Netflix Reinventing the Media and Entertainment Business Adapted from Retail Customer Experience, Nov 2020
In just two decades, Netflix has grown from a video service with 7 million US subscribers to one that reaches 200 million people worldwide today, a major milestone for a company that has spent the past 20 years thriving on science and analytics. Its growth and ability to break into well-established industries – first video rental, now television and film – is a rare accomplishment and has forced the other existing internet-distributed television industry to radically change their practices. While many businesses have struggled to keep afloat during the coronavirus pandemic, Netflix has proved to be an exception. With people staying indoors during lockdowns and even with a price increase, the streaming platform and production company now has more than 200 million paid members, with 37 million people signing on to its service last year. At the same time, many have struggled to understand Netflix’s strategy. Netflix has arguably been the biggest disruptor of the last decade to the TV and film industries, and it is impossible to describe its success story without recognizing its marketing research fueled by the significant role big data has played every step of the way. With other services entering the video on-demand market, how has Netflix continued to evolve and build its subscriber base?
When Netflix first launched in the late 1990s, it distributed DVDs – mainly films – by mail. The convenience of the service disrupted the existing film rental industry and eventually led to its demise. Television, meanwhile, was experiencing a renaissance. Cable channels began running series with complex storylines that were targeted at niche audiences. Meanwhile, Netflix has leveraged on the last mover advantage by transformed itself in the virtual distribution space and is now available almost anywhere and anytime as it is an online streaming business in over 190 countries and people can watch it on their smartphones, laptops, tablets, smart TVs, streaming devices, and game consoles.
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Because video streaming services such as Netflix deliver programming “on demand” via the internet, viewers can choose what and when to watch instead of watching “what’s on.” So where a traditional channel’s task is to develop a schedule, the key task of the Netflix portal is cultivating a library of programs and watched based on convenience. This leads to different positioning strategies that, in turn, lead to different programs. Netflix does not try to offer content geared to a single audience with a specific interest. Nor does it aim for a mass audience. So how does Netflix—with its now 200 million subscribers—pull it off?
Netflix has adopted a “conglomerated niche” strategy: It develops programs for a handful of different audience interests. These include complicated serial dramas, action series, horror series, and exclusive films starring a popular actor (e.g. Adam Sandler). This is possible only because internet distribution allows Netflix to serve those different audiences simultaneously and separately. Most Netflix subscribers might not even realise how many programs Netflix offers, since its subscribers usually are not exposed to programs that they probably won’t be interested in.
Netflix can also do this because internet distribution enables it to gather extensive data about its subscribers’ behavior, which it then uses to cultivate its library and provide users with likely desired content. Netflix is notoriously tight-lipped about what data it collects, but its ability to gather viewing data from a global audience has enabled the service to recognize personas and then patterns of viewer interest.
No television distributor has ever been able to reach a truly global audience. Netflix’s experiment as a global, subscriber-funded television portal may be the next chapter of television history. Its business model depends on using analytics to understand its audience better than its competitors. For brand marketers, for whom understanding audience behavior is equally essential, Netflix has successfully leveraged on big data correctly. Since it made the shift to online streaming, a sophisticated recommendation engine has been successfully surfacing content that is personally relevant and engages users to the point that they spend on average 17.8 minutes browsing before selecting a program to watch, compared to 9.1 minutes of browsing for cable users. That keeps Netflix’s monthly churn rate in the low single digits, extending the lifetime value of customers and saving an estimated $1 billion-plus per year in retention efforts.
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Big data helps to gauge potential audience size better than other. It is also important to recognize why Netflix is able to take advantage of analytics to an extent that traditional broadcast and cable networks cannot. Netflix has exact data at the individual user level as a content platform and creator in a walled-off ecosystem.
Netflix subscribers can watch TV shows, movies, and other services without having to download them as long as they have an Internet connection. And this comes up with a price! Customers pay a monthly subscription and plans start from £5.99 a month in the UK with no extra costs or contracts. Netflix has two other plans i.e. £9.99 per month and £13.99 a month and offers subscribers one-month free trial as well. Some analysts argue that Netflix has a value-based pricing strategy. Others argue that it pursues a competitor pricing strategy. However, it is worth mentioning that Netflix is not the cheapest one out there. For instance, in the USA, Amazon Prime Video costs $8.99 a month, and Hulu costs $5.99 a month. The answers about the success of Netflix is to capture audiences needs and wants quicker than competitors and providing outstanding customer experience. It is just a matter of learning how to better collect, listen and respond to the feedback customers are already sharing. According to Netflix, over 75% of viewer activity is based on personalised recommendations. Netflix collects several data points to create a detailed profile on its subscribers. The profile is far more detailed than the personas created through conventional marketing. Most significantly, Netflix collects customer interaction and response data to a TV show. For example, Netflix knows the time and date a user watched a show, the device used, if the show was paused, does the viewer resume watching after pausing? Do people finish an entire TV show or not, how long does it take for a user to finish a show and so on. Netflix even has screenshots of scenes people might have viewed repeatedly, the rating content is given, the number of searches and what is searched for. With this data, Netflix can create a detailed profile on its users. To collect all this data and harness it into meaningful information, Netflix requires data analytics. For example,
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Netflix uses what is known as the recommendation algorithm to suggest TV shows and movies based on user’s preferences. According to Netflix, they earn over a billion in customer retention because the recommendation system accounts for over 80% of the content streamed on the platform. Netflix also uses its big data and analytics tools to decide if they want to greenlight original content. To an outsider, it might look like Netflix is throwing their cash at whatever they can get, but in reality, they greenlight original content based on several touch points derived from their user base. Netflix even uses big data and analytics to conduct custom marketing, for example, to promote ‘House of Cards’ Netflix cut over ten different versions of a trailer to promote the show. If you watched lots of TV shows centred on women, you get a trailer focused on the female characters. However, if you watched a lot of content directed by David Finch, you would have gotten a trailer that focused the trailer on him. Netflix did not have to spend too much time and resources on marketing the show because they already knew how many people would be interested in it and what would incentivise them to tune in. In addition to collecting data on subscriber actions, Netflix also encourages feedback from its subscribers. One feedback system is the thumbs up/thumbs down system that replaced their rating system, the system improved audience engagement by a significant margin, which enabled them to customise the user’s homepage further. According to Joris Evers, Director of Global Communications, there are 33 million different versions of Netflix. Powerful analytics models can process terabytes of data to churn out meaningful information. Judicious use of data analytics is the main reason for Netflix’s success. In fact, big data and analytics are so vital to Netflix’s success that you may as well call them an analytics company instead of a media company. Netflix’s success highlights the value of data analytics because it presents an incredible insight into user’s preferences allowing them to make smart decisions that deliver maximum ROI on their choices.
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Using examples from the case study critically assess the right Marketing Mix elements attributes adopted by Netflix in terms of moving from the traditional 4Ps to 4Es to conquer the world market today.
[10 marks]
Critically evaluate the Market/Marketing Research methodologies of Netflix through the extensive use of Big Data analytics to gather insights about their customers/ stakeholders?
Using the Extended Service Mix, critically evaluate how Netflix has been successful in providing a ‘World-Class Customer Service’ offering Globally.
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