Netflix Social Mobile Marketing strategies

1. 1
Impact of Mobile and Social on Marketing Strategies- Netflix Case Analysis
The advent of iPhone and Facebook has changed the consumers’ content consumption and
commerce behaviors. It is not surprising that shopping and socializing—activities that
complement each other in the real world—are beginning to converge online and mobile as well.
Bank of America predicts $67.1B in purchases will be made from mobile devices by European
and U.S. shoppers in 2015. Exhibit A shows the shift of attention from traditional media to the
new media. This shift has fundamentally transformed the marketing strategies B2B as well as
B2C industries.
Key Trends: Mobile penetration has already surpassed PC’s and is close to surpassing TV’s (Ref:
Exhibit B and C). As a result, Internet is closing the gap with TV as the most popular media (ref
Exhibit A). In the US today, Internet amounts for 36% of the total media-time spent as opposed
to TV’s 42%. Averaging 30 minutes of engagement per user per day, social media - primarily
represented by Facebook, Twitter and Google-plus - is the most popular application on PC as
well as on mobile. Facebook alone has 1.1B+ active users, 68% accesses it on mobile, and 60%
log in daily (Ref: Exhibit D). The regular user has an average of 200+ friends. These staggering
statistics are driving brand as well as direct response marketing dollars towards social and
mobile. By 2018, Digital Ad spending will hit 38% of total media spend, higher than TV’s.
Finally a trifecta of mobile, social and e-commerce will shape the global commerce as well as
marketing strategies. Any firm without clear social and mobile strategy will struggle to maintain
its market power.

2. Issues and Challenges: Even though social networking sites like Facebook and Twitter have
aspirations to be like Amazon, it's unlikely they could make a full shift from social network to a
shopping network for direct response (DR) marketers. This disconnect is forcing DR firms to
adopt multifaceted strategy for social, mobile and e-commerce fronts. Firms should understand
that just because users spend time on a social network checking for news and personal updates
doesn't mean they're in the mindset to make an impulse buy.
As far as brand engagement is concerned, marketers need to know that TV metrics can’t be
applied to the social. Counting fans, “likes” and followers is not the best way to measure success
in social media marketing. As a result, it’s not surprising, then, that marketers consider
calculating return on investment to be the biggest challenge of using social media, and that a
majority of them believe they cannot measure social media campaigns effectively. Gaining a
better understanding of not only who the brand followers are, but how influential they are,
should be a key goal for marketers. To better understand the challenges of social and mobile on
marketing strategies. Team San Francisco has picked Netflix as an example. Netflix is an unique
player that leverages digital media for brand and direct response marketing strategies as well as
for product differentiation and market intelligence.
2
Part2: Netflix – Marketing strategy analysis
Netflix is a silicon valley based on-demand Internet video streaming media and flat rate mail-in
DVD company. Its streaming service is available to viewers in North and South America, the
Caribbean, and parts of Europe. Founded in 1997, Netflix started its subscription-based digital
DVD distribution service in 1999. It extended its product line in 2007 and started offering
internet video streaming. Since 2011, it has three operating products- domestic streaming,

3. international streaming and domestic DVD. By 2013, Netflix reached over 40M subscribers
globally (Ref: Exhibit E and F). Recently, It further extended its product line and launched
original series House of Cards that won three Primetime Emmy Award.
Netflix’s competitive landscape:
Netflix’s “internet streaming” and “DVD by mail” products face different set of competitors.
DVD by mail competitors are Blockbuster (went bankrupt) and Red-box with market share of
16.9% and 45.5% respectively while Netflix has 24.3%. Its internet video rivals include Amazon,
Hulu, Red-box Instant, X-finity Stream-Pix, I-Tunes, Love-Film, and cable TV companies.
Netflix,
the
leader
in
streaming
video
on-­‐demand
(SVOD),
earned
$3.2B
in
worldwide
revenues
in
2011.
Hulu,
the
centralized
catch-­‐up
TV
/ad
supported
VOD
platform,
is
the
number
one
video
website
in
terms
of
ad
impressions,
far
ahead
of
YouTube
despite
having
only
a
fifth
of
the
audience
of
YouTube.
iTunes
rules
the
transactional
VOD
(TVOD)
market
with
a
60%
market
share
despite
the
efforts
of
competing
heavyweights
with
deep
pockets
(Amazon,
Wal-­‐Mart/Vudu,
Microsoft/Xbox
Live,
Google/YouTube
rental
store).
Exhibit G
offers a comprehensive competitive analysis of Netflix against iTunes, Amazon VoD, hulu and
Youtube on various facets-user, positioning, margin, platforms, services, content etc. Exhibit H
provide a perceptual map of Netflix’s competitive landscape.
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4. Netflix SWOT: As mentioned above, Netflix is a unique company that uses internet for
marketing strategies as well as for product delivery. Following is Netflix’s SWOT map.
Strengths
o Netflix is has brand advantage due to first mover in “Mail-In DVD”, “Internet Streaming”
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and original content.
o Best technology- recommendation that drives 60%+ rental on-demand viewing, low cost
infrastructure (cost10 cents for 1GB of delivery.
o High customer satisfaction (Ref Exhibit K) due to personalized recommendation system and
a largest content catalogue (100k+ DVD and40K+ streaming titles)
o Like Youtube, Netflix is ubiquitously present on nearly all devices. Exhibit J provides a
comprehensive device map.
Weakness
o Content window: Netflix is one of the last one to receive TV as well movie content.
o Content margins: Given the low margin and ARPU per customer, Netflix has limited
financial muscle to license expansive content. E.g. Expiration of Sony, Stars and EPIX
contracts
o Netflix is getting squeezed from content providers and infrastructure providers, thus their net
margins are around 3%. This leaves no room for expansive experiments.
Opportunities
o Product Line Expansion of original shows may have a favorable effect to Netflix subscriber
base, profits and brand equity
o More expansion in International market. Exhibit F provides growth trajectory for US vs.
international subscriber base.

5. 5
Threat
o Competition from MVPD (Multi Channel video programming distributors) such as Comcast.
Exhibit N shows the massive gap between Netflix and Comcast ARPU, this enable Comcast
to deficit finance an Internet streaming product and put enormous pressure on Netflix.
Amazon is another major competitor that is threatening Netflix’s lead. Interestingly, Amazon
web services is the platform provider for Netflix infrastructure.
o Net Neutrality: MVPDs like Comcast are legally allowed to prioritize their own product’s
traffic over Netflix and effectively affect the Netflix’s quality of service.
o Increasing in cost for content licenses and increase in cyber-crimes are some of the other
stumbling blocks for Netflix
Netflix’s outside-In strategic capabilities
Organizational Culture:
Founder and CEO Reed Hastings believes in hires the best, give them freedom and autonomy to
deliver. Employees are empowered to make their own decisions e.g. structure their own
compensation packages, no clothing policies, having a—hypothetical—unlimited amount of
vacation days, and finally regarding expensing, entertainment, gifts and travel, simply “act in
Netflix’s best interest”. This enables Netflix to hire top talent that further enhances their
capabilities to improve operational efficiency. Netflix has been leading innovator on data driven
decision making on marketing, customer acquisition and retention, quality of services and also
margin management.

6. Organizational alignment with Market
Netflix’s market is heavily tied with Internet and connected devices as a result it changes rapidly
with the changes in technology and innovation such as tablet, connected TV and devices.
Netflix’s 40M global customer base’s age range from 18 years of age to 59. They spend 2 billion
hours watching streamed video on hi-speed internet. It would be really expansive to segment
such a diverse customer base and create marketing for it.
To sole this, Netflix collects trillions of data events (user’s interaction with their products and
portals) on mobile, social and internet to build a gigantic database of customer preferences. It
also has technically most advanced system for analyzing the data that enables them to promote as
well as tweak their product based on real time customer interaction- It’s the most important
enabler for architecting an Outside-In organization. It plays significant role in all three facet of
their businesses 1) Content acquisition 2) Customer satisfaction and retention 3) Generating
higher profit margins. Netflix charges fixed subscription fee from its millions customers for
offering “all you can eat” DVDs and streaming content, but Netflix pays content owner on per
rented title. So Netflix losses money, if consumers consume only low margin blockbuster titles.
A typical revenue sharing agreement between Netflix and content owner requires payouts for
each rental of a new release during the first year, so a higher rental rate of new releases will
result in more rentals of a film and therein more revenue sharing costs, this will impact Netflix's
profit margins
Finally, Instead of segmenting the market in clusters, Netflix uses Internet, mobile and social
media technologies to build micro and nano segments. This enables them to target mass market
with a product that customized for individual subscribers. This further increases customer
satisfaction (Ref Exhibit K), increase the customer switching cost and enhances customer
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7. loyalty. This further helps in collecting base profit, profit from increases purchases, profits from
reduced marketing costs, and profits from positive word of mouth.
Organizational Metrics and Incentives:
Netflix recently wrote a power-point deck to articulate Netflix’s talent management strategies,
the document went viral. This document draws on five key tenets1:
o Hire, reward, and tolerate only fully formed adults. Ask workers to rely on logic and
common sense instead of formal policies, whether the issue is communication, time off, or
expenses.
o Tell the truth about performance. Scrap formal reviews in favor of informal conversations.
Offer generous severance rather than holding on to workers whose skills no longer fit your
needs.
o Managers must build great teams. This is their most important task. Don’t rate them on
7
whether they are good mentors or fill out paperwork on time.
o Leaders own the job of creating the company culture. You’ve got to actually model and
encourage the behavior you talk up.
o Talent managers should think like businesspeople and innovators first, and like HR people
last.
Customer value proposition
Customer value priorities
As mentioned above, Netflix subscriber base is highly diverse in their watching preferences,
1
HBR
article-­‐
Executive
Summary

8. ages, income, technological advancement and in many other aspects. The only common thread
that defines these customer base is access to internet and interest in video content. Thus, Netflix
needs to compete against free/ad based content and the Internet content pirated market. Netflix
Netflix potential customers sufficient wealth but value low price due to free alternatives.
Furthermore, they have insufficient time and skills. This forces Netflix to operate in Performance
and price leadership quadrant. As a result Netflix aspire for keeping the prices down while
improving the performances.
Value proposition
The message that Netflix plans to send out through all of its campaigns is “watch what you want,
when you want at affordable price”. Customer’s top priority is convenience, affordability, speed,
personalization of the video streaming and high selection of titles. Netflix aim at being the top
and only choice for its customers by providing a more personalized, fast, convenient, high
selection and yet affordable online streaming service than all of the competitors
Netflix streaming service is positioned as the personalized low price instant movies and TV
shows entertainment with the biggest collection targeting the mass market. Comparing to other
competitors Netflix offers the watching experience without disruptions from other adverts
compare to Hulu, It has the largest selection compare to all close competitors and customers can
watch from a bigger variety of devices and internet connection speeds which puts it on top list
when it comes to convenience.
8

9. Netflix Business model value
Profit Formula
Netflix’s ARPU / month is around $8.50. With growth in streaming customers over DVD
customers, Netflix’s ARPU is declining. Subscriber acquisition cost (SAC) is around $18 based
on Netflix’s financial reporting. EBITDA margin is around 30%. Churn rate is around 5% (late
2011).
NPV = PV [ (ARPU - SAC) + 19 (ARPU * EBITDA margin) ] = $35.97.
Life time value of Netflix customer is around $36. This number is way too low compare to
competitors like Comcast (Ref: Exhibit N). As a result, Netflix’s approach to content acquisition
is heavily data driven. Observing patterns of consumption helps Netflix content executives
determine how much money they should spend based on how much interest the subscribers will
have in the content. Between 2009 and 2011 Netflix’s spending on streaming content grew 36
fold, from $65M to $2.3B. By contrast, the volume of content available grew only 2.5 fold.
Resources and processes
Product Strategy: With competition growing, Netflix is opted to (1) license more TV content
instead of movie content, and (2) develop original programming. The value of focusing more on
TV content is dual: First, the episodic nature of TV content encourages long term engagement
and reduces churn, and second, the economics of TV make it easier for Netflix to license content
at a cheaper price. Netflix is also focusing on improving content recommendation system to
improve their ARPU. Connecting subscribers to movies that they will love is therefore critical to
both the subscribers and the company. Netflix rents almost 60% of the titles from the
9

10. recommendation page. Its recommendation engine is so popular that it generates more rental than
that of Netflix's new release page. Exhibit I shows Netflix’s product strategy.
Pricing Strategy: Netflix follows penetration pricing strategy. Its objective is to gain market
share for Netflix to improve customer attraction and retention. Netflix pricing is very close toto
its competitors. Recently, Netflix changed its prices and separated the two products lines of
streaming and DVD rental by 60% increase in price for customers who wanted both services.
This was allowed to compensate for low ARPU for internet streaming product. Netflix does not
practice price differentiation because it targets the mass market (Ref Exhibit M for detailed
product ARPU map).
Distribution Strategy: Netflix partners with companies to develop Netflix programs specific to
their platforms that will come pre-installed on all their devices. Furthermore, it has explored
partnerships with cable and gaming companies to develop instant streaming option for video
games. Exhibit J shows a comprehensive list of devices that has Netflix services.
Promotion/Branding Strategy Netflix offers a free month trial for all of the new subscribers. This
demonstrate Netflix’s confidence in its quality of service. before the subscriber commit to
Netflix. This also helps attract more loyal subscribers because people join Netflix with
confidence as they have tested the service.
• Mobile and tablet advertising: Netflix uses mobile and tablet to promote Free trial offer.
Given that Netflix has app on almost all mobile and tablet devices, it can easily convert leads
generated from mobile/tablet Ads into customers. Netflix uses mobile as a direct response
media to acquire customers. Furthermore, It uses data collected from these connected devices
to tweak the offer specific to that customer.
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11. • Social Media: Social media is extremely important for Netflix because the service is located
on the internet the same place where the social media is. Netflix provides opportunities for its
customers to share and interact with their friends in various social media while they are on
Netflix account. Netflix also collect the social media information to better serve the
customers and know how the customers perceive them. Subscribers may Choose to connect
one or more social networks (such as Facebook) with them Netflix account. If they do,
Netflix will import, use, and retain information from their social networking account(s) such
as names and profile pictures as well as their e-mail address, list of friends, subscriber’s
Likes and Interests as well as information they make public on social networks. From
analysis of collected information it is clear that Netflix online streaming customer’s primary
needs are affordable, convenient, fast and individualized entertainment. Netflix has kept on
delivering and responding to these needs which results to a rapid growth of its customer
subscription base.
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Part 3: Recommendations
Social media: Firms should remember that amassing a social media fan base and engaging it is
important, but the more critical goal is to measure what these people can do. The first step
toward improving measurement is to actually start doing it. Businesses need to take ownership
and not assume that measuring is too difficult. The complex vendor landscape may entice some
marketers to use free tools. But they do not provide the level of analysis that marketers will need
to measure the impact of social media on their business, or to do the kind of long-range analysis
of trends that will be required. Marketers should consider them as starting points, with the goal
of moving toward more sophisticated measurement as soon as possible. However, the challenge

12. is to measure what is important to a business. So the next step is to determine the company’s
business-level goals and then use social media metrics to further those goals—rather than
gathering metrics and trying to overlay them onto business goals.
Mobile: It is critical for firms to have mobile presence for DR as well as Brand firms. 50% of
retail giant Walmart’s Internet shopping traffic comes from mobile. Customers are already using
mobile devices to engage with brand and retailers. With increased NFC penetration, mobile will
begin to replace credit cards. This will allow attribution of an online user to offline transactions.
As a result, firms will not only be able to engage with customers individually, but also devise
marketing strategies for Macro as well as Nano segments.
Mobile and Social create a connected purchase funnel that allows firms to collect data right from
brand awareness stage to the transaction stage and build a data driven understanding of customer
need and values (Outside-In thinking). Moreover, firms will be able to create customized value
proposition for these Micro as well as Nano customer segments (price, performance or relational
value). Amazon’s real time price elasticity and yield management platform is a good example of
such a customized value propositions. Together this will create unique business proposition that
will empower firm to have market power, minimize customer defection and create long-term
customer value.
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13. 13
Exhibits
A. User
Attention
is
shifting
from
traditional
to
new
media
B. Tablet
vs.
PC

14. 14
C. US
smartphone
2012
to
2014
D. Facebook
Daily
Active
Users
(DAUs)

15. 15
E. Netflix
subscriber
growth
and
key
events
F. Netflix
subscriber
base-­‐Domestic
vs.
International

16. 16
G. Netflix
Competitive
landscape
iTunes Amazon VOD Netflix
streaming
Amazon
Prime
Hulu Hulu Plus YouTube
Positioning EST / rentals
Extensive catalog
(movies and TV
shows) including
new releases
EST / rentals
Extensive catalog
(movies and TV
shows) including
new releases
SVOD
Original
programming
SVOD
Original
programming
?
*Prime is
first a
program
offering free
delivery
Catch up TV
Original
programming
Catch up TV
Original
programming
SVOD
Rentals (movies)
Original
programming
Price Transactional
Rentals $5
EST: $15-$20
TV shows for EST
only, no rentals
since August 2011
$3
Transactional
Rentals $4
EST: $10-$15
TV shows for EST
only, no rentals $3
$7.99/mo $79/year Ad supported $7.99/mo. And ad
supported
Transactional
(movies) $2-$4
Ad supported
(original
programming)
Catalog 14K movies 100K titles 30K titles (US) 17K titles 25K TV episodes
(E)
30K titles (29K TV
episodes and 1K
movies)
5K titles (E)
100 channels
original prog.
Users n/a n/a 23.5M
subscribers
worldwide
(21.7M US and
1.9M int’l)
5M (E)
(not all of
whom might
be using the
SVOD
service)
30M monthly users 1.5M paid
subscribers
n/a
Usage Movies
30M EST
transactions/year
(80K/day)
100M VOD
transactions/year
(270K/day)
Movies
2M EST
transactions/year
(5K/day)
7M VOD
transactions/year
(20K/day)
Q4 2011: 2B
hours streamed
(1h/day/sub)
n/a Average time spent
on the site: 3h10m
n/a n/a
Revenues $550M in 2011 (E)
Movies= $310M
($180M EST and
$130M VOD)
TV shows= $220M
(EST only since
August 2011)
$40M in 2011 (E)
Movies= $25M
($12M EST and
$13M VOD)
TV shows= $15M
(EST only)
Domestic:
$1.5bn (E)
($150M
operating profit
(E))
Int’l: $83M
revenues
($103M
operating loss)
n/a $420M (including
subscription)
$320M in revenues
only (E)
$100M (E) n/a
Content
spending
n/a n/a $2.32B (2011) n/a $500M (E-2012) n/a $100M (original
prog.)
Margin 30% (gross margin) 30% (gross margin) 11% (operating
income)
n/a
Amazon is
rumored to
lose $11/user
with Prime,
mostly
because of
the shipping
costs
30% (gross margin)
NB: if ads are sold
by partner networks,
Hulu doesn’t cover
any of the costs
involved
n/a n/a
Connected
devices
iOs devices 200 devices 80 devices 300 devices Computers only 300 devices Browser equipped
Footprint International International 47 countries:
US, Canada,
UK, Ireland,
Mexico, etc
US US US, Japan International

17. 17
H. Perceptual
map
of
Netflix’s
competitive
landscape
I. Netflix
product
strategy

18. 18
J. Netflix
Device
map

19. 19
K. Netflix
customer
satisfaction
L. Digital
Marketing
funnel

20. 20
M. Netflix
product
ARPU
N. Netflix
vs
Comcast
ARPU