NETFLIX:POSITIONED FOR SUCCESS AS A GLOBAL CONTENT PROVIDER

Imagine that you had access to 30 million pieces of daily information about how viewers pause, rewind, or fast forward the shows they watch. Next, imagine that you attracted around 4 million customer ratings each day. What if you could also glean information about when, where, and how viewers conducted their approximately 3 million daily searches for entertainment? For one, you might be exhausted: That’s a lot of data. But for another, you would know precisely who was watching what, when, and through what channels, which would give you a great deal of information about what else those audiences would want to watch.

You would also be Netflix, the movie rental company that has quickly and readily become one of the most popular and successful streaming content providers. Founded in 1997, Netflix revolutionized the movie rental industry, attracting 81 million subscribers in over 190 countries today. Through careful analysis of its viewers and how they watched shows, it realized that they liked the actor Kevin Spacey, the director David Fincher, and a British political thriller called House of Cards. Putting those three elements together meant that Netflix could produce a show that would appeal to a wide range of viewers.

The target market that watches House of Cards is male dominant, with most of the show’s rating coming from men aged 18–29, followed by those in the 30–44 age bracket. And men talk about the show more online than women do, accounting for 63 percent of social commenting. Still, the show has widespread appeal. Recognizing this, Netflix made sure to target advertisements to each specific segment. That is, Spacey’s fans, viewing The Usual Suspects one more time on Netflix, saw advertisements for House of Cards that featured his powerful character. Female subscribers who had given top ratings to movies starring strong female leads instead got apreview of Robin Wright and her powerful lead role. For serious cinemaphiles, the marketing centred on Fincher’s risk-taking and daring oeuvre.

As a global company, you might expect Netflix to target anime fans in Japan. But a mere 10 percent of Japanese consumers stream anime. Most of the people who watch anime live all around the world. Whatever shows your neighbours have been binge watching may have no correlation whatsoever to your own interests. That means when segmenting markets, geography is not that important to Netflix. Based on its global algorithm, the “titles you’re shown when you sign onto Netflix are just as likely to be influenced by someone from Abu Dhabi as Des Moines.” And so, Netflix’s algorithms ignore things like geography, gender, and age. Instead, it focuses on what its consumers like, segments these interests into clusters, and shows people 40 to 50 options that match those interests.

Part of the reason Netflix has been able to establish clear appeals for different segments of customers stemmed from the categorization it already had in place. To help recommend movies to its customers, Netflix has created approximately 79,000 categories of movie types— not just “New Releases” but also “Witty Romantic Independent Comedies,” “Dark Thrillers Based on Books,” or “Understated Movies. But just because you once watched a romantic comedy doesn’t mean you will forever be shown “Rom-Com” options.

The results of Netflix’s careful data analysis and precise targeting are impressive—especially for a company that just a few short years ago seemed to be offering things customers most certainly did not want. For example, its efforts to separate its DVD-by-mail service from its streaming videos in the United States prompted customers to complain bitterly. The company’s CEO, Reed Hastings, ultimately admitted fault and begged forgiveness, but it was a notable stumble, and one he vowed not to make again.

Through remarkably precise and careful assessments, Netflix is the source for 37 percent of the streaming done by North American households during peak hours. That is, of everyone in North America streaming content of any kind, more than one in every three is watching something on Netflix. But the company knows that customers can be fickle. When faced with something they don’t like, adults just switch to another entertainment offering. Children, in contrast, have fewer options and less room to switch. As a result, Netflix’s original content features an offering developed in cooperation with DreamWorks Animation to target youthful audiences explicitly.

The Turbo: F.A.S.T. television series was launched in December 2013, following the release of an animated film about the same character (a snail who gains super speed after being in a freakaccident). Season 2 followed in July 2015 and the third season premiered the following year. The deal came after another agreement between DreamWorks and Netflix, in which Netflix purchased the rights to show some of DreamWorks’ most well-known titles. Around the same time, it also inked an agreement with Disney to access its library— including its recently acquiredset of LucasFilm movies.

By appealing to children and their families, Netflix believes it can achieve new levels of customer loyalty. The children themselves are unlikely to switch because Netflix offers them easy access through their parents’ iPads or their Wii consoles. Furthermore, few parents are willing to incur their children’s wrath by cancelling their Netflix subscription, when Netflix offers those children some of their favourite shows and movies. Although the company got its start in the mail order video rental business, and took 10 years to stream its first video, today Netflix positions itself on market leadership as the first truly global content network.

Questions

1.

Describe the type of segmentation strategy/strategies Netflix uses.(2 points)

2.

Why doesn’t a conventional segmentation approach based on demographics and geographic work well for Netflix?

(2 points)

3.

What targeting strategy should Netflix use when it launches in new countries (e.g.,differentiated, undifferentiated, etc.)?

(3 points)

4.

How could Netflix adapt its advertising to reflect different cultures when targeting Canada’s growing ethnic population?

(3 points)

Marking Rubric Excellent (9-10)

Clearly answers all questions with support and justification

Answers include creative solutions and thorough explanation Responses are free of grammatical errors and fit in 2 pages or less

Good (7-8)

Answers questions but lacks clarity or supporting evidence

Answers include creative solutions and explanation

Responses have some grammatical errors or do not follow required format

OK or less (6 and below)

Does not clearly answer questions

Answers lack creative solutions

Answers have many spelling errors and/or grammatical mistakes,