. Regarding unemployment, the Czech Republic has the fourth lowest unemployment rate in the EX., after the Netherlands, Germany and Austria, according to figures released by the Czech Statistics Office.
In 201 3 the Czech Republic had an average 7 percent unemployment rate, compared with the E average of 11 percent. On the other hand, the country has one of the lowest number of employed working in part time jobs. When it comes to inflation, in November, consumer prices fell 0. 2% over the previous month, which contrasted the 0. 2% increase registered in October and marked the steepest drop since September 2013. The CNN sees inflation ending 2014 at 0. 7%. For 201 5, the Bank expects inflation to rise to 1. % Socio-cultural Environment The Czech Republic is a politically stable environment and economically growing country with many incentives for a foreign investors. In our case, our company is from United States, so it could be really important to analyses the Hefted Culture dimensions before launch Nettling there. Czech culture differs from America in that they tend to be indirect and more formal. The Czech people are more unassuming and avoid confrontation to maintain the social expectation of politeness.
In addition, the Czech people are more structured and tend to adhere to rules and regulations that may appear to an American as slow moving. In order for any investor to be successful in the Czech Republic, they will have to be formal and patient. The US and Czech cultures differentiates particularly in the areas of individualism and uncertainty of avoidance. As the power distance and uncertainty of avoidance indexes point out, the Czech people lean toward a structured organization that follows rules meticulously.
The Czech people digress from the American culture in the respect of lines of authority. Technological The telecommunications industry in the Czech Republic has been developing rapidly in the past several years. While the telecommunications infrastructure is not as extensive as it is in many developed countries, increasing customer demand, foreign investment and developments in wireless and wire line technologies have contributed to a rapid increase in services provided. The telecommunications industry is considered one of the states growing industries in the Czech Republic.
Foreign investors have entered all areas Of the industry from terrestrial and mobile telephony, to data SE;aces and even satellite transmissions. The Czech Republic’s prime location in Central Europe is viewed as a major incentive to enter the market. Regarding online communications, while still relatively expensive, the Internet is being widely used in the Czech Republic. Increasing competition among Internet service providers and prevarication of telecommunications services will eventually bring costs down to a level which most Czech can afford.
Approximately 300,000-400,000 people in the Czech Republic access the internet per day. However, estimates show that there are significantly fewer home Internet users. Micro Analysis of Czech Republic In this part we are going to analyze the micro environment that we find in Czech Republic. Firstly, it is necessary to start with knowing which kind of customers are we going to find there. Customers in Czech Republic are “engaged”, their behaviors are characterized to be very active, pragmatism, with hope and confidence in market changes and with solid emotional background.
Also it is necessary to note that customers in Czech Republic are experienced a new need of language support. We can difference an old generation (with more that 35 years old) which are TV watchers and that prefers Czech dubbing so for this reason it is important that Nettling cover local preferences; but we also find a new generation (between 15-35 years old) that are online watchers and that mostly prefers other languages (English with Czech subtitles) so Nettling has to adapt their content to this specifications. After that, we can analyze Porter’ s five forces.
Barriers to Entry If we analyze which are the main entry barriers for Nettling in Czech Republic, e have to start analyzing the different channels distribution that Nettling can find. Entry into a new market in-home video entertainment industry is constrained by the costs of acquiring new distribution rights from Studios. In Czech Republic it is important for Nettling find local distributors that provide video and television content from there, it means that Nettling has to adapt its content to the specific requirements of new competitors.
It is obvious that one of the main strength of Nettling is the high amount of variety that it provides most of them original of the US. For that reason, in Czech Republic or example research show that the most popular n. ” shows from The US are the followings (interest requests by episode): Game of Thrones (200. 000) Asparagus (70. 000) Dexter (50. 000) Big Bang Theory (45. 000) Vampire Diaries (40. 000) This information should make Nettling thinks about keeping all programs it offers in US and also increase them with local famous programs and videos. Bargaining Power of Suppliers The bargaining power of suppliers is moderately high.
Nettling way of working is based on acquire its video content through direct purchases, revenue sharing agreements, and licensing agreements. These agreements allow Nettling to rent DVD’s and stream video content and are primarily obtained from studios, networks, and distributors. For this reason, it is easy to conclude that Nineteen’s suppliers, e. G. Studios who make the movies, networks, and distributors, control the prices that Nettling must pay for its video content. Normally suppliers are able to impose a price increase on their products or reduce the quality of products supplied which may decrease a company’s overall profitability.
The First Sale Doctrine used by Nettling is a copyright law stipulating that once a copyright owner sells a copy of their work they languish control of the work and the purchaser may redistribute the work as they wish. This doctrine provides protection for Nettling with regards to redistributing DVD titles. However, the First Sale Doctrine does not apply to streaming content. Therefore, Nettling is especially vulnerable to supplier power during streaming distribution cost negotiations.
The studios and distributors who license streaming content are in full control of the terms and conditions with Nettling and may rescind the availability of the content at will. As the DVD format becomes increasingly obsolete and streaming video intent grows in popularity, Nettling become more susceptible to the power of their suppliers. Bargaining Power of Buyers The bargaining power of buyers is high. The in-home video entertainment industry is intensely competitive because customers subscribe to multiple providers simultaneously and it is virtually costless for them to compare prices between providers.
Highly price sensitive customers have a lot of power. There are little to no switching costs and customers have an extremely large amount of options on which products to choose. Also, technological developments in video consumption are continually changing which results n volatile buyer preferences. Therefore, Nineteen’s buyers have a moderate level of power because if Nineteen’s prices become comparatively more expensive than alternative video providers, their customers merely have to cancel their Nettling subscription.
Due to that, they must be conscious of their competitors’ prices and make every effort to keep subscription costs low. Although buyers are fragmented and no singular buyer has the ability to influence a product or price, their diminishing brand loyalty give them a reasonable amount of power. Therefore, Nettling must maintain a current easiness model, adapt to industry development like video streaming to maintain their subscription base and has to get uniform price points across similar products. Substitute Products The threat of substitute products is high in this industry and costs must be kept low in order to be competitive.
Nettling competes with a handful of entertainment viewing formats that are relatively interchangeable including POD, pay-per-view, online streaming etc… So substitute products to the movie rental industry include physically attending a movie, watching television, surfing the web or even playing a video game. People used to subscribe a combination of these services, and since they are close substitutes and there are minimal switching costs, small fluctuations in prices can cause consumers to leave one viewing format and quickly replace it with another. Technology has tremendously aided to increase the threat of substitute products.
Rivalry among competing firms The rivalry among established companies is minimal. In spite of the movie rental industry is very competitive as there are a large number of firms in this industry and also many methods for consumers to obtain a movie, in Czech Republic Nettling have weak competitors. The main competitors are Vivo, Output and Laszlo. If we start with Vivo (CAME/Time Warner), it has near 20. 000 subscriptions after two years and it is focused only on local shows, sports and B-movies. Output is a local company which has around 27. 000 subscriptions after seven years and it is focused on B-movies, Czech movies and no shows.
And finally Laszlo is the biggest file sharer we find in Czech Republic but it is having problems because of request intellectual property violations and lawsuits. Market Entry Strategy Segmentation Using criteria for traditional market segmentation, the ideal market segment or Nettling in the Czech Republic is urban, middle-class, Internet using, television owning males and females aged 17 to 60. Urban consumers in the Czech Republic tend to have more purchasing power as well as access to the Internet, and we estimate that Nettling will appeal more to the middle and upper classes that have more disposable income to spend on luxury goods.
To reach these consumers, our marketing should center on Prague. Prague has over 1 million inhabitants adding up to over 10% of the population (“Doing Business” 2013). However, with a product like Nettling, a modern segmenting approach is more appropriate. In the United States and certain countries of Western Europe, Nettling has positioned itself to reach 3 basic groups of people: People who are too busy to shop for movies, frequent movie buffs, and people who want the most value for their money. (“Project Report’ 2013).
This method of segmentation focuses more on values and motivation allowing Nettling to better understand its consumer base and adapt the marketing mix to fit with them. When entering the Czech Republic, Nettling should continue to reach out to these groups with an emphasis on creating the perception that the product provides an excellent value for the price. To further define the segment, employing Cross Cultural Consumer Characterization (ACS) is appropriate. The mainstreams and aspirer classifications fit well with the Nettling product and account for a significant portion of the Czech population.
Mainstreams are consumers of habit and brand loyalty who typically favor more popular brands. This works well for Nettling who is quickly becoming one of the largest and most well known movie and television streaming services out there. Aspirer who look to keep up with trends and look presentable could find Nettling attractive with its rowing presence in Europe and famous PA’ programs and movies. Targeting and Positioning Our estimates find that our target segment makes up about 39% of the population that includes about 3. 5 million people and has a significant growth potential (Press Release 2011).
With the lower class shrinking and the middle class showing significant signs of growth, more consumers currently classified in the resigned and struggling poor segments will become mainstreams and aspirer in the near future. With more disposable income and access to Internet becoming available, Nettling should find success in reaching this target segment. To find success Nettling will need to successfully position itself in an increasingly competitive market. Although we will adapt Nettling slightly to fit in with the Czech language and culture, a global consumer culture positioning (CAP) strategy would be appropriate.
Nettling is a global product, and the globalization of film and television has created similar preferences worldwide for viewing. With slight customization to the Czech culture, Nettling can position itself as a platform for the Czech population to relate to the global culture (Basher 2011). Marketing Mix: Product, Place, Promotion, Price After extensive secondary research, a trend in consumer preferences has been identified. Czech Consumers can be described as ethnocentric consumers, meaning they tend to perceive their country’s products as superior to others’.
One way that Nettling should customize its marketing mix for the Czech Republic is to develop a product selection based off of Echo’s film preferences. For example, when entering the French market, Nettling faced backlash from the French movie-loving consumers. The French consumers were wary of this huge foreign company as they believed it might undermine the French film industry. To appeal to these consumers, Nettling has promised to invest in creating local content and increase its selection of French films (O’Brien, 2014).
In an effort to reach Czech consumers, Nettling should purchase the rights to distribute famous Czech films such as I Served the King of England, Sukiyaki’s Rose, Something Like Happiness, and Salary (Saddened). Movies such as these, which were filmed in the Czech Republic, use the Czech language and portray Czech traditions would be welcomed by the Czech. Including older popular television series from the Czech Republic is also recommended to customize the product. By providing familiar film selections to the Czech consumers, consumers may perceive Nettling to be less of an unwanted “foreign” company.
The pricing strategy that Nettling should choose also must be considered. According to Number, in 2014 the Czech Republic consumer prices are 34% lower than in the US, local purchasing power in the Czech republic is 51. 33% lower than in the US, and the cost of a cinema ticket is 32. 95% lower than in the US (“Cost of Living Comparison Between United States and Czech Republic’, 2014). In the Western European countries, the product is sold for around ?7. 99 a month, forever, the purchasing power here is higher than in the US (Smith, 2014). In the US the product sells for about ?6. 48 a month.
With this information, Nettling should conduct an analysis on what price should be offered to the Czech Republic consumers. It could be recommended that Nettling, selects a price around ?3. 88 a month, because this is 30% less than the price offered in the US. The Czech citizens would be able to better afford this pricing package, which would better match demand in this country. Nettling must also take into account the “place” segment of the marketing mix. According to the Country Commercial Guide of 2013, in the Czech Republic, there is a wide population dispersion, with 10% of the population living in the country’s capital, Prague.
These urban dwellers typically have greater purchasing power than the rural dwellers (“Doing Business”, 2013). Nettling should launch its product in Prague, where the population is in average younger and the purchasing behavior is to buy more quality and luxury items. Their market size will be greater in this city, and they will have to spend less money reaching their market with promotions. The consumers living in Prague will also provide a good indication whether to expand its infrastructure to the rest of the Czech Republic or not.
Lastly, the promotional aspect of the marketing mix is very essential to consider. The Czech market is relatively small, meaning reaching consumers is less expensive and time consuming than in the United States. According to the Country Commercial Guide of 201 3, trade shows, technical seminars, media events and press conferences have been historically proven to be most effective in the Czech market (“Doing Business”, 2013). Once Nettling has identified the best cable company to be their distributor, they would work together to create a booth that they present at multiple shows.
The local distributor will be able to suggest the best shows, locations and venues to make presentations and can ensure that Nettling creates presentations in a way that the locals will be impressed. Nettling should also ensure that a brand representative is there to represent the product mix in the best possible way. Nettling should also locate key opinion leaders in the Czech Republic and give them a free trial of the product. If possible, making these opinion leaders into “apostles”, Nettling will have a great resource to remote the brand using word of mouth and online blobbing sites.
By combining these promotional techniques, Nettling will better be able to advertise their product in a way that the Czech will more fully adopt their product. Mode of Entry: The Echo’s tend to be proud of their traditions, nationally manufacture products, etc. Therefore, as a foreign company, Nettling must customize their product to appeal to this national pride of the Czech. According to the Country Commercial Guide of 2013 prepared by the U. S. Embassy Prague, “success in this market typically requires an in-county presence such as an gent, distributor or representative office,” (“Doing Business”, 2013).
Based off of this information, it is recommended that Nettling commits to a joint venture with the local cable providers. By partnering with local cable providers, building new infrastructure in the Czech Republic will be minimal. Consumers will be able to access Nineteen’s services off of their mobile devices, personal computer, household televisions, etc. This approach has proved successful in similar European markets because it enables a company to utilize the local company’s knowledge of the market and current distribution yester.