The Netflix Effect: How Netflix's Commitment to Extreme Personalization Is Impacting Customer Expectations
Brought to you by WBR Insights
If there's one company that can truly be said to have disrupted an entire industry through customer experience, it must be Netflix.
Before the company successfully transformed itself from a mail-order DVD service to the number one streaming option for home television audiences it is today, consumers had no choice but to go to a movie theatre, rent a DVD, or watch whatever was on the tube to see their favorite shows, films, and documentaries.
What's more, they had to do so according to those theaters' and TV networks' show-time schedules and were limited to the local video store's opening hours.
Today, consumers can simply stream content instantly to any device, at any time, and anywhere - without even having to sit through commercials.
Put simply, Netflix has dramatically changed how consumers access film and TV - no doubt for good. And the figures speak for themselves as to just how much we have welcomed the disruption with open arms.
Every year, more and more Americans "cut the cord" with their cable company - ditching their traditional service provider's hefty monthly costs and commercial breaks in favor of on-demand streaming services such as Netflix.
The number of cord-cutting households jumped another 19.2% this year, according to eMarketer, while a separate study from PwC reveals that Netflix usage, which stands at 76%, has now surpassed combined cable and satellite usage for the first time - and the company continues to grow its subscriber base by about 10% (or 6 million new subscribers) per year.
(Image source: pwc.com)
The rise of Netflix is indeed a tale of true disruption.
But what's really driving it, and how is the Netflix effect impacting customer expectations in other industries?
It's no secret that Netflix is a ground-breaking trailblazer when it comes to consumer-friendly interfaces powered by personalization.
It's been a long time now since the platform matured beyond its basic "search by keywords" content-discovery model to one that adopts advanced algorithms that use subscriber data to serve viewers recommendations based on what they like (and don't like) and what they (and others) have watched previously.
These recommendations are incredibly accurate - in 2017, the company stated that about 80% of watched content comes from recommendations.
Speaking to BuzzFeed News last year, the company's Vice President of Product, Todd Yellin, explained that unlike traditional Hollywood studios, Netflix doesn't rely on marketing campaigns to attract viewers.
Rather, it employs an army of designers, data scientists, and product specialists to create an engine that analyzes precisely how subscribers click, watch, search, play, and pause, and then uses that data to fine-tune recommendations and create extreme personalization experiences for each and every subscriber.
(Image source: netflix.com)
Netflix has identified over 2,000 "taste communities" - i.e. clusters of people who have the same content preferences. It's these profiles that drive what you see on Netflix.
In fact, a more accurate name for the "Popular on Netflix" row you see on the website's homepage would be "Popular among those who have similar tastes and viewing histories as you".
And this is only a small part of the massive personalization layer underpinning the Netflix experience. Everything, including the rows, the titles in those rows, the order of those titles within the rows, and the artwork in thumbnails, is all deeply considered for each user, Yellin said.
Content Ranking and Evidence Selection
It's this commitment to personalization that keeps users engaged, satisfied, and coming back for more.
And it's not difficult to see how brands in other industries, such as retail or travel, can apply the personalization techniques perfected by Netflix to tackle the challenges they face - namely, to help customers easily find the content they want before they get frustrated and click elsewhere.
It all comes down to content ranking and evidence selection - two tools that facilitate decision-making by limiting the cognitive load placed on a customer looking to make a choice.
With Netflix setting the benchmark, websites that are little more than digital versions of print catalogs simply don't cut it anymore. And for brands that have dozens (maybe even hundreds) of product categories for consumers to navigate, and perhaps thousands of different individual products for them to choose from, there needs to be a way to help customers make a purchase decision before "options paralysis" sets in.
Netflix's increasingly simple, visual interface and data-powered recommendation system are all meant to make choosing what to stream so fast and frictionless that you don't even have to think about it.
Content ranking helps to manage the overabundance of choice by surfacing only the content Netflix knows will be of interest to the subscriber. This creates relevancy, cuts through the clutter, and personalizes the experience.
Meanwhile, evidence selection - i.e. the process of endorsing a product with the most effective cue, message, tag, or label - helps viewers choose what to watch with more confidence.
Netflix achieves this with its personalized "match rating" system. Films and shows are now given a percentage match - 98%, 82%, 67%, etc. - based on what you've watched before and what other users in your taste community have given a "thumbs up" (or "down").
The real beauty of the system is that the more a customer uses it, the more powerful and accurate the recommendations become.
It creates a continuous feedback loop that further enhances relevance, leading to ever-more personalized experiences the more a subscriber engages with the platform.
Personalization matters to customers - and to businesses. 93% of companies with advanced personalization strategies increased their revenue last year, according to new research from personalization software company Monetate and WBR Research.
The study, based on a survey of 600 senior marketers in North America and Europe from the retail, travel, hospitality, and insurance sectors, also found that 77% of businesses that exceeded their revenue goals in 2018 have a documented personalization strategy, while 74% have a dedicated budget for it.
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Furthermore, companies that reported the highest ROI from personalization programs were twice as likely to name customer lifetime value as a primary business objective than those who achieved a lower ROI.
This suggests that treating personalization as an ongoing, long-term strategy is more effective, productive, and rewarding than treating it as a means to make a one-off sale, or as an opportunity to increase revenue from a particular product. And this certainly seems to be the case for Netflix.
(Image source: seekingalpha.com)
Netflix has not only dramatically changed how we consume content, but, through its ongoing commitment and obsessive pursuit of customer satisfaction powered by advanced personalization, has also changed how we engage with the brands we love.
Personalization is indeed the company's secret sauce for earning such a high rate of customer loyalty and long-term success. And it has implications for all other brands in all other industries. If you fail to live up to the experiences your customers have become accustomed to using services like Netflix, they will quickly defect to rivals who can.
As Stephen Collins, CEO of Monetate, puts it:
"Monetate's growth, our customers' growth and industry research demonstrate time-after-time that brands who focus on prioritizing customer loyalty and customer lifetime value experience immediate and long-term success. Many businesses struggle with tunnel vision, performing one-off tactics aimed to achieve short-term goals. While this may show a temporary lift in their metrics, the brands that are meeting and exceeding revenue targets are the ones that take a serious customer-centric approach to drive pervasive and persistent customer experiences."