Netflix has changed the viewing habits of tens of millions. For many of us, life without its streaming video service is almost inconceivable. The company's road to success hasn't been without its potholes. But by and large, Netflix gets the customer-facing aspects of its business right. Here are seven lessons we can all take from the rise and continued success of this amazing business.
Always be re-examining your positioning
(Photo: Ford Motor Company)
Over the years, Netflix evolved its positioning from one focused on DVD rentals to a broader vision of providing frictionless video entertainment experiences everywhere.
Successful brands often start by thinking about their businesses in very narrow terms. In the early days, a narrow business model can help keep teams focused. But in the long-term, their thinking must evolve so that their mission is about fulfilling a broad customer need rather than simply delivering a specific type of product or service.
Lots of companies need to reconsider their positionings in the context of our connected society. Some are doing so. For example, Ford now calls itself a transportation company and is funneling money into collaborative economy startups like Chariot vans and bike sharing -- wise moves when millions view owning a car as a drag rather than a joy. But many other brands and industries continue to approach their own futures in very constrained terms. That needs to change.
Think platform vs. format
(Photo: Oxana Denezhkina)
Format -- the way that a benefit gets delivered to a customer -- guides much of how most companies think and act. And format traps many of those companies in declining and commoditized businesses as consumer behavior evolves. Netflix succeeds because it constantly thinks and acts beyond format. Netflix isn't movies, or DVDs, or a limited rental service, or a monthly by-mail subscription service, or streaming only. It doesn't just offer third-party content or a TV service. Instead, it thinks as a platform, delivering virtually any form of video content to virtually any screen, whether via the internet or mailer envelopes.
In hindsight, the ability to think beyond format can seem obvious/inevitable. Shouldn't any business be able to broaden its approach to format? Well, consider:
- It took decades for Kellogg's and General Mills to make cereal bars, even though both had been making cereal and bars separately for a long time.
- With watch unit sales and penetration stagnant since the advent of the smartphone, why did it take Apple and Samsung to kickstart the smartwatch category? Why not the watch companies? And why do many watch marketers still view smartwatches as a competitive threat instead of a growth opportunity?
Pivot with the consumer
Many people think about media changes but forget that shifts in consumer behavior drive them. Blockbuster succeeded for a time by giving people something that was better than anything available before -- low cost VHS and DVD rentals. But what they missed -- until it was too late -- was that people didn't want DVD rental. They wanted easy-to-get, on-demand entertainment.
Netflix understood and acted on this -- first by finding a profitable way to rent recorded entertainment without charging extortionate late fees, then by eliminating the DVD entirely. Great pivots are about recalibrating to consumer wants and needs. They are not about fixing mistakes but rather about getting better.
Offer something unique
(Photo: Irina Anosova)
As someone who cut their marketing teeth in CPG, I've had a lot of practice trying to differentiate items from their branded clones. That's a tough place to be, especially for a tech or media company. Extraordinary companies don't resign themselves to delivering commodities. They find ways to be different.
Netflix does this most effectively by producing exclusive content. "House of Cards." "Marco Polo." "Master of None." The list goes on. More businesses need to find category-appropriate ways to follow their lead. Difference matters -- that's an idea you can take to the bank!
Treat loyal customers best
(Photo: Michail Petrov)
Does your business treat customers like crap? I bet your reflex is to think, "No, we love our customers!" But if you offer better deals to prospects than to loyal buyers, then the crap fits. Nothing annoys me more than to see a new customer offer for a service I have loyally purchased for years. Comcast, are you listening?
Netflix has increased its pricing on several occasions. They did it poorly when they split the DVD and streaming products in two and raised the price of getting both services by 60 percent. But they did it well when they increased the price of streaming but grandfathered existing customers at the old pricing for a year. An approach like that gives the customer a sense that they are valued.
This principle extends far beyond pricing. Do you listen and address complaints? Do you accept and act on customer suggestions? Netflix does. The company understands that a customer relationship is its most important asset.
Fortunately, more and more marketers are putting customers first and rewarding loyalty. Brands like Macy's have inverted their buying funnels, focusing the bulk of resources and effort on loyal shoppers instead of folks who rarely or never buy from them. Loyalty marketing usually pays very big dividends.
Get personal with your buyers
Decades ago, many people were content to make purchases because everyone else was buying the same things. There was a myth of social homogeneity, and lots of American families happily bought in.
In the 1970s, marketers began to realize that different groups of users had different motivations and needs, and the era of customer segmentation was upon us. Today, the consumer expects their individual wants and needs reflected in your product offering, whenever possible.
Netflix has put personalization at the center of customer experience. Its recommendation engine uses past viewing habits as a set of signals to help predict what new content you might enjoy. That ability to match people to content has helped Netflix reduce the range of content available on its platform while improving customer satisfaction. Over the years, Netflix has reduced the amount of content available during any given month from about 19,000 titles to 13,000 titles, without suffering a big loss of customers. As a user, I don't care about 19,000 titles. I care about whether the service has enough of what will interest me.
In some categories, personalization can be rather difficult to deliver. Smart companies find a way. Kellogg's can't make 330 million kinds of breakfast cereal. But they can -- and do -- use individual-level insights to improve marketing relevance and to match groups of users to products that will deliver on most of their needs. Think about how you can use individual-level customer insights to improve product fit.
Walk the talk regarding corporate culture
Many reading this story will have seen the Netflix Culture Deck, a set of slides that carefully codifies the values and beliefs of the company. Generally, my eyes glaze when a company makes cultural pronouncements because most companies don't "live" their cultural claims. The Netflix deck uses the example of Enron to point out that stating and living values are two entirely different things.
Often, the values in a company's statement are precisely the qualities it lacks. By contrast, Netflix makes a strong effort to practice what it preaches. Most people say the company does a good job living up to its promises.
Netflix also keeps its pay scale among the highest in the industry -- because high performers demand and deserve high pay. Contrast that with the legions of employers who scrimp on salaries. Their annual reports identify scrimping as a virtue, and they get exactly the performance they deserve.
No business is perfect. Netflix has made many mistakes in its short but storied history. Ultimately, success goes to the companies that can learn and improve. The final lesson we can learn from Netflix is to learn from mistakes. If we took that one principle to heart, our own brands would surely thrive like never before.