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customer service

Netflix leads the way in data-driven service

The streaming giant’s learning-from-data culture is a model for staying hyper-responsive to customers.

While you may like to think of yourself as the kind of person who watches the Oscar-winning film Roma on a Saturday night, Netflix knows you really prefer the murder, mayhem and madness of the raunchy docu-series Tiger King. In fact, knowing you better than you know yourself is the real secret of Netflix’s success. 

And “successful” may be an understatement—the global streaming giant is valued at over $220 billion. Though Netflix keeps a good deal of their valuable data sets to themselves (including viewership numbers for individual shows), they are said to retain more than 90% of their subscribers year-to-year. Any losses are outstripped by new customers, and in a pandemic-riddled 2020, they added 36.6 million new subscribers. 

“We’re figuring out every year how to use the Internet to make a great consumer experience,” Netflix CEO Reed Hastings says. “Every year is an experiment.”

That experimental outlook, running from the CEO on down, enables Netflix to reliably deliver the product that suits each customer best. With each passing year, Netflix refines its methods, hones its algorithm, and—if all goes according to plan—gets better at knowing what you’re in the mood to watch before you’ve even figured it out for yourself. 

But even more than collecting data from its subscribers, Netflix is adept at converting that data into action. And any business leader would be well advised to note the underlying culture that helps Netflix maximize returns on its data, and serve customers better.

From Knowing to Learning

Netflix knows when you are sleeping, they know when you’re awake, and they know when you’re watching Fabulous Lives of Bollywood Wives. Even more, they know which device you use, how many times you pause your shows, and how many episodes you are likely to watch in a row. But Netflix is not the king of streaming because they have the best possible analytics (though they likely do). Their success comes because they continually use analytics to improve their product.

That is, they have a detailed profile for every user, and they are able to harness that data to deliver what each customer wants. They shun traditional ideas of customer ‘touchpoints’ and instead travel along with viewers for the entire journey to understand hits and misses better. It’s no wonder some 80% of Netflix viewer activity comes about through personalized recommendations. 

Online behemoths like Amazon, Google and Facebook similarly succeed by efficiently collecting data, and converting it to insights—and similar practices produce results across different industries.

Companies that are able to leverage customer behavioral insights outperform their peers by 85% in sales growth and 25% in growth margins—and yet most organizations only take advantage of a fraction of the data they collect.

According to a recent survey by Oracle, just 11% of brands use a wide variety of data points to create unified customer profiles and personalized experiences—a stark contrast to the 71% of marketing and advertising professionals in the same survey who emphasize the need for clear customer profiling. In fact, collecting data is the easy part, but the lack of direction from the top of an organization often translates into a gap between the data available and the problems (and opportunities) that data is meant to help solve.

“You have to be very specific about the aim of the function within the organization and how it’s intended to interact with the broader business,” notes Ruben Sigala, the chief marketing, data, and analytics officer at the health technology company Well. “There are some organizations that start with a fairly focused view around supporting traditional functions like marketing, pricing, and other specific areas. And then there are other organizations that take a much broader view of the business.” 

A good number of CEOs and business leaders remain reluctant to react to data-driven insights. At minimum, this makes them slower to adjust to changing market conditions. At maximum, it means making mistakes based on incomplete, or bad, information. Either way, it means falling further behind data-driven competitors over time. Murli Buluswar, the head of analytics at the multinational investment bank Citi, talks about the need for leaders to shift from a “knowing culture to a learning culture.”

“What I have learned in my last few years is that the power of fear is quite tremendous in evolving oneself to think and act differently today, and to ask questions today that we weren’t asking about our roles before,” he says. “And it’s that mindset change—from an expert-based mindset to one that is much more dynamic and much more learning-oriented, as opposed to a fixed mindset—that I think is fundamental to the sustainable health of any company, large, small, or medium.”

Putting data to work

Put bluntly, overconfidence (or underconfidence) among leaders means that many companies—even the ones who are already collecting robust data on their customers—poorly utilize the information at their disposal. As Buluswar argues, correcting this and transforming your business into one that operates with a learning culture begins with leadership embracing this as a central goal of the business. 

At Netflix, this culture is sufficiently ingrained—and leadership is so invested in leveraging data—that they are even willing to recommend someone else’s content if that’s what the customer wants. As Netflix boosts investment in producing content of its own, they remain hesitant to push their own shows at the expense of others. If a customer wants to watch Friends, so be it. 

“We have to have the discipline to make it very targeted,” Netflix Chief Content Officer Ted Sarandos says.

Speaking of Netflix’s content placement, there’s data involved there too. But it’s not data about content, but rather how a user finds their way to content. The act of mapping their user’s choice of medium, relative effort, common paths to content, and experience expectations gives Netflix a host of valuable insights to work with. They use this data to spot opportunities, take note of roadblocks, and better predict behavior so that viewers can easily navigate an expansive content universe to their desired movie or show.

Studies show show that journeys more strongly correlate with outcomes than touchpoints, improving customer satisfaction and making them more likely to recommend a brand to their friends.

In fact, this same data set can be used to create feedback loops that continually test your company’s assumptions (Who says sports fans don’t also like watching musicals?). This puts Netflix, and other companies that follow similar methods, in a continuous state of evolution.  The consulting firm McKinsey advises an observe, orient, decide, act process. “Best-in-class organizations adopt this approach to their competitive advantage,” they conclude.

This “loops-not-lines” approach orients business in a series of cycles, rather than a one-track continuum. The idea originated in the American military, as battlefield commanders were forced to make decisions amid rapidly changing conditions. Those able to adjust amid the fog of war, continually tweaking objectives and methods, proved most successful. In business, today’s data collection tools, precision algorithms, and machine learning systems work together to broaden possibilities and accelerate real-time feedback cycles.

Data readiness is the foundation of your future

Success stories like Netflix’s proves that leaning on data to make decisions about customers pays off in both monetary and non-monetary ways. And no matter what company you look at, their alignment of data with business strategy starts, first and foremost, at the top. 

When business leaders recognize the precise value(s) their customer data holds—from the ability to inform product design and improve service—they unlock customer centricity. As technology becomes even more sophisticated and newer methods of data collection and curation become available, customer centricity has become more viable than ever before. Unless business leaders keep pace with the amount of data they’re accumulating, org-wide problems of poor data utilization and under performance will persist. McKinsey found that just 23% of companies today had leaders make time each week to learn about technology and digital trends. 

Good leaders make confident decisions, and confidence comes from being informed. Data readiness very well may become standard practice in the decade ahead as interactions with customers become increasingly complex and leave scattered digital traces. To avoid getting blindsided by unexpected shifts in consumer behaviors and their consumption patterns, business leaders should look to get involved in the matter of tracking and understanding their company’s data. With that knowledge in hand, you can create an accurate data map to help your team chart the way forward and reliably deliver what your customers want. Netflix doesn’t guess what you want to watch—they lean on data to learn what you want. That’s the value they are centered on.

“It’s not Netflix that’s making the changes,” says CEO Hastings. “It’s the Internet.”

He’s just willing to listen.

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