Would you enter a market if you knew you had to take down a huge business just to gain market share? That’s exactly what Netflix had to do as part of its overall marketing plan. Bringing down Blockbuster was not in the original plans as Reed Hastings himself tried to find various ways to work with the video rental giant. How Netflix came to dominate the video rental business remains a fascinating story in how marketing tactics have to adapt in order for a company to survive.
A short history of Netflix
The Internet has changed the way families across the world watch movies and television. A proliferation of media consumption options has meant that members of the same family rarely watch the same program at the same time. Bandwidth has improved to the point that smartphones and tablets are now able to stream content in locations outside the home. It’s an on-demand world where people can watch whatever they want anytime they want.
Netflix was founded by Reed Hastings, a tech entrepreneur from Minnesota. Hastings started Netflix in response to video rental late fees. In the days of yore, people used to browse empty DVD boxes of videos they wanted to rent at a designated video rental store. One consequence of renting films is that renters would incur a late fee if they did not bring the films back in time (usually 2-3 days). Netflix’s marketing plan of allowing customers to keep DVDs with no consequence of late charges was a direct challenge to video stores.
The growth of Netflix inevitably led to the decline of video franchises like Blockbuster video (Netflix statistics show that they have over 60 million subscribers). Reed Hastings initially tried to negotiate a partnership with Blockbuster, but they declined. If your company wants to avoid the same fate as Blockbuster, perhaps you can learn a thing or two from Netflix’s marketing strategy.
Marketing takeaway #1 – turn a negative into a positive
Netflix’s first stroke of genius was that late fees became obsolete in the world of film-rental by mail. Netflix mailed DVDs to paying customers. If they sat on DVDs and didn’t return them, it was the customer’s loss as they wouldn’t be getting any more DVDs in their queue until they did so. Netflix was able to turn a bane of the video rental industry (late fees) into a benefit. Keep your DVDs as long as you want – there’s no late fee.
This exemplified Netflix’s strategy of turning a negative into a positive. What negatives you choose to turn into positives will in large part depend upon your industry. For example, a restaurant might regularly respond to reviews on TripAdvisor as part of their strategy to turn negative reviews into positives. Netflix chose to take on late fees as part of its appeal to win broader market share. This strategy ended up working as it eventually forced Blockbuster to do away with late fees.
Marketing takeaway #2 – piggyback off of an existing channel instead of creating your own
Netflix would be broke if they had to invent their own means of delivering content to their users. But they intelligently leveraged existing networks (the USPS and Internet providers) to help bring content to their subscribers.
Hastings chose the DVD format instead of VHS in part because he thought it was the future of rentable movie media. But another consideration was that DVDs were much easier to ship through the mail than VHS tapes. Netflix then set out to devise a method of using the nation’s postal service to ship DVDs economically. They eventually settled on a mailer that allowed them to ship DVDs using only a first-class mail stamp. This step meant that renting DVDs was as convenient as possible for customers.
Netflix has also been instrumental in negotiating access to the Internet’s “pipes” so that ISPs don’t balk at providing it with bandwidth. Video-on-Demand (VOD) was revolutionized by Netflix as it organically grew out of its DVD-by-mail beginnings. VOD will be an increasingly larger share of consumer entertainment consumption, one that Netflix helped pioneer.
Marketing takeaway #3 – go to where your customers are
Netflix has signed promotional deals with video console makers like Nintendo, Sony, Toshiba and Hewlett-Packard to tie in their offerings with new console purchases. This made it easy to reach customers where Netflix was meant to be: right in the living room. Netflix initially offered free DVD rentals to people who bought new DVD players. This has evolved to offering discounted subscriptions to their VOD product and even getting the placement of a Netflix button on remote controls.
This marketing strategy of Netflix shows that you need to be where your customers are. If you’re selling sweets, you need to be in the dessert aisle of the grocery store. There’s no use marketing if your target demographic isn’t there to hear your message.
Marketing takeaway #4 – experiment to find what your customers want
Netflix started offering a seven-day rental for $4 with a $2 shipping fee. The response was tepid, which caused Netflix to try different subscription packages. They eventually introduced their Marquee Program, which allowed customers to rent out as many DVDs as they wanted for under $20 a month. Netflix experimented with how many DVDs they allowed out at a time (the Marquee program allowed up to four out at a time) as well as different price points.
Continually experimenting allowed Netflix to find a perfect match between what their customers wanted and what they could deliver as a service. Can you think of some product and pricing tweaks that you can introduce to your own offerings to find out what your customers really want?
Companies should employ a marketing plan that not only challenges competitors, but also challenges themselves to overcome ingrained obstacles. Picking up a few tips from market pioneers like Netflix will hopefully bring good returns for your own company.
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