Netflix's Customer Value: Strategies and Techniques

Desklib provides past papers and solved assignments. This report analyzes Netflix's customer lifetime value and strategies.

Business Customer Value
1 | P a g e

Table of contents
Introduction......................................................................................................................................3
Part A...............................................................................................................................................4
An introduction to the Netflix Plc.................................................................................................4
Various components: customer retention rate, customer acquisition cost, customer profit,
customer churn rate and customer lifetime value............................................................................4
how customer data are collated in a B2B or B2C context to find averages for CAC and CP; basic
formula to calculate a customer’s lifetime value based on data provided below............................5
Justification of the main benefits of customer lifetime value for Netflix Plc...............................6
Main concept of CLV (Historic or Predictive), and evaluate the extent at which each of the
factors mentioned in the table above can influence customer lifetime value at Netflix Plc Inc...7
Determination and evaluation of various market segmentation strategies available to Netflix Plc
Inc. in a B2B or B2C context...........................................................................................................8
Figure 1 : market segmentation strategy..........................................................................................8
Explaination of B2B and B2C key decision-making models, highlighting their advantages and
disadvantages and demonstration of how opportunities for customer value creation can be
implemented using the customer value creation framework...........................................................9
Conclusion.......................................................................................................................................9
Part B...............................................................................................................................................9
Techniques and methods used to increase customer lifetime value..............................................10
Judgment to evaluate the appropriateness of methods and techniques chosen to be applied at each
stage of the consumer decision-making process and Customer Lifetime Value...........................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13
2 | P a g e

Introduction
In marketing, one of the most evolving thing is the Customer value for the company. Companies
focus on the customer value than that of the market share and the different share market values
of the organization. The companies focus on the client base as that decides the position of the
company in the market. It is quite evident from the calculation and the market trend that all the
customers do not add value to the company and they do not contribute towards the profitability
of the company. All customers cannot be retained and the long term benefits cannot be enjoyed
by the company. This assignment gives a description of the Customer life time value and the
retention value a customer can contribute towards the company Netflix Plc.
3 | P a g e

Part A
An introduction to the Netflix Plc
Netflix is a renowned media service provider. Reed Hastings and Marc Randolph in California
founded it in 1997. The company aims in streaming OTT service. It offers online streaming of
various online films, television programs etc. The revenue accounted as on 2018 was
15.794billion US dollars. The operating income had accounted to 1.605Billion US dollars. The
net income was 1.211 billion U.S dollars. As of 2017 the company had an employee base of
5400. It is available worldwide except countries like China, Syria, North Korea, Iran and Crimea.
It is also a member of Motion Pictures America (Ascarza, et al, 2018).
The company had expanded the production and its distribution in the film sector and television
sector from the year 2012. Their specialty is the diversity and various other efforts to produce
different and unique videos in different countries. The company does not serve to all. Since it is
not free there is a subscription charges levied on the customers interested for subscribing the
videos online. The exclusive set of videos which the company provide for the subscribers are
unique and contains additional content for which it has gained the popularity in a vast way in the
recent years. The popularity was so huge that within months it had grown from just a service
provider to ‘the largest source of internet streaming traffic (Kim, 2019).
Various components: customer retention rate, customer acquisition cost, customer profit,
customer churn rate and customer lifetime value
Customer Retention rate : Customer retention is the actions and activities the company takes up
to minimize the customer defections. Through brand loyalty and customer loyalty the company
retains as many as customers possible in the particular year (del Rio Olivares, et al, 2018). The
retention rate is the percentage of customers that the company has retained over a time period.
There are various software to update the relationship for the company and the consumers. This
actually aims in increasing the customer satisfaction rate and customer loyalty. There are various
CRM software with different sales and marketing updates in the software which enhances the
customer value and the customer acquisition value (Ballings et al, 2018).
4 | P a g e

For any organization customers are its biggest asset. Therefore the companies apply a lot of
customer retention strategies to make the companies efficient in the particular sector.
The steps for customer retention are as follows :
 First set up ways to communicate with the customers
 Provide perks and benefits for the existing and the loyal customers
 Build various payment plans for the new and acquired customers
 Provide great customer service
Customer acquisition cost: Customer acquisition cost is the employment of the money or the
total cost employed by the organization to acquire the customers (Hegner-Kakar, et al, 2018). It
is basically the marketing costs. It is normally considered with respect to a particular time period.
For example the marketing cost for a month for Netflix is 100 dollar and the CRM also shows
100 new customers have been acquired in the said month, then the ratio of cost and retention is
1:1. This indirectly shows that whether the cost is fruitful for the company or not. If the cost is
more than the acquired customers then the company is at loss and the value is not high for the
customers. But on the other hand if the acquisition is more ten it is a profitable initiative for the
company (Kumar and Reinartz, 2018).
Customer profit: Customer profit is the amount of profit the organization makes from the serving
a customer or a particular set of customers. A profitable customer is considered the one who is
associated with the company for a long time. The company has invested a certain amount on the
particular customer or the sector of customer. But it is found out that the customer has given a
return to the company much more than that the company had actually invested upon. Within a
specified period the revenues earned minus the cost associated to build the particular
relationship. This play a vital role in the ‘customer value detection’ section. This reckons those
customers, who are loyal and valuable (Drachen et al, 218).
Customer churn rate: The customer churn rate is the percentage of customers who no longer
promise to stay in touch with the company. Thus the customers that are no longer with the
company is the churn rate of the company.
5 | P a g e

Customer lifetime value : Based on all the cash inflows and outflows of the company towards a
single customer or the set of customers the lifetime value of the customer is denoted. The value
the customer has added to the company while he is in touch with the brand is called the customer
lifetime value (Squires, 2018). To detect the customer lifetime value there is an involvement of
various analysis techniques. This value incorporates a number of factors which involve the
current contribution of the customer as well as the future contributions. Assembling all the
factors the customers lifetime value is detected.
The formula is as follows :
Customer lifetime value : Margin * (retention rate / ((1+discount rate)-retention rate)
Margin is the contribution after deduction of the variable costs
How customer data are collated in a B2B or B2C context to find averages for CAC and CP;
basic formula to calculate a customer’s lifetime value based on data provided below
The B2B and the B2B companies use a number of ways to find and collate the data from various
resources. They track the website activities. The website of Netflix have a range of customers
who are already as the customer base of the company (Heidari, et al, 2018). They visit the
company website to watch the series and various films. While this the company extracts data
from the customer profile. The taste the values of the customers and the details can be obtained
from this itself.
Normally companies keep a record of the customers in the company record book and thus the
company uses the same in the future to understand the company’s customer future prospects. The
MNCs use the sms alert and emails to collate the data (Stokinger and Ozuem, 2018). The
companies use various tools and techniques to compete in the market and thus they form new
ways to market the product. A customer is loyal when the customer is always in contact with the
brand. The freshness in the mind persists if the company keeps in contact.
Simple customer lifetime value 7000 [(2000*4)-1000]
Average customer acquisition cost 1000 (given)
Average customer profit per annum 2000(given)
Customer retention rate 75%
Customer churn rate 25% (100%-75%)
Average lifetime in years 4
6 | P a g e

Justification of the main benefits of
customer lifetime value for Netflix Plc
For Netflix plc the customer lifetime value is moderate. The company in the service provider
sector is a good competition for the Amazon Prime. The company uses the data to understand
the various choices of the people who are already subscribed to the service.
According to the calculation the average customer profit accounts to 2000 pound per annum.
Therefore it justifies the fact that the company gains an amount of 2000 pounds per head from
the customers every year. The customers who already are present with the company for a long
term are beneficial to the company (Li, 2018). The company uses a minimal cost with respect to
the customer but the outcome that they get is huge.
The customer acquisition cost for the company is £1000. Therefore the company ultimately uses
its 1000 units of money towards the marketing and the customer retention for the customers.
That means all the cost employed for the marketing and the relationship with customers are over
within the said cost. Thus for the company it is evident that the cost employed for tea me is not
much high.
On the other hand if the customers’ profit margin per annum is looked upon, then the amount is
double to that of the cost. That means the cost employed by the company to retain the particular
customer is half o that of the profit earned by the organization.
Next is the retention value. The retention value as stated is 75%. This means that almost a large
amount of customers stick to the company. Three fourth part of the whole of the company’s
customers are with the company for a year or so (Komalasari et al, 2018).
That means that the customers who leave are 25%.
Thus calculating from this the average lifetime stands to be 4 years which is huge for the
company. Thus the CLV calculated is much more than the amount actually invested per
customer.
7 | P a g e

Main concept of CLV (Historic or Predictive), and evaluate the extent at which each of
the factors mentioned in the table above can influence customer lifetime value at Netflix
Plc Inc.
Historic CLV : This concept uses history of the customers and thus make an approach towards
calculating and estimating the CLV. Therefore in simple words , this approach takes all the data
of the client and assemble and predicts the future of the buying nature of the particular customer.
The value can be detected via methods involving the profits and costs and the revenue estimates
of the customer. First it is detected that how many are active users (Prentice and Loureiro, 2018).
Among them the inclination towards the particular pack or subscription is detected.
In the above table the factors incorporated are as follows:
Customer acquisition cost, customer profit per annum, retention rate, churn rate and simple
acquisition value.
As already mentioned above, customer acquisition cost is the amount of money of the company’s
accounts employed in acquiring the customer. For Netflix the biggest benefit is that it is an
online service and the customers are already sorted in the sector (Kuppelwieser et al, 2018).
Retention rate and the churn rate can evaluate the customers retained and the customers left.
Thus this can give a brief idea about the customers associated with the company and the
customers who have left.
All of these influence the CLV of the company Netflix. The retention rate and the churn rate
influence the CLV in a vast way. The retention rate indirectly tells customer relationship. Higher
the rate higher is the customer relationship value. Churn rate again tells about the customers who
have left the subscription due to some issues. Thus the issues detected can improve the service
which in turn can increase the amount of retention in the future (Mukherjee, et al, 2018).
The ratio of the cost for acquiring with that of the profit margin can specify the growth graph per
year. In the larger context Netflix can compare the two values for a better understanding of the
customer response.
8 | P a g e

Determination and evaluation of various market segmentation strategies available to
Netflix Plc Inc. in a
B2B or B2C context
Market segmentation can be precisely said as the division of the total target market according to
the demographics, psychographics, geography and behavioral aspects of the customers.
Figure 1 : Market segmentation strategy
(Source : Ting, 2018)
The company already has a base for clients who are already in the database for the company. The
company can utilize the same to understand the market and decide the strategies to be taken.
Initial discussions with the management can be carried out in order to follow the demography
and the psychographics for the particular segment. Post this the company can take out the data
from the database and thus discover the key segments. The key segments thus identified will lose
the burden a little more. Applying statistics and basic methods the chunk of data regarding the
taste of the people can be detected.
Netflix can apply the above to boost the customer retention and value creation.
9 | P a g e

Explanation of B2B and B2C key decision-making models, highlighting their advantages
and
disadvantages and demonstration of how opportunities for customer value creation can be
implemented using the customer value creation framework
The key decision making models are as follows :
 Need for recognition
 Search for information
 Evaluation of Alternatives
 Purchase Decision
 Post purchase Evaluation
The first two steps involve the recognition and search for information. Here the company Netflix
will be able to gather the data as soon as possible as the data is already present in the records of
the company (Parlow and Wagner, 2018). Next the company understands the competition for the
product and the various sources from which the consumers can source the different videos. The
purchase decision compiles the various alternatives available for the customer. Netflix is not the
single company providing the video services. The biggest competitor which has evolved is
Amazon Prime. Thus the customers have the option of choosing from the two alternatives. The
better is the service, the better is the acquirement for the company. After the purchase the
customer is also evaluated for the company. The amount of time invested by the customers, the
longevity of the services taken by the customer, the retention rate and the usage all come under
the same section. Customer value creation can be implemented through application of all these
methods.
The company should categories the customer profile and the different prospects for the customer
as to acquire the most in the sector.
Conclusion
Thus the various calculations for the company Netflix is shown which gives an overview of the
different ways of acquiring the customers in the particular sector. Again the various market
segmentation procedures to be implemented for the same and the tools and techniques to be used
for the same is given broadly. The impact of the customer lifetime vlue and other factors
regarding the same with the company is described broadly.
10 | P a g e

Part B
Techniques and methods used to increase customer lifetime
value
There are various ways to increase the customer lifetime. Amongst those, the two most basic
ways are to acquire new customers while another way is to maintain the existing customers for
the company (Lobato, 2019). As acquiring new customers are difficult than the latter therefore the
latter technique is ideally followed by most of the companies. The various ways are discussed
here under
 Feedback generation : there are a number of customers who use the service but do not
interact with the company to express their grieves or the goodwill for the company or the
service. To acquire feedback these customers are the best to judge and give valuable
decisions for the future of the company. Netflix can create a feedback system and
subsequently initiate the customers in contributing the same.
 Providing personal services : Through email or though calls the company executives can
keep a track of how the company is gaining the attention of the customers. Netflix can
provide mails and calls to the customers to make them understand their value to the company
so that they do not feel left out.
 Encourage the customers to opt for the annual billing cycle: this is a great way to sustain the
customer within the company. The value increases as the retention value increases.
 Keeping the customers engaged : The email marketing is a great thing to market the products
as a whole. The packages and the benefits and offers that the company can provide the
customers can be sent through the emails.
 Cross sell and increase the product value : the customers who are already satisfied with the
services will be happy to upgrade the product or the bye other products. Thus the best way is
to make them understand the value for the company and make some efforts for a push sell.
11 | P a g e

Judgment to evaluate the appropriateness of methods and
techniques chosen to be applied at each stage of the consumer decision-making process and
Customer Lifetime Value
Thus the techniques applied are the basic for marketing the products and increase the value for
customers. To increase the customer lifetime value the best ways , methods and techniques have
been applied in the study (Merikivi, et al, 2018)). The techniques which have been applied are base
on the customer lifetime value calculation and the subsequent techniques to gain the customers
and to retain the customers for the company Netflix as well. Thus accordingly it can be stated
that the methods and the techniques that have been applied are perfect for the judgment and the
various factors are appropriate for the same. In the decision making process the various steps
involved are best applied for the company. Thus the customer lifetime value and the decision
making are as par with the system in the context of Netflix. Amazon Prime being the competition
for the company Netflix, Netflix can think of better ways to incorporate the service and boost the
customer Lifetime value.
12 | P a g e