Netflix Segmentation Case Study

NETFLIX - STP

Segmentation (Art 15/25)

Netflix is a company with a global presence. Thanks to the technological advances in internet communications, they are not limited by borders or oceans. Segmentation is appropriate for Netflix because of the vas types of internet users that exist. The world is a diverse place, and everyone does not speak the same language or have the same perspectives on key issues. Furthermore there is a broad range of people that use the internet and the range of these people's internet skills is larger than ever; it would be appropriate for Netflix to use Behavioral Segmentation. It is given that Netflix cannot please everyone, with that said Netflix should aim to please the people that are likely to stay loyal to the company and that are likely to spread the word about Netflix. This group of people consists of internet users that use the internet for more than banking and reading the news.

By expanding their streaming collection to include movies in other languages, Netflix would appeal to the consumers in that target market. This would open the market to countries that would otherwise not use them. This would be beneficial to Netflix because they would not need to change their product. The internet is the same regardless of where you are in the world. They would simply need to alter their signup process and acquire licenses for movies from other countries. This would be diminutive work compared to the revenue boost it would bring to Netflix.

Day by day more people are being introduced to high speed internet or broadband, however there are still many countries in the world that do not have this privilege. These people would unfortunately fall out of the reach of Netflix because it would not make sense to market to someone who is unable render your services useful.

Although many countries share a far inferior exchange rate to the United States, Netflix would have to adjust their pricing for each country to make their product appealing in terms of value. Price adjustments work in harmony with the international exchange rate because if a country has an inferior exchange rate, acquiring licenses for movies made in that country will also be less expensive.

Netflix should also focus on demographic segmentation . As of now, their service is used twice as much by families without children, as it is by families with children. This can be a key place of improvement for Netflix. As we know for many families, children's entertainment and happiness is very important. If Netflix targeted parents with the goal of having them subscribe to the service as a form of entertainment for their children, Netflix would have tremendous increases in revenue. This would increase market share by over 10 percent. Netflix has hundreds if not thousands of children's titles that parents could avoid purchasing. The ratio of subscribers without children, to subscribers with children is 2 to 1. Netflix should take advantage of these facts and market their services to these consumers.

Targeting (Danny 15/25)

Netflix is a large company that's markets are still expanding. When deciding on which segment to target, two strategies stood out; geographic and demographic segmentation. Geographic segmentation goes hand in hand with Netflix's marketing strategy because they are the most identifiable and reachable video rental service. Of the many video rental service providers, Netflix is the most well known. Their services are easy to use and understand, and are available to everyone. Netflix markets internationally and uniquely, in contrast with other video rental service providers. Customers can place orders through mail services and through internet streaming, with a wide variety of films to satisfy different needs. Netflix is also substantial. Mail and internet are available almost everywhere in the world, and with these capabilities Netflix is large and is easily capable of growing larger.

Netflix has been very responsive throughout the years by adding new products and services, and offering low prices for many of those services. In an effort to please their customers through behavioral segmentation, Netflix split the internet streaming and mailing into two different services, in hopes of lowering the price of each service separately. For some customer this was a win, and for those who liked both of the services together, this was a loss. For Netflix, this was actually quite profitable. Even though some customers cancelled their service, a large number of them did not. The number of customers that did not was large enough to earn a profit. This is also a great example of customer loyalty, because even though the price increased, the customers knew what they were getting and stayed with Netflix.

With Netflix's uniquely identifiable customer base, it is imperative, under demographic segmentation, that customers with different languages and cultures be accommodated. Netflix could open a new market to target different genres and languages of films to increase profits. As mentioned earlier under demographics segmentation, families without children use Netflix twice as much as families with children. Netflix should make an effort to target families and low income students by offering a discounted rate. This is a perfect example of being identifiable with unique segments in the market.

Netflix keeps data on video rental patterns for each customer and neighborhood. There are interesting differences in each city (images below). It would not be profitable to target psychographic segmentation. Netflix's services do not reflect any certain values or lifestyle. Since Netflix is a video rental and internet streaming company, under benefit segmentation, they have one benefit, and that is to entertain renters with movies. Sticking with a central goal is important to Netflix's success.

Profitability

Geographic Segment Profitability

= 5,000,000,000 (segment population - customers with availability to Netflix)

× 2% (Netflix current customers /total number of possible customers

× $144 (average price spent per month)

× 7.60% (profit margin)

- 625,000,000 (fixed cost x expected fixed cost from expansion)

= 469,400,000

Demographic Segment Profitability

=