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Why Netflix Stumbled and How to Fix It

What happened to Netflix?

It used to be the darling of Wall Street and had millions of raving fans. But now it gets lukewarm press, and the buzz is gone, in spite of its big subscriber base.

How did this happen? And what can Netflix do about it?

The answer is a cautionary tale, not just for Netflix but for thousands of companies that are making the same mistake.

Here’s the story.

Netflix started as a DVD-by-mail rental service. It had a huge selection compared to the DVD corner store and the product came right to your door. Customers loved it.

The CEO, Reed Hastings, was a smart, brave leader. Even as his physical DVD business was booming, he saw the video streaming future and knew Netflix had to go there, even though it would impact short-term profits.

Netflix boomed as a streaming service. Customers loved the low price and the easy-access choices. The word got around. You had to have Netflix. Then, Netflix started creating strong series and putting up a season’s worth of programs all at once. “Binging” was put on steroids. Customers loved it. And Wall Street loved it.

Surprisingly (or not), most of Netflix’s potential competitors didn’t jump in to compete right away - in many cases because they were protecting old business models which compensated executives for ignoring the future and squeezing money out of the past. But today, the competition is ramping up.

Netflix is getting flanked by HBO Max, Paramount+, Hulu, Disney+, Peacock, Apple TV+, and Amazon Prime, to name just a few. Even worse for Netflix, it’s losing subscribers for the first time, and people don’t talk about it the way they used to. To be fair, Netflix didn’t lose as many subscribers as predicted but losing a million people is still a big deal.

As they lose subscribers, there is growing pressure to raise monthly fees even more, just as the customer buzz is weakening. How’s that going to work against growing competition? Raise fees just as there are more options than ever?

The idea behind raising fees is to offset the growing costs of the new content that will keep current subscribers and attract more. But this misses an important point - that content is only part of Netflix’s problem.

The elephant in the room is that while Netflix was on a production spree, it took its eye off brand evolution, a common mistake, especially among tech-based companies. As competition grew and content floundered, Netflix couldn't differentiate itself "meaningfully" against new competitors. It became a commodity, its brand nothing more than another video streaming company. with the occasional hit show. It was no longer special.

And, that's costing Netflix money. About $15 million a month based on subscriber losses. You can buy a lot of branding for that.

New research shows that customers will pay more (sometimes a lot more) for a strong brand, especially in industries with lots of me-too products. This is true for Coca-Cola as well as Tesla. They can raise prices and customers don't leave.

How does this happen? How did Netflix lose its way, along with almost a million subscribers?

Simply put, it treated its customers as one-dimensional. It assumed that the name Netflix was so strong that they didn't have to work on fresh ways of engaging customers, beyond the single dimension of content. They might have under resourced branding because they thought of it as an "expense" or perhaps they didn't understand brand evolution as well as they understood tech and deal-making.

So what should Netflix do now that they've let the brand slip?

Simple. Make branding important again. The good news is that they still have a good chance to win the branding wars because their competition are doing a mediocre job of branding too! Even Disney, which has a 50+ year brand heritage, is "buying" subscribers with discounts and making less money per sub than Netflix. This is an opportunity for Netflix.

Here’s all that Netflix has to do…

1. Focus The Brand. Understand that a brand is a promise and a guarantee that is owned by the customer, not the company. The company can only cue, guide, and influence how the customer metabolizes the brand. That’s all. The rest is up to the customer. When it comes to focus, what is Netflix’s promise and what is the guarantee?

2. Meaningfully Differentiate. Determine what makes Netflix “different” in a way that is meaningful to the customers. What makes it truly special? What’s their “position” and value proposition in the customer’s mind compared to alternatives?

3. Get Strategic. What does the “brand map” really look like in Netflix’s world? Where’s the real competition? Is it TikTok? Or is it other streaming services? This is the hardest part of branding because it’s 3-D chess in the video/streaming space. Reed Hastings looked past DVDs to jump into the future once before. Perhaps Netflix can do it again by focusing on brand strategy which would then drive content, promotion, deeper engagement, and even new ways of formatting (which all the steamers are missing).

4. Execute. This pulls everything together to reignite the brand. Marketing. Engagement. Brand Deeds. Newness. Reformatted content. It becomes the reason the customers want Netflix in their lives. Done properly, it provides an emotional payoff, driving revenue and strong word-of-mouth.

Netflix can do this if they want. They can dump their weak, bragging, self-focused, unemotional tagline – “we want to entertain the world” – and focus on emotionally engaging their viewers with a strong vision and tagline about them. And it might be easier than they think.

That’s because the competition has done a pretty weak job of branding themselves.

Paramount+ is totally self-referential calling itself “a mountain of entertainment” as if customers can get excited about that.

HBO Max is taking its importance for granted and using the same kind of washed-out sloganeering as others. “Where HBO meets so much more”. Seriously?

Hulu uses “home is where the Hulu is”, as if the other services weren’t in-home too. No meaningful differentiation here.

I won't even get into Apple's and Amazon's weak positioning.

Even though this provides a big opportunity for Netflix , it's possible they could weaken the brand further by mis-marketing some of their upcoming "initiatives".

Here's why.

If they offer an ad-supported tier, the public may brand them as “Netflix is just like TV (because it has ads) except I have to pay for it” (weakening differentiation) or, if they crack down awkwardly on password sharing, the brand may become “Netflix is a rich, mean and unfair bully who make it hard on friends and family”. (weakening the customer bond.) That's just for starters.

Game on, Netflix. What's your competitive edge?

Written by John Parikhal, President of John Parikhal + Associates.


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