Netflix Blue Ocean Strategy: From Video Rentals to Beyond
This paper applies Blue Ocean Strategy (BOS) tools to Netflix, examining how the company disrupted the video rental industry by leveraging the Internet as a distribution mechanism rather than relying on physical storefronts. Using the six paths framework, the three tiers of non-customers, the buyer utility map, and the four actions framework, the paper identifies Netflix's key strategic challenges—including strained content-provider relationships, fee-driven customer attrition, and a narrow product focus—and proposes a path toward sustainable competitive advantage through service improvement, product diversification, stronger supplier relationships, and global expansion of its customer base.
- Introduction: Netflix in a Red Ocean Industry: Netflix disrupts video rentals via Internet distribution
- The Six Paths Framework and Netflix's Strategic Position: Six paths framework reframes Netflix's core assets
- Three Tiers of Non-Customers: Identifying lost, refusing, and unexplored customer segments
- Buyer Utility Map and Execution Hurdles: Delivery strengths and cognitive resource barriers analyzed
- The Four Actions Framework: Reduce, Eliminate, Raise, and Create: Strategy grid guides Netflix expansion and differentiation
- Focus, Divergence, and a Compelling Tagline: Service focus and broader product range divergence
- Building Long-Term Sustainability: Scale, supplier relations, and pricing power sustain Netflix
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What makes this paper effective
- It applies multiple Blue Ocean Strategy frameworks systematically—six paths, three tiers of non-customers, buyer utility map, and the four actions grid—rather than relying on a single tool, giving the analysis depth and coherence.
- It reframes Netflix's core asset (its user base) as a product sellable to content providers, demonstrating strategic insight that moves beyond surface-level competitive analysis.
- It grounds abstract strategic frameworks in concrete, timely examples—such as content-provider disputes and mobile streaming gaps—making the argument practically relevant.
Key academic technique demonstrated
The paper demonstrates framework-driven strategic analysis: each BOS tool is introduced, briefly defined with citation, and then applied directly to the firm's situation. This approach shows how theoretical models translate into actionable business recommendations, a skill central to business and strategy coursework.
Structure breakdown
The paper opens by situating Netflix in a red ocean context, then moves sequentially through BOS tools: six paths → non-customer tiers → buyer utility and execution hurdles → four actions grid → focus/divergence/tagline → sustainability. Each section builds on the last, culminating in an integrated argument for how Netflix can construct a durable, differentiated business model. The conclusion ties all three proposed strategies together under the theme of long-run sustainability.
Introduction: Netflix in a Red Ocean Industry
The red ocean industry examined in this paper is video rentals, and the company chosen is Netflix. Netflix succeeded in overwhelming its major competitor, Blockbuster, through differentiation—specifically, its use of the Internet as a distribution mechanism rather than physical storefronts. This positions Netflix as a compelling case study for Blue Ocean Strategy (BOS), a framework concerned with creating uncontested market space rather than competing head-to-head in existing industries.
According to Kim and Mauborgne (2010), the six paths framework seeks to uncover new, open strategic space for a firm. The six paths are: looking across alternative industries instead of focusing on competing within an industry; looking across strategic groups within industries instead of confining a company to established strategic groups; looking across the chain of buyers instead of focusing on the same buyer group as the rest of the industry; looking across complementary products and services instead of limiting a company to the scope of an industry's products and services; looking across functional or emotional appeal to buyers instead of accepting an industry's functional or emotional orientation; and looking across time instead of focusing on the same point in time as the rest of the industry.
The Six Paths Framework and Netflix's Strategic Position
Applying this framework leads to an important insight: Netflix has a strong customer base for professionally developed content, but it does not need to sell or rent movies any more than Amazon needed to stick with selling books. The customer base of Netflix—which accounts for a massive portion of total Internet traffic (Svensson, 2011)—is its main asset and, in a sense, its main product, because it can be sold to content providers. This is a significant reframing of the Netflix business. Content providers are in dispute with the company (Dignan, 2011) and are simultaneously seeking tight control over Internet distribution mechanisms (McCullagh, 2011), making this reframing strategically critical.
Three Tiers of Non-Customers
The three tiers of non-customers are, first, the "soon-to-be" non-customers—of which Netflix has many, having alienated a significant number of users with fee increases. The expectation of future fee hikes, driven by escalating content costs, is likely to enlarge this group over the coming years. The second tier is the "refusing" non-customers, which could include anyone from technophobes to people simply disinterested in movies. The third tier is the "unexplored," which for Netflix includes people in markets outside the United States (Kim & Mauborgne, 2010).
The first and third tiers are perhaps the most important for Netflix. The company must maintain and expand its customer base rather than allow further attrition. It also needs to explore the globalization of its customer base for two reasons. First, it needs higher volumes because its margins will be squeezed by rising rights fees. Second, the more customers Netflix has, the more important it becomes to content providers—strengthening its negotiating position.
Buyer Utility Map and Execution Hurdles
The buyer utility map reveals that the major benefit Netflix offers lies in the areas of Delivery and Disposal. While the company cannot treat its competencies in these areas as a form of sustainable competitive advantage, it does outcompete most current content delivery systems in adding value in these dimensions when compared with television channels, movie theaters, Blockbuster, and similar alternatives.
BOS also analyzes a company in terms of four hurdles to execution: the cognitive hurdle, the resource hurdle, the motivational hurdle, and the political hurdle. Netflix appears to face a cognitive hurdle in that it maintains a myopic focus on movies and television shows. There is a resource hurdle in that Netflix relies on content providers for its inventory and has a strained relationship with many of those partners. At this point, however, there are few motivational or political hurdles.
Works Cited
Dignan, L. (2011). Netflix's rough weekend: Sign of things to come. CNet. Retrieved October 29, 2011 from
Kim, W. & Mauborgne, R. (2010). Six paths framework. Blue Ocean Strategy.com. Retrieved October 29, 2011 from
Kim, W. & Mauborgne, R. (2010). 3 tiers of noncustomers. Blue Ocean Strategy.com. Retrieved October 29, 2011 from
Kim, W. & Mauborgne, R. (2010). 4 actions framework. Blue Ocean Strategy.com. Retrieved October 29, 2011 from
McCullagh, D. (2011). Copyright bill revives Internet 'death penalty'. CNet. Retrieved October 29, 2011 from
Svensson, P. (2011). Netflix's Internet traffic overtakes web surfing. MSNBC. Retrieved October 29, 2011 from
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