Recently subscription business models have flipped entire industries upside down. Companies like Netflix, Spotify, or even Dollar Shave Club have been able to claim large portions of their specific markets. In her article in Forbes Kimberly Whitler attributes this success to these companies’ focus on the customer to business relationship. I found this interesting because I had previously attributed their explosive success to other things. For example, I felt that Netflix was partially successful because of their ability to catalog and provide their users with a huge amount of content. Whitler defends her hypothesis with evidence from the recent recession.
In 2011 when Netflix changed their prices without consulting their customers they lost around 800,000 users and their stock prices plummeted. They forgot the importance of the customer to business relationship and paid for it. They rebounded again by asking customers what they wanted. They brought a few popular shows to Netflix and started making their own content after this and all of their content decisions were based off of what their customers were asking for.
Another part of this article that I found especially interesting is how subscription based companies focus their data around their subscriber. It is vital for these companies to outline simple questions about each of their subscribers like how much each subscriber will give to their company now and over the course of their lifetime, do any of the subscribers represent upsell opportunities, or should the company be down selling some specific subscribers before they lose them entirely? These questions are very important for companies that look to retain customers. Customers value these companies because of their loyalty to providing their customers with excellent service. Previously customers would buy a product and never contact the company again and when they did, it would usually be to complain.
Subscription models force these companies to commit to customer satisfaction instead of focusing on total units of product sold. This business model thrives from positive customer interactions and subscribers value this customer centered focus.
I believe the only way subscription services like Netflix will last will be to differentiate themselves. Netflix has dominated the category of streaming online TV shows and movies. Creating content that you can only get on Netflix is huge. Stranger Things was very popular and could only be seen on Netflix which definitely keeps their consumers loyal. It will be very interesting to see other companies try to get into the same market and compete with the top dogs like Netflix, Hulu and Amazon Prime.
I had no idea Netflix lost that many customers back in 2011 based on a pricing model change. I remember a couple of years ago when they increased their monthly subscription rate, but still locked in existing customers for a set amount of time. Although I wasn’t pleased with it, I’d pay almost anything per month to be a Netflix subscriber. This just goes to show that their strategies now create such strong brand loyalty and keep their subscribers coming back no matter what.
Great post Mark! I also was very surprised to see the 800,000 number. It just goes to show that maybe you should talk to the customer a little bit before making a drastic change like they did. Moving forward, it will be interesting to see how the business continues to evolve. The original content has had some success but also some major flops (don’t watch the movie Bright, it’s terrible). Hopefully they continue to produce high quality shows like Stranger Things.