Netflix DVDs More Lucrative Than Streaming

Harvard Business School wrote a case study about Netflix in 2007 and revised it in 2009 (Shi, Kaufman, Spinola).  It's time for the 2012 update.  

I include this case in my Intro to Marketing/ Marketing Management course within Columbia University's Business Certificate Program.  This case has been the most robust and engaging discussion for the past three semesters.  There are many lessons learned.  Our discussion is focused on product strategy, keeping a pulse on your target market's wants and needs, and monitoring the marketing environment.  It's interesting to discuss how Netflix addressed the convenience of having DVDs delivered to your mailbox and the ease of returning DVDs via U.S. mail.  It took a toll on Blockbuster as we saw DISH Network buy the company's assets for $228M in cash in April 2011 at the bankruptcy auction.   Blockbuster didn't respond quickly enough and aggressively enough to compete with the likes of Netflix.  

Last August, we watched Netflix flail after they made the decision to split the company into two businesses - Qwikster for DVD rentals, while Netflix would focus on streaming movies.   Subscribers would have to go to two different websites and pay two separate bills.  The subscription fee was $7.99 for each service; double the existing subscription price.  Consumer outrage began.  Within 3 months (October 2011), the company realized they alienated their customer base, and retreated on the strategy.  I was fascinated by the arrogance of the company right when competitive pressures were heating up from Amazon, Hulu and Redbox.  

Here we are in March 2012 and Techcrunch announced that Netflix has purchased the domain DVD.com.  Netflix states that the purchase is "part of a bigger strategy to improve user experience in the U.S."  Interestingly, the article addresses that the DVD business is more lucrative for Netflix:

Q42011 - 

11.1M DVD subscribers, $370M revenues versus 

21.6M streaming subscribers, $476M revenues.    

There is some overlap between segments, but for those that prefer one method of delivery over the other, having different strategies does make sense.  Once you break down the profiles for the typical DVD consumer, streaming service user and those who utilize both services, you can start to sharpen and fine-tune your messaging and value proposition for each segment.  As I mention in my class, creating value for your customers and building long-term, profitable customer relationships is the goal of a consumer-driven marketing strategy.  Everything in between those two bookends are the basics from any Intro to Marketing textbook.  However, as we have seen with Netflix (and Blockbuster and countless other brands) the basics are often overlooked.  This short cut approach may get a company to one finish line (lots of publicity), but not "the" finish line of having a profitable and sustainable business.

Small Businesses Jump on the Social Media Bandwagon - Where should they begin?

Small businesses often contact me to inquire about the value of social media.

• Can social media bring value to their business?
• Everyone else is doing it so it's about time we get on board.  Where do we begin?
• Our customers are using it, but we don't know how.
• Will it impact my bottom line?  How?
• How much time do I need to dedicate to it?
• Should I hire someone to do it in-house or just outsource to an agency?
• How much does it cost to build and implement a social media program?
• What should I expect?  
• When should we begin?

The list goes on and on.  This post is about my thoughts on the subject.  It doesn't matter if you are B2C or B2B or B2B2C focused.  The approach is the same, the messaging will differ.

Identify your market segments.
Who do you want to communicate to?  Do they use social media networks?  Is there a particular social network more prevalent than the others?  Once you understand who you need to communicate to and how you can reach them, then you can begin to prioritize where you should begin your efforts.  

Create your messaging.
What do you need to communicate?  How often?  Create a calendar of major company milestones and news so you can earmark them into a schedule, then fill in the holes around them.  Special offers and promotions, company news, special events, trade show attendance, articles written in-house, editorial coverage, etc.  Write about all the areas that make your company shine and noteworthy.  Every company has something important to offer, otherwise you wouldn't be in business.  Focus on the value you deliver to your customers.

Begin building the social networks.
Based on your prioritized list created above (where you can reach your customers), start building a company profile on each one.

• Facebook - a business page is definitely appropriate for B2C companies and may be appropriate for B2B companies, depending upon how you use it.  Having a Facebook presence isn't required.  There are privacy issues to deal with.  Your employees may not want to "like" your company page and you may not want your customers to see your employees' pages.   There are plenty of destination places, retail brands and more that are utilizing Facebook as a sales channel, thanks to F-commerce (Facebook Commerce).  But if you're there just to build community, you may look at LinkedIn and Google+ as a better alternative.  Don't just create a Facebook page because everyone is doing it.  That's not a strategy.

• LinkedIn - this is one of my favorite tools for businesses because it has many advantages.  Not only is it a great lead gen tool for sales, but it's a great way to build community with a Company page.  Your customers can "follow" your company, you can post new job openings, highlight your existing employees, showcase your products and services, post status updates that can feed to Twitter, and include other company updates.  Investigate the "Groups" section as well.  Do industry groups that are relevant to your business exist? Perhaps you can create one and create a continuous dialogue with prospects, customers and colleagues.

• Blog - WordPress and Blogger are two fantastic blogging tools that have prebuilt templates and plenty of add-ons or plug-ins to beef up your presence.  The blog is a great tool to provide updates on your product or service, position yourself as a thought leader in the industry and engage in a dialogue with your readers if you allow for commentary on your posts.  The RSS feed will be invaluable in disseminating your information to your potential customers, members of the media, and more.  Have a link to your blog directly from your main navigation on your website.  If you don't have a website, then let the Blog do the talking for you!  Be sure to include your social icons so people can share your posts - tweet, +1 and comment on Google+, email, etc.

• Google+ - I love the simplicity of Google+ and the ability to control who has access to your posts.  You can make the posts public to all, and be found in search engines, you can have circles for your prospects, clients, employees, media, and more.  Post targeted messages to each circle.  Privacy control is the primary advantage over Facebook.  Plus, it's easy for people to share and comment your posts.  

• Twitter - my favorite tool of all.  I think of it as a megaphone to get messages out to anyone who is listening, anyone around the globe.  That's powerful.  Too much noise out there?  Utilize tools to tune in to what is relevant to you.  Just like tuning to 93.3 FM on your radio dial.  Business professionals and consumers are both leveraging tools to access the information that they care about via alerts, lists, text messages, etc.  Socialoomph.com is one of my favorite tools and it allows me to monitor conversations that are happening, so I just listen to what I care most about.  Plus as a company, it provides you the ability to listen in to what is being said about your brand.  This is truly a 2-way dialogue - listening and responding to your prospects and customers.  Twitter is one of the few tools where it doesn't matter how big your budget is to be effective.  That's the beauty of it.

You just need to get started.  Think about the day when you wondered if you really needed to use email or surf the Web.  We've come a long way in a short time. Imagine what social media will look like 5 or 10 years from now.