Whether you binge-watched Tiger King, The Queen’s Gambit, or The Baby-Sitters Club, chances are that Netflix was a defining part of your pandemic life (and probably the Before Times, too). With 220 million members worldwide, Netflix has become a household name, (virtual) watercooler conversation fodder, and a familiar part of our daily routines.
But it didn’t start that way. In its early days, Netflix was a DVD rental site with just 2,600 movies in its catalog.
Telling the story of Netflix involves understanding how the company prioritized personalization, says Gibson Biddle, a Product Advisor and former VP of Product at Netflix.
Gibson recently shared his insights into customer-centricity at Netflix at the 2021 Product Excellence Summit. Find the highlights below or head here to watch the entire presentation.
Using the DHM model to drive product strategy
The product leader’s job, says Gibson, is to Delight customers in Hard to copy, Margin-enhancing ways. This approach is known as the DHM model. It essentially means that you want to help your company make more money so you can invest in building an even better product in the future.
Product leaders must walk the line between delighting customers and making a positive impact on margins. As Gibson puts it, “Netflix customers might say, ‘Just charge me half the money. That would be delightful!’ But that’s not going to support enough profit to make the product better.”
So simply slashing prices doesn’t fit the DHM model. But what about creating a “perfect” experience?
Creating the perfect new release experience
Imagine it’s 2005. Streaming doesn’t exist and no one has even heard the term “binge-watching” yet. Netflix is sending DVDs to around 1 million members through the mail. Customers create a queue of movies they want to rent, so when their first choice isn’t available, they simply get their second, third, or fourth choice.
When Netflix surveys customers about how to improve the service, one of the top answers is shortening the amount of time it takes to get new releases. Due to high demand, most customers have to wait several weeks (or more) to get the new releases at the top of their queues.
This seemed like a promising opportunity for delighting customers, but it was unclear whether it would enhance margins, so Netflix set up a test. They created a group of 10,000 customers who would get a “perfect new release” experience. Any new release they requested would be put in the mail to them the next day.
The big question they were trying to answer was: Will retention improve as a result? Would the enhanced experience be a big enough change to prevent customers from canceling their subscriptions?
The answer was… yes. There was a slight dip in the number of customers who canceled. Cancels went from 4.5% in the control group to 4.45% in the test group. Netflix calculated that if they rolled this change out to all 1 million customers, it would prevent 5,000 customers from churning. “Saving” these 5,000 customers was worth $1 million to the company. They calculated this number based on the number of customers (5,000) x lifetime value of customer ($100) x word of mouth factor (2).
But, in order to acquire the inventory that would allow them to roll out the “perfect new release” experience at scale, it would cost the company $5 million. While this enhanced experience might delight customers, it would actually be harmful to the company’s margins. Ultimately, Netflix chose not to roll out the perfect new release experience.
If you’re interested in using the DHM model, you might find it useful to create a scoring sheet to help you compare and contrast different ideas. Gibson shared this example from Netflix, noting that the chart is color-coded. Green strategies are the ones that tick all the boxes and are most likely to be implemented, yellow strategies tick some but not all boxes and may not be implemented, and red strategies don’t tick the boxes or have not yet been validated.
Putting consumer science into practice
“Consumer science is really a fancy way of saying ‘the scientific method,’” explains Gibson. You start with a hypothesis, run experiments to collect data, and then analyze the results to come up with a conclusion.
Getting explicit data through the Star Bar and Ratings Wizard
To look at an example of how Netflix put its personalization product strategy into practice, Gibson takes us back to Netflix in 2005 again.
“We were doing a sucky job,” he says. “We put expensive new releases, which we couldn’t deliver, on the home page. Netflix First was our first experiment in original content, which failed in the DVD era, and we used the word ‘recommendations,’ which is a bad idea because it’s not human language.”
Their product strategy when it came to personalization had four main hypotheses: they would get explicit data by asking customers to rate lots of movies, implicit data (when streaming became possible), matching algorithms, and higher quality movies.
There were metrics that mapped to each strategy, and in turn, tactics that mapped to each of those metrics, shown here.
The first strategy, collecting explicit data, relied on asking customers to rate their recent rentals to “reveal” two movies they’d love. Their goal was to get customers to rate at least 50 movies. And it worked!
The percentage of customers who rated at least movies steadily grew, reaching a high of 28% in 2010, only dipping in 2011 when streaming began to take off.
Another tactic they tried out was the Ratings Wizard. When customers clicked on the “Movies You’ll ♥” tab, they’d see the following message: “The more you rate, the better we’ll do at finding movies you’ll love.”
This tactic was also hugely successful. “People would binge-rate dozens of movies at a time,” says Gibson. Netflix ultimately collected around 10 billion star ratings.
A case study to consider: Auto-cancel inactive members
Flash forward to the present day. Eddie Wu is a Netflix product manager focused on non-members. He noticed that 0.5% of members haven’t used the service in the last 12 months. They’re getting no value out of the service, but continuing to pay for it each month.
Eddie calculated that auto-canceling these inactive members would lead to a $100 million annual loss, but would the benefits outweigh that? They might, if they focused on the “delight” and “hard-to-copy” parts of the equation.
What would you choose to do?
Ultimately, Netflix launched this feature, believing that the $100 million loss would be balanced out by the positive impact on their brand. And so far, the bet seems to have paid off. Netflix has gotten positive press and tapped into feelings of goodwill among the general public as a result.
Gibson says the key takeaways from this case study are that brand is a hard to copy advantage. It was worth “spending” $100 million because it wasn’t really money they had earned. And it was worth it to do the right thing. Plus, it was a low-stakes, reversible decision. They could always flip the switch the other way if necessary.
All you need is a little patience
One ingredient that’s necessary for companies that would like to apply the tactics Gibson shared? Patience. “It takes a long time to develop all this consumer insight and learn to delight in these hard-to-copy, margin-enhancing ways,” says Gibson. Part of the key to Netflix’s success is that they’ve now had many years to collect relevant data from their customers and enhance the personalization of their product.
If you’re looking for ways to improve your own customer-centricity, Gibson asks the following questions:
- Do you have access to existing data? Can you understand how you’re delivering customer and business value?
- Do you have access to qualitative data like usability and focus groups?
- Do you have access to survey, demographic, product quality, and NPS data?
- Are you A/B testing to measure change and keep an eye on delight vs. margin?
- Do you have a product strategy? Are you forming hypotheses?
Watch Gibson’s full presentation (and catch all the other actionable content from the Product Excellence Summit) here.
FAQs
How is Netflix customer centric? ›
Netflix creates a customer-centric strategy
Rather than emphasize its focus on the development of new services at any cost, without explicit customer input, it reinvented itself as a customer-centric company.
Netflix product strategy
'Going digital' enabled Netflix to expand worldwide. Having achieved all of the above, Netflix is currently placing a strong focus on original content. The product team at Netflix prioritize monthly retention as the company's high-level engagement metric.
Customer-centricity is a business strategy that's based on putting your customer first and at the core of your business in order to provide a positive experience and build long-term relationships.
What is a customer centric product? ›A customer-centric company puts the customers at the core of every strategy and focuses on creating solutions that satisfy its users' needs. Customer-centric companies analyze customers' needs and pain points, while product-centric companies aim to create and sell the best new products.
Why is Netflix attractive to customers? ›Netflix keeps viewers informed about new programs, builds excitement, and boosts viewership. A few reasons why Netflix is so attractive is that it offers personalization at every level. It has a simple, clean and intuitive user interface. Its ad-free, high-quality content is available 24*7.
Why is Netflix so successful from a consumer Behaviour perspective? ›The success of Netflix shows that consumers want products that are easy to use and tailored to match their preferences. Every company, no matter the industry, can learn from Netflix and apply the principles of innovation, disruption and personalization.
What are the strategy of Netflix to innovate their strategy? ›Specifically, the Netflix innovation strategy focuses on: Hiring and keeping only the best workers—at any cost. Promoting candor through constant feedback at all levels as well as organizational transparency. Removing controls, such as allotted vacation time and approval processes.
What are the key elements of Netflix's strategy today? ›What are the key elements of Netflix's strategy today? Netflix's key strategic elements are to develop high speed Internet service to its customers, reduce content costs by producing their own content, expand globally to take advantage of a whole new market, and expand its offerings of quality television series.
How do you create a customer centric strategy? ›- Operationalize customer empathy. ...
- Hire for customer orientation. ...
- Democratize customer insights. ...
- Facilitate direct interaction with customers. ...
- Link employee culture to customer outcomes. ...
- Tie compensation to the customer.
Some of the customer focus examples include quality customer support, developing the best solutions for clients rather than the best products in general, using various data to understand customer behavior better, asking for customer feedback and taking it seriously to improve, focusing on their satisfaction, etc.
What are the 3 benefits of customer centricity? ›
...
The 3 objectives of customer centricity
- 1 – Efficient client segmentation. ...
- 2 – Increase in retention rates. ...
- 3 – An ideal customer experience.
Customer centricity means you put the customer at the center of everything you do. Your products, in-store and digital experiences, and customer service are all designed with the goal of providing a consistently great experience and adding value.
Is Apple customer-centric or product centric? ›Google, Apple are few of the product-centric brands while Amazon is a good example of customer-centric brand. If you are building an innovative product that is one of its kind and whose need has not yet been realized in the marketplace, then going product-centric is the way.
What are product centric brands? ›Product centric refers to a company that focuses its efforts on creating and selling the best new products possible. The strategies and processes reflect this product focus, sometimes at the expense of customer support.
How does Netflix attract new customers? ›Social Media Channels: Netflix also engages its audience through social media platforms such as Facebook, Instagram, LinkedIn. It advertises, offers deals to gain the high attraction customers and enhance customer base.
How can Netflix increase customer satisfaction? ›Netflix focusses on personalizing the customer experience to keep its users happy and engaged. By effectively tracking their viewing history and collecting data across all touchpoints, Netflix uses an algorithm to recommend its customers shows/movies as per their past choices and browsing history.
What target market strategy is most appropriate for Netflix? ›Netflix subscribers in the U.S. has an estimated 60M paid subscribers in 2019. The chosen target market is the age group of 35–44 as it is the largest growing segment by 24 percent as per available data from 2017. Projected growth of 60 percent makes this target market for the U.S. very compelling.
What does Netflix offer its customers? ›Netflix is a subscription-based streaming service that allows our members to watch TV shows and movies without commercials on an internet-connected device. You can also download TV shows and movies to your iOS, Android, or Windows 10 device and watch without an internet connection.
What is Netflix competitive advantage? ›Their well-known business model: subscribers enjoyed unlimited rentals, without the added worry of late fees or shipping & handling. Netflix quickly developed a reputation for revolutionizing the movie rental market. As a result, Netflix dominated the market and enjoyed minimal direct competition.
How is Netflix different from its competitors? ›Netflix is also much more global than any of its competitors. Its ability to pick shows like Squid Game or La Casa de Papel (aka Money Heist) and make them hits around the world is unique and gives it an edge in finding stories in international markets.
Is Netflix strategy effective? ›
It has transformed into a market-leading streaming service and has remained nimble and effective throughout, making it an excellent example of strategic agility. Netflix has consistently worked towards its strategic goals, while also adjusting in order to meet market trends and consumers' needs.
Is Netflix a process or product innovation? ›Is Netflix a product innovation? Netflix's innovation process involves product and process innovations. Starting from a DVD rental startup all the way to an online streaming platform offering its original content.
What generic strategy does Netflix use? ›Differentiation- Netflix mainly uses cost leadership as its main strategy for competitive advantage, the business is also using differentiation in its operations. As a generic strategy, differentiation involves developing the online business and its products in various ways that make them unique from the competition.
What are the 3 product strategies? ›There are three standard types of product positioning strategies brands should consider: comparative, differentiation, and segmentation.
What are the 4 elements of product strategy? ›The following picture shows the product life cycle with four key events: launch, product-market fit, life cycle extension, and end of life. The strategy for a new product should first help you get to launch, then achieve product-market fit (PMF), and finally sustain the growth of your product.
What is Netflix diversification strategy? ›Netflix Is Diversifying Content With Games To Retain People Inside Their Platform. Netflix Games is the streaming platform entry in the gaming industry. This movement can bring interesting insights to marketers about how content can be used to maintain an active image in the public and bring new business.
Is Netflix product based company? ›Google, Amazon, Apple, Facebook, Microsoft, and Netflix are considered the best product-based companies.
Why customer-centric is important? ›Customer centricity is important because it helps companies build better relationships with their customers, which can help them increase sales and revenue. It also helps to bring down operational costs as the company focuses on improving customer satisfaction.
What are the key elements of customer centricity? ›- A customer-centric culture. ...
- A commitment to hiring the right people. ...
- Customer empathy that's engrained in your culture. ...
- Regular customer experience training. ...
- Employees empowered to make every customer experience sensational. ...
- Employee engagement and excitement.
- Develop a comprehensive understanding of your customers. ...
- Document customer insights to personalize your service. ...
- Make a point to share and discuss customer insights. ...
- Integrate customer-centricity into your company culture. ...
- Talk to your customers on a consistent basis.
Why is customer focus important to a company's success? ›
Being customer focused is likely to make customers more interested in dealing with you (as opposed to choosing your competitor). As a result, being customer focused can help you improve your sales, business, and profits.
How can we improve customer focus? ›- Focuses on customer wants and expectations.
- Provides personalized and quality customer experience.
- Identifies 'at risk' customers and implements effective measures to convince them to stay.
- Delivers right services at the right time.
- Focuses on building constructive relationship with customers.
- Know Your Customer. ...
- Figure Out Their Problem, and Solve it. ...
- Build Trust with Your Customers. ...
- Keep Up to Date with Your Industry. ...
- Utilize Customer Feedback. ...
- Tie Your Customers into Your Brand. ...
- Customer Experience is Key. ...
- Continually Improve Products and Processes.
Customer-centric companies make more profit than other companies that do not focus on customers. They can retain more of their customers and attract new ones more easily. Customer loyalty to the brand is usually high as they are satisfied with the products, service, experience, etc.
What is customer centric innovation? ›What is Customer-Centric Innovation? Customer centricity puts the customer right in the middle of the innovation process. Customers give feedback at each iteration stage and pivot based on that feedback. Customer-centric companies use that customer experience to drive product development at every step.
What is impact of customer centricity? ›Customer-centric businesses generate greater profits, increased employee engagement, and more satisfied customers. Customer-centric governments and nonprofits create the resiliency, sustainability, and alignment needed to fulfill their mission.
Who is the most customer-centric company? ›- Discount Tire. The company is known for its strong culture and focus on collaboration, customers, and integrity. ...
- ThredUp. ThredUp started a movement of reselling items and changed how people shop and think about secondhand clothing. ...
- Lululemon. ...
- Depop. ...
- CVS Health. ...
- Target. ...
- Nike. ...
- Trader Joe's.
Starbucks used their loyalty program to cater to the needs of their customers that are on-the-go. This approach has rewarded Starbucks with the most popular app among major restaurants, with 48 percent of app users regularly using their loyalty app.
Is Amazon a customer-centric company? ›Amazon's mission is to be Earth's most customer-centric company, and the very first of our 16 Leadership Principles—Customer Obsession—states that, “Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust.
Is Google customer centric? ›NEW YORK: Google, the technology giant, has retained its “user-centric” brand focus in engaging consumers, while also adapting its marketing strategy to reflect new digital realities.
Is Tesla product centric? ›
The great examples of successful product-centric companies are – Apple, Google, and Tesla. Whereas a customer-centric company focuses on identifying the needs of key customers and then continuously work upon to meet their service requirements.
What is customer centric new product development? ›"Customer-centric product development is an approach to building and improving products that places customer truths at the core of new development. Embracing this approach means every new feature and functionality released can be traced back to a real customer problem."
What is product centric model? ›Many enterprises are using product managers to catalyze their move towards a product-centric delivery model. This approach enables customer-centricity across the value chain and helps build products that are innovative and effective in the chosen market.
What is product centric marketing? ›Product centric marketing involves a marketing focus on a product or products, specifically, and selling that product to as many people as possible. The alternative, customer centric marketing, is when you develop specific products and market those products as a way to fulfill a customer's needs or to solve a problem.
What is customer centric marketing? ›What is customer-centric marketing? Customer-centric marketing offers customers value at every interaction, based on their needs and interests.
What does the popular brand Netflix offer to its customers? ›The platform gives viewers the ability to stream and watch a variety of TV shows, movies, documentaries through its software applications. Since Netflix converted to a streaming platform, it is the world's seventh-largest Internet company by revenue.
How does Netflix get customer feedback? ›To gather your feedback or to recruit small groups of customers for our in-person or virtual research, we send surveys via email. We never sell customer information, and only collect and use the information you provide to make our product better.
How does Netflix strategize personalized marketing for customer satisfaction and retention? ›The personalization algorithm resets itself every 24 hours, optimizing the content so that users will keep discovering from Netflix's most updated catalog. Such features keep customers glued to their screens and ensure customer retention for the long term.
What is Netflix's mission and vision? ›At Netflix, we want to entertain the world. Whatever your taste, and no matter where you live, we give you access to best-in-class TV series, documentaries, feature films and mobile games. Our members control what they want to watch, when they want it, with no ads, in one simple subscription.
What are the strategy of Netflix to innovate their strategy? ›Specifically, the Netflix innovation strategy focuses on: Hiring and keeping only the best workers—at any cost. Promoting candor through constant feedback at all levels as well as organizational transparency. Removing controls, such as allotted vacation time and approval processes.
What target market strategy is most appropriate for Netflix? ›
Netflix subscribers in the U.S. has an estimated 60M paid subscribers in 2019. The chosen target market is the age group of 35–44 as it is the largest growing segment by 24 percent as per available data from 2017. Projected growth of 60 percent makes this target market for the U.S. very compelling.
What does Netflix offer its customers? ›Netflix is a subscription-based streaming service that allows our members to watch TV shows and movies without commercials on an internet-connected device. You can also download TV shows and movies to your iOS, Android, or Windows 10 device and watch without an internet connection.
How can Netflix increase customer satisfaction? ›Netflix focusses on personalizing the customer experience to keep its users happy and engaged. By effectively tracking their viewing history and collecting data across all touchpoints, Netflix uses an algorithm to recommend its customers shows/movies as per their past choices and browsing history.
How does Netflix build customer loyalty? ›Netflix also keeps retention high by sending out a variety of marketing emails, staying top of mind to subscribers by letting people know when new seasons of shows on their lists have come out, as well as off-platform recommendations for new content the algorithm thinks they'll enjoy.
Are customers satisfied with Netflix? ›Discovery, leads the field in terms of overall customer satisfaction, with 94% of respondents saying they were “satisfied” or “very satisfied” with the service. Netflix, which ranked second overall in 2021, drops to fourth place this year (with 80%) behind Disney+ (88%) and Hulu (87%).
What are the key elements of Netflix's strategy today? ›What are the key elements of Netflix's strategy today? Netflix's key strategic elements are to develop high speed Internet service to its customers, reduce content costs by producing their own content, expand globally to take advantage of a whole new market, and expand its offerings of quality television series.
What is Netflix customer retention rate? ›At Netflix, 83 percent of subscribers were retained after one month. However, customer retention at Netflix was stronger in the long-term. After six months, Netflix had an average customer retention rate of 72 percent, compared to the Disney+ bundle retention rate of 68 percent.
What are Netflix strategic objectives? ›Strategic Posture
Mission: Netflix provides customers with access to TV shows, movies, and other entertainment products. Objectives: The corporate objective is to provide quality services according to the customers' demands; the business objective is to develop globally and increase the number of clients.
Netflix's core values comprise “judgment, communication, curiosity, courage, passion, selflessness, innovation, inclusion, integrity, and impact.” These values are integral to the smooth running of Netflix's operations as they ensure all players remain focused on the major goals of the company.
What is Netflix's value proposition? ›Netflix's entire value proposition is linked to the fact that it provides quality entertainment to its user, 24/7. This proposition includes: Access to a huge catalog of products, with content for all tastes. On-demand streaming, with 24/7 access – without ads!