Netflix Competitive Analysis
1. A key business goal was to reduce the cost of building the DVD library. One tactic used to achieve this goal was to stimulate demand on older and lesser-know movie titles. Shifting demand away from higher cost new releases drove down the average price of acquiring DVDs and improved asset utilization. This produced increased margins and profitability.
To balance demand Netflix developed a proprietary recommendation system. The system enabled the transition from a manual one-size fits all promotion approach to an automated data driven marketing plan that delivered personalized recommendations across the entire movie library. Effectively, the recommendation system outsourced the task of marketing to the subscriber. The system harnessed subscriber specific preference data and analyzed this data via an algorithm to match subscriber preferences with ratings. It then presented each subscriber with a dynamic list of recommendations. In addition, by linking the recommendation system directly into the inventory management system Netflix was able to recommend more in-stock movies.
In 2006 new releases represented less than 30% of total rentals. Overall, the recommendation system was able to reduce the cost of building the DVD library and provide a better subscriber experience. Both were key competitive advantages.
2. Netflix prioritized technology projects based on underperforming yet high-value processes. They targeted processes that enhanced customer satisfaction and delivered the core benefits of convenience and value. Key success criteria used to evaluate technology projects include:
|Success Criteria |Metric |
|Same day delivery |% of subscribers reached within one delivery day |
|Subscriber growth |Number of subscribers
To balance demand Netflix developed a proprietary recommendation system. The system enabled the transition from a manual one-size fits all promotion approach to an automated data driven marketing plan that delivered personalized recommendations across the entire movie library. Effectively, the recommendation system outsourced the task of marketing to the subscriber. The system harnessed subscriber specific preference data and analyzed this data via an algorithm to match subscriber preferences with ratings. It then presented each subscriber with a dynamic list of recommendations. In addition, by linking the recommendation system directly into the inventory management system Netflix was able to recommend more in-stock movies.
In 2006 new releases represented less than 30% of total rentals. Overall, the recommendation system was able to reduce the cost of building the DVD library and provide a better subscriber experience. Both were key competitive advantages.
2. Netflix prioritized technology projects based on underperforming yet high-value processes. They targeted processes that enhanced customer satisfaction and delivered the core benefits of convenience and value. Key success criteria used to evaluate technology projects include:
|Success Criteria |Metric |
|Same day delivery |% of subscribers reached within one delivery day |
|Subscriber growth |Number of subscribers