Chapter 6 - Cost Leadership

The strategy behind cost leadership is to have cost lower than your competition. This allows a firm a competitive advantage in the market place. There are different ways to achieve cost leadership. Economy of scales is one, that in the simplest of forms, the higher the form of production decreases the cost associated with it. Netflix has the largest subscriber based and content in the industry. This makes it very easy to have a competitive advantage in cost leadership.

The second area deals with experience differences and the learning curve. There is always an advantage to be gained when you have the most experience in a certain industry. Netflix is the originator of this industry and has had to come up with the majority of solutions to problems that have arisen when this industry was in its infancy. Other competitors now have to deal with these new experiences as they arise, while Netflix has solutions on-hand.

The third area is technological advantages. This is where a company has in place systems and technology that other competitors do not have. Netflix is the developer in most of the technologies dealing with streaming media. Their size and experience makes it very difficult for newer competitors to achieve the same technological advances as Netflix.

Netflix has cost leadership as a competitive advantage because they are the originator and longest company in the streaming media business. This coupled with the largest library and subscribers makes Netflix the cost leader in the industry. It will be very difficult for any competitor to pass them in the foreseeable future.