Netflix's culture emphasizes customer obsession, where they aim to delight customers through hard-to-copy innovations that also enhance margins. They use consumer data and testing to personalize the experience and improve movie recommendations over time. A free trial reminder test showed delighting customers through small tests can increase retention, even if it slightly reduces margins. Maintaining customer obsession requires courage, patience, humility and putting the customer at the center of all decisions.

1. Netflix’s
Customer Obsession
Gibson Biddle
@gibsonbiddle
Amplify - October 9, 2018

2. Are you a Netflix member?

3. No Late Fees
Net Promoter Score
How likely is it that you would recommend
Netflix to a friend or colleague?

4. No Late Fees
Net Promoter Score
How likely is it that you would recommend
Netflix to a friend or colleague?
4% 14% 82%
78
78%

5. “Customers are always beautifully, wonderfully
dissatisfied, even when they report being happy
and business is great. Even when they don’t yet
know it, customers want something better, and
your desire to delight customers will drive you
to invent on their behalf.”
Jeff Bezos
CEO, Amazon

7. Sesame Street: Elmo’s Preschool

8. Creative Wonders

12. Customer Focus
Satisfy
Listen
Compete

13. Customer Obsession
Delight
Experiment
Invent

14. 1999

15. Today

16. Customer Obsession
1 The DHM model
2 Consumer science
3 Free trial case

17. The product leader’s job:
• Delight customers in
• Hard-to-copy
• Margin-enhancing ways.

18. Balancing act
Delight v. margin
New Release DVD test

19. Consumer insight
• Surveys, focus groups & CS data
The A/B test
• Perfect New Release Delivery
The result
• Cancels:
• “Save” 5,000 customers
• “Worth” $1M
• But, additional inventory =
• Launch NR test to all or No launch?
• No launch NEW on DVD
Improve from 4.50% to 4.45%
= 5,000 x $100 x 2
$5M

20. Hard-to-copy

21. Hard-to-copy
No Late Fees

22. Hard-to-copy
Brand
Network effects
Unique technology
Economies of scale
Counter-positioning

23. Counter-positioning
No Late Fees

24. Hypotheses
Personalized
Instant:
• DVD
• Streaming
Easy
Exclusives
Open APIs
Entertainment
Friends (social)
Movie-finding tools

25. Hypotheses
Personalized
Instant:
• DVD
• Streaming
Easy
Exclusives
Open APIs
Entertainment
Friends (social)
Movie-finding tools

26. Hypotheses
Personalized
Instant:
• DVD
• Streaming
Easy
Exclusives > Originals
Open APIs > TV devices
Entertainment
Friends (social)
Movie-finding tools

27. Tactics
Ratings Wizard, new algorithms
From 20 to 100 hubs; streaming
Day One experience
API launch; Xbox, Playstation
Price & plan testing
Product Strategy
Personalization
Instant
Easy
Device ecosystem
Margin-enhancing

28. Product Strategy
Personalization
Instant
Easy
Device ecosystem
Margin-enhancing
Metrics
% members: 50 + ratings at M2
% members watch > 15 min./mo.
% with > 3 titles in queue, day 1
% of demand weighted TVs
Lifetime value, gross margin

29. 2 Consumer Science: Personalization

30. Consumer insight via
• Existing data
• Qualitative
• Surveys, and
• A/B tests

31. No Late Fees
2005

32. Tactics
Ratings, demographics
Queue-Adds, streaming
Collaborative filtering
Acquire great movies
Personalization strategy
Explicit data
Implicit data
Matching algorithms
Improved movie quality

33. Personalization strategy
Explicit data
Implicit data
Matching algorithms
Improved movie quality
Metrics
% members with 50+ ratings
% > 6 Qadds/>15 min. stream
RMSE
Average movie rating

34. No Late Fees
What % of customers give 50+ ratings by six weeks?
Pop Quiz 1

35. 0
0.075
0.15
0.225
0.3
2004 2005 2006 2007 2008 2009 2010 2011
Percent of members who rate
50 + ratings by 6 weeks30%
15%
0%

36. No Late Fees
The more you Rate, the better we’ll
help you to find Movies You’ll Love
The Ratings Wizard

37. Will demographics help predict movie taste?
Pop Quiz 2

38. 0.6
0.7
0.8
0.9
1
2004 2005 2006 2007 2008 2009 2010 2011
Taste prediction improves over time

39. Collaborative filtering algorithm

40. Improve algorithm by 10%, win $1 million!

41. Will the new algorithm improve retention?
Pop Quiz 3

42. New Category Interest algorithm

43. 0
20
40
60
80
2004 2005 2006 2007 2008 2009 2010 2011
% Members who add more than 6 DVDs/month to their movie list
DVD by Mail

44. 0
20
40
60
80
2004 2005 2006 2007 2008 2009 2010 2011
% Members who watch
more than 15 minutes/
month
Streaming
DVD by Mail
% Members who add more than 6 DVDs/month to their movie list

45. Is it helpful to know you’re French?
Pop Quiz 4

47. 0
0.95
1.9
2.85
3.8
2004 2005 2006 2007 2008 2009 2010 2011
Average movie rating improves over time

48. Movie rating does not equal movie enjoyment

49. Casino = 98% Match

50. Pop Quiz 5
Should site structure be personalized?

51. Should site structure be personalized?
Pop Quiz 5

52. Should site structure be personalized?
Pop Quiz 5

53. Today
All devices
Originals

54. Today
All devices
Originals
Personalized
Simple
Instant

55. Personalization
Delights customers in hard-to-copy,
margin-enhancing ways.
2005
2010
Today

56. 3 Free trial reminder case

57. Free Trial Reminder Test
Consumer insight:
• Customer service data
• Trials/Visit conversion:
• Month 1 retention:
Let’s A/B test it!
Month one retention:
Launch test to all or Not?
Launch test to all
2%
90%
85%
(All data are guesstimates)

58. Free Trial Learnings
Delight trumps margin
Cost of ethics & brand
Low stakes (reversible)
Debate, decide, do

59. Three more things required

60. Courage

61. No Late Fees
Patience

62. Humility

63. Existing data
Data focus
Customer & Bus.
Qualitative
1-1, usability,
focus groups
Survey data
Demo, cancel,
quality, NPS
A/B testing
Measure change
Delight v. margin
Strategy
Hypotheses
DHM model
Are You Obsessed?

64. Customer Obsession
Put the customer at the center of everything you do,
to delight customers in hard-to-copy, margin-
enhancing ways, to invent a better future.

65. Thank you!

67. www.gibsonbiddle.com
To complete Net Promoter Score survey
To find PDF of presentation
To read my “Customer Obsession” article

69. Questions?
www.gibsonbiddle.com
To complete Net Promoter Score survey