AZMAN HASHIM INTERNATIONAL BUSINESS SCHOOL

MARKETING FOR INNOVATIVE PRODUCT

SHAF 3043

SECTION 01

TOPIC: NETFLIX

LECTURER’S NAME: DR. NORZAIDAHWATI BINTI ZAIDIN

GROUP MEMBERS:

NO. NAME MATRIC NO.

1 AQILAH BINTI MOHAMMAD YAMIN A17HA0014
2 ILI AYUNI BINTI SAHBUDIN @ SAHABUDIN A17HA0055

3 NORSYAZWANI AUNI BINTI PHILIP A17HA0142

4 NUR AMIRA NATASHA BINTI ZAINAL A17HA0153

SHARIFAH HAREEZAN BATALLER BINTI SYED
5 A17HA0233
CHARLES
6 SITI JASLIN BINTI JOHARI A17HA0241
DIFFUSION OF INNOVATION

INNOVATORS: Technology Enthusiasts

Innovators are the people who have a mind-set of “trying anything new in the market first”.
It is motivated by the idea of being a change agent that would develop to make shift
solutions. Innovators are willing to try alpha or beta test and work with any technical
personnel. Moreover, they are tolerant of initial problems and they are the gatekeeper to the
next group of adopters.

EARLY ADOPTERS: Visionaries

Early Adopters are people who want to adopt an innovation because the Innovators went for
it. They want to revolutionize competitive rules in their industry. It is more likely attracted by
high-risk or high reward projects, but not necessarily high price sensitive. The demand
customized solutions, intensive technical support. Product from early adopters form
competition and the communication is horizontally.
NETFLIX IS CATEGORIZE AS INNOVATORS OR EARLY ADOPTERS?

Netflix was trying to bring partly new behaviour. It would take time for mainstream
consumers to adapt to this new behaviour. There would be initial resistance among the
common masses. So the way forward is to start targeting the ‘early adopters’ customer
segment. Early adopters are most likely to become the solid foundation upon which we can
build a successful growth business.

NETFLIX’S EARLY ADOPTERS

Netflix initially targeted well-knowledgeable movie lovers, who were technologically savvy,
who were spending more time online, who were already talking about the newest online
developments, who were beginning to shop online and also who owned DVD players. Those
people had better exposure, had sound knowledge in the particular domain, more
cosmopolitan and open to exploring & experimenting. They acted like opinion leaders and
had enough ability to influence other individuals’ behaviour frequently in the desired way.
They had greater interpersonal networks which allowed them to serve as a social model.
People from the early majority were looking forward to them for opinions, suggestions, and
feedback.
The CEO of Netflix, Hastings and Randoplh was not interested in expensive advertising
programmes as he perceived them as a futile solution. He felt that the best option would be to
spread the brand’s value through word of mouth through opinion leaders. The way forward is,
to design and deliver communication targeting ‘Opinion Leaders’ in a community.

Hastings and Randolph used some of the early adopters to test their beta sites. Netflix got into
association with critical websites, online communities where the movie fans would often visit
and paid them for regular mentioning of Netflix name in their blogs and articles. Hastings’
team also got in touch with Japanese ‘DVD Player’ manufacturers & suppliers and kept free
Netflix coupons in new DVD player boxes. DVD player sales were minimal as DVDs were
not widely available at that time. Netflix offered a way out for ‘DVD player’ suppliers. The
Netflix executives requested some influential people in the home entertainment sector to
mention ‘Netflix’ in their public speeches whenever possible to induce publisity.
THE CHASM IN NETFLIX

Netflix, Inc. is a US-based online movie rental subscription service provider. This
company are targeting their customer can instantly watch unlimited TV shows and movies
streamed over the Internet to their TVs, computers and mobile devices. The company first
started in 1997 by having DVD’s rental through e-mail and only in 2011, it offers the ability
to receive streaming content through PCs, Macs and other Internet-connected devices such as
television and Blu-ray players, mobile devices, game consoles and digital video players to
their subscribers. The numbers of its subscriber keep constantly growing from each day and
Netflix can be said as the market leader in this new type of broadcasting. However, for such
big and high-tech company, there is a difficulty in getting its target market especially in early
stage of introducing a new product line. There will be always a technology enthusiasts and
visionaries, but how long does it take for the early adopters to finally accept this type of
innovation.
In broadcasting sector which involving OTT (Over the Top) services, Netflix is the
market leader. It is hard to say that Netflix does not has chasm in the market penetration. This
is because Netflix has suffered badly when there is a huge number of dotcoms awakening in
2001. Netflix had to fight with the rise of other online service video, setting aside the pirated
entertainment video content. Blockbuster even offered to buy Netflix, however Netflix
refused to get out from this sector.

Figure 1 shows Netflix's net income from 2000 to 2019 (in million USD)
CROSSING THE CHASM: NETFLIX

Netflix then trying to get up by made its IPO (Initial Public Offerings) on Nasdaq in
2002. IPO is a company's first sale of stock to the public. Securities offered in an IPO are
often, but not always, those of young, small companies seeking outside equity capital and a
public market for their stock. Netflix keep on investing in research and development to
understand customers future needs and wants. Five years later, it introduces streaming that
could change everyone lifestyle. The following years then Netflix has partnered with various
technology companies to diversify the ways ones could access entertainment video contents
in a one platform. By 2011, it has upgraded its level by enabling watching Netflix through a
PS3, an Xbox360, or an Apple device. This is such a new level of innovation that anybody
could not thought. To the central of its success, it uses an algorithm that enables its
subscribers to binge-watch the content that they liked based on their previously watched or
searched history. Netflix keep on coming with the new ideas which has made Netflix as the
top in market is that it introduces Netflix Original - their own produced contents. With
topping in nominations in many awards such as Oscars and Emmys, a 17-year run by HBO as
the top-nominated network was left far behind Netflix.

Figure 2 shows Netflix's annual revenue from 2002 to 2019 (in million USD)
PRICING STRATEGIES OF NETFLIX

Netflix restructured their pricing in a big way. They unbundled streaming plans from
the traditional DVD-by-mail business, increasing the price of the combined offering from $10
a month to $16 a month. And they rebranded their DVD-by-mail business to Qwikster.
The public reaction was staggeringly negative. Netflix lost a whopping 800,000
subscribers in Q3 2011. Their stock price plummeted immediately following their Q3 2011
earnings release. Over the course of four months, Netflix’s stock price dropped by almost
80% compared to July 2011. In the chart below, you can see the painful progression (courtesy
of Yahoo! Finance).

When asked about the 2011 price change, Netflix’s CEO Reed Hastings said he
wasn’t sure if the company had run customer focus groups before announcing the new plans.
If they had run focus groups, he wasn’t sure what those focus groups had said. All of this
uncertainty didn’t instill much confidence.
Fast forward to present day. In October of 2017, Netflix announced another pricing
change. They raised the price of their core Standard plan from $9.99 per month to $10.99 per
month. This change crossed a critical threshold in the minds of consumers and create a
sizable gap in price between Netflix and Hulu Plus (which rings in at $7.99 a month).
With this new change, Netflix announced that existing customers would be
automatically migrated into new plans – a move in stark contrast to a 2014 pricing change
that grandfathered in existing customers, allowing them to keep lower prices for two years
before being migrated to the newer, more expensive plans.
 Given the company’s fraught history with pricing, I could not wait to hear how the
2017 pricing changes are impacting Netflix’s bottom line went. On Monday, January 22,
Netflix announced the results in their Q4 2017 earnings.
By all measures, colossal success. Subscriber growth was not hurt by the pricing
increase whatsoever. In fact, Netflix added 2 million new streaming subscribers in the US and
6.4 million overseas, 33% more than what Wall Street analysts had forecast. Both new and
existing customers happily swallowed the price increase, which lifted Netflix’s revenue by
35% (faster than their 25% growth in average paid streaming memberships).
With more subscribers, and with all subscribers now paying 10% more on average,
Netflix saw a massive increase in profits. Operating income jumped to $245M, up from
$154M the previous year.
 Netflix could have taken their pricing windfall and called it a day. It would seem
prudent to avoid rocking the boat knowing that the competitive landscape was about to get
tougher as consumers would now have the choice of new streaming services from Apple,
Disney, CBS, YouTube and many others. But if it worked once, why not try again?
The resounding success of their 2017 pricing increase gave Netflix the conviction that
they had not yet reached a ceiling on price, the point at which price becomes an impediment
to subscriber growth. They still had room to try their luck again. In January 2019 the
company announced higher pricing for each of their plans, which represented the largest price
increase in the company’s history according to Variety. With these changes, Basic would go
up to $8.99 per month (+13%), Standard would jolt to $12.99 (+18%) and Premium would go
to $15.99 (+14%). The plans themselves remained exactly the same as they were in 2017.
 This again turned out to be a major win for the streaming giant. The price increase
announcement had an immediate positive impact on the stock price. In the company’s first
quarterly earnings call after the price increase, CFO Spencer Neumann indicated that churn
levels were very consistent with the 2017 pricing increase despite the fact that this one was
much more significant and even impacted the Basic plan. Furthermore, the company reported
that it beat expectations on both domestic and international paid subscriber additions (9.6
million versus a forecast of 8.9 million).

PROMOTION STRATEGY OF NETFLIX

 Promotion is one of the biggest and strongest part of Netflix business. It is also
important in high tech market. Netflix spend more than $203 million on marketing.
According to Do Hai (2015), Netflix spent $51.54 for each new subscriber in domestic
market for marketing, while the company spent $42.70 for each new international
subscribers. Picture 1 showed how much money Netflix spends on their marketing. In the
same article also stated, that Netflix invest in mixture of promotion like online and offline
promotion. Netflix is constantly promoting and advertising their product in many different
ways. In social media platform, Netflix has a strong and presence there.

Picture 1

 Facebook
57 million fans are following Netflix on Facebook, which is 10 times more than their
closest competitor, Amazon Prime video (Ramakrishnan, 2019). She also stated that
Netflix posted about 1022 times included posts of account for video and images.
Netflix also promote their service with plain texts posts that engaged better then
posted those videos frequently. These videos usually showed upcoming movies and
TV shows. It is giving their audience a sneak peek of what is in store for them.
Besides video and plain text posts, Netflix also focus on posting images and gifs.
 Approaches by Netflix to social media is centered on authenticity and interactions
with people.

 Instagram
On Instagram, Netflix has a fan following of 15 million users. The brand gained
almost 7 million followers.

On Instagram, Netflix posted images over videos. All over their posts, 78% were
images and 22% were videos (Ramakrishnan, 2019).
 Netflix gained a lot of engagement and interactions based on Netflix’s hashtag game
on Instagram. Just as on Facebook, hashtags help their audience with upcoming movie
and TV show releases and contests.

 Twitter
According to Ramakrishnan (2019), Netflix fan growth about 20.5% with a total
following of 6 million. Netflix brand engage with their audience by 5227 tweets, of
which 52% were replies. It is show that audience more active on Twitter instead of
other social media. The brand tweets 14 times a day in average. Conversations with
fan talking about trending movies and TV shows also help Netflix to engage their
brand with customers.
Besides, celebrities and TV networks also join the bandwagon of people engaging
with the brand on social.
Distribution of Netflix

In business, it’s important for a company to plan a good distribution channel that
will help the business gain a profit. Distribution channel is the main stage to deliver a
product or service from the producer to the targeted customer who intends to buy the
product or services. There are two types of channel strategy that the company can apply
to help them distribute the product or services namely single distribution channel and
multi-distribution channel. The channel strategy that the company possess should
produce a company create a competitive advantage for the same competitors. Netflix is
one of leading company that use Netflix mail channel strategy as the first and original
distribution channel. This channel consists of physically delivering DVDs to consumers
location via mail. The process will be shipped the Discs via First Class mail in return, the
subscribers who involve in particular subscription will make a pre-payment through
emails. After a disc is returned, the next available title in the subscriber’s list is shipped.
The subscribers are able exchange every DVD anytime in need without late fees. The
second distribution that the Netflix use is streaming channel. Back in 2008, online
streaming distribution was developed and introduced. During that time, there were up
to 20 million streaming members in the in the respective country such as in United
States, Canada, and Latin America. The channel consists of a “Watch instantly” Service
with the help of third-party delivery networks.
Furthermore, Netflix has also narrow down its competitor strategy by looking
into the device being used. Most of the customer enjoyed the content through a wide
range of devices such as computer, connecting computer to television, PS3, Xbox live,
Internet connected Blu-Ray Player and etc. The device manufacture creates a selling
point by creating the use of the device ability to run Netflix content. It been said the
50% of Netflix user use gaming supports as one of their way to view the Netflix content.
Netflix has successfully proved that the company has one of a strong channel strategy
from all the different option it offers. Below shows the bar chart regarding how the
Netflix and its competitors, Hulu users watching the content.
 Moreover, for the internet user, there are 26.6% of the population worldwide
who make use if this advantage. For instance, in North Americans where the internet
user takes up to 76% users. Netflix’s business is seriously relying on the power of
internet and making sure it the connection never crashed. Although we know there are
always a security threat where big companies have a high chance to suffer from the
security breaches, and with that Netflix has implied to work closely with the digital
security companies to insure the customer privacy is secure and well take care of.
References

Felix Zappe. (2017, Mar ch 23). The Diffusion of Netflix. Retrieved from
https://www.slideshare.net/FelixZappe/the-diffusion-of-netflix

Shah Mohammed. (2018, December 18). How Did Netflix Build Its Sustainable
Competitive Advantage? The Key Success Factors. Retrieved from
https://medium.com/@shahmm/how-did-netflix-build-its-sustainable-competitive-
advantage-3b3c7943c897

Slater, M.S. (2014). Marketing of High-Technology Products and Innovations. Pearson

New International Edition : Third Edition

 Smith, A. Y. (2015). Netflix: a company analysis.

 https://www.businessofapps.com/data/netflix-statistics/
 https://www.nasdaq.com/articles/if-you-invested-%24100-in-netflixs-ipo-this-
is-how-much-money-youd-have-now-2019-11-27
 https://www.statista.com/statistics/272545/annual-revenue-of-netflix/
 https://www.statista.com/statistics/272561/netflix-net-income/

https://marketrealist.com/2016/10/netflix-film-strategy/
https://www.nytimes.com/2011/07/13/technology/netflix-raises-price-of-dvd-and-
online-movies-package.html
https://www.nytimes.com/2011/07/13/technology/netflix-raises-price-of-dvd-and-
online-movies-package.html
https://www.wsj.com/articles/SB10001424052970203499704576622674082410578

Ramakrishnan. V. (2019, November 21). How Netflix's social media strategy dominates
the online streaming industry. Retrieved from https://blog.unmetric.com/netflix-social-
media-strategy
1. (n.d.). Retrieved from https://www.wipo.int/pressroom/en/stories/netflix.html
2. Newswire: What Netflix and Hulu Users are Watching... and How. (n.d.). Retrieved from
https://www.nielsen.com/us/en/insights/article/2011/what-netflix-and-hulu-users-
are-watching-and-how/