🤝 Takeoff #50: Netflix's product success
Welcome to Takeoff, your weekly dose of product deep dives and new learning opportunities. Today, we're diving into the Netflix story. Lessgo!
📺 Netflix’s Approach to Product Building
Netflix, a titan in the on-demand streaming realm, continually reshapes the industry with its innovative product strategy and development. Masterfully balancing customer satisfaction and profitable business margins, Netflix has crafted an array of hard-to-copy products in new product categories that set new industry standards. Today, we invite you on a journey to explore the underlying principles of Netflix's product-building approach.
Trivia Alert: Ever wondered about the story behind Netflix's iconic “Ta-dum” sound? It's not a product of chance but a symphony of intention. Legendary sound designer Lon Bender created this memorable tone. The 'dum' originated from his wedding ring thudding against a cabinet, but it was the subtle addition of a goat's bleat that truly set it apart. This masterfully crafted sound is now globally recognised as the opening note to hours of entertainment.
Now, let's delve into Netflix's strategic prowess. Our focus is the DHM model - 'Delight customers in Hard-to-copy, Margin-enhancing ways'. This approach underpins Netflix's tactical decision-making, turning it into a global leader in the realm of entertainment. Keep reading to uncover the key insights from this innovative model.
The Importance of Experimentation and Data-Driven Decision Making
In 2005, Netflix, still a DVD-by-mail service, faced a common customer request for faster delivery for new DVD releases. To understand the financial viability of meeting this request, the company conducted an A/B test. The test revealed only a minor improvement in customer retention, and further analysis showed that the cost outweighed the benefits. This experiment underscores the importance of data-driven decision-making in product development. It also highlights the utility of understanding customer behaviour, which often deviates from what they articulate. Netflix demonstrated that proactive, hypothesis-driven experimentation could provide crucial insights into customer value perception, thereby informing strategic decisions around product features and investments.
Building Trust and Brand Through Customer Centricity
Fast forward to 2016, Netflix encountered a challenge where a significant number of customers forgot to cancel their free trial and were automatically charged, leading to a flurry of customer service calls. Netflix opted for a customer-centric approach by implementing a free trial reminder system. This decision, although initially resulting in a $50M loss due to reduced conversions, significantly enhanced the brand's trustworthiness. This example illustrates how Netflix prioritises customer delight and long-term brand value over immediate monetary gains. It's an example of how customer-centric practices can contribute to building a robust, hard-to-copy brand in the long run.
Optimal Use of Proxy Metrics
Netflix leverages proxy metrics meticulously to gauge the impact of new features and customer behaviour. These are derived metrics that represent a larger objective indirectly - in Netflix's case, customer retention. A few examples include the percentage of members who use the "Friends" feature, the proportion of members who stream at least 15 minutes of video in a month, or the number of DVDs added to a queue monthly in their early days. These metrics must be measurable, movable, and should correlate with the high-level engagement metric. Moreover, it's crucial to ensure that these metrics are not easily manipulable and they make a clear distinction between new and existing customers. Though identifying the right proxy metric might take time, it's instrumental in directing the efforts toward what truly matters to the customers and the business.
Closing Thoughts
Netflix's product-building narrative underscores the power of customer-centricity, strategic decision-making, and data-driven experimentation. Their attention to detail, from the 'ta-dum' sound to intricate product tweaks, combined with a commitment to the DHM model makes them one of the most innovative companies in the world. These insights shed light on their product leadership and offer valuable lessons for any organisation with a commitment to a long-term winning product strategy. As we navigate the rapid change in consumer behaviour with new technologies always around the corner, let Netflix's huge success remind us to keep innovation, customer delight, and strategic agility at the heart of how we build products to solve customer problems.
🚀 Engineer, Founder and PM!
In this series of Flying High, we dive into our learner's stories of success. We delve into their motivations, influences, and the remarkable journey that has led them to their current career achievements.
Navneet, Co-founder of Airtribe, sat down with Akshay M, Product Manager at EventHQ and alumnus of our Product Management Launchpad, to discuss his journey from founder to product manager. You can watch it here
💁♂️ Product Jargon of the Week
User Retention
User retention is the art of keeping customers engaged and active. Take Netflix as an example. After subscribing, you're introduced to a vast array of content. Netflix uses clever strategies to keep you hooked - a recommendation algorithm for personalized content suggestions, and a continuously updated library with new, exclusive shows and movies.
Retention rates are not explicitly stated by Netflix, but it's acknowledged they have one of the highest in the industry. According to a 2020 Antenna report, Netflix retained approximately 93% of its customers after the first month of subscription. For context, a 2019 Recurly Research study showed that the median retention rate for similar services was around 30% after a year, with high performers retaining up to 75% or more.
✅ Develop Product Sense
Join us for a free masterclass with Jozzire Lyngdoh, Principal Product Manager at Khatabook, where he’ll help you understand and develop product sense. Register for free here
That’s all for today, folks! We hope you enjoyed this week’s newsletter. 🤗
Until next week, keep learning and growing! 👋