Lessons from Netflix, Reed Hastings: Create a Compelling USP

Michael Beauchemin —  November 3, 2014

Create a Compelling USP

Innovation is critical to the success of any business.  Simply being a “me too” service or product company does not differentiate your products or services from all of your competitors.  Even worse, if you have a great niche and have some success but fail to find ways to innovate and improve the product or service and customer experience you will go be cured to the curb by your customers.  Another competitor will come along and determine how to improve and innovate the service or product and customer experience…while charging a premium.  You have to constantly innovate and create a compelling USP.

Starbucks did not invent coffee, but figured out how to innovate and enhance the customer experience.  While every neighborhood coffee shop was competing on price they changed the game and created a niche that delivered a whole customer experience that allowed them to charge a premium price for a cup of coffee.

Blockbuster verses Netflix: Which company placed more value on the customers experience? 

Blockbuster got its butt kicked and went the way of the dinosaur because they failed to embrace and improve on their business model.

Netflix and creating a compelling USP

Do you remember when, you’d want to watch a video? It required hopping into your car, fighting traffic and driving down to the local video store. Arrive late on a Friday or Saturday or if the weather was lousy, the store would be packed and the videos picked over. You’d try and grab a video and someone else would snatch it up just before you. Even if you weren’t sure you wanted to watch a movie you’d grab and carry it around the store until you found better ones. It was like playing musical chairs with videos.

If you returned a video late you were hit with astronomical late fees. Pricing was based on a per video rental fee.  Rent 3-4 videos and it cost a small fortune.

Netflix came along and blew Blockbuster out of the water.  Reed Hastings, co-founder of Netflix (and like me a former Peace Corp volunteer from Southern Africa), revolutionized how consumers view and consume TV.  When starting the company in 1997, his goal was simply to improve on the consumers’ experience of accessing and renting videos.

The idea for Netflix came about whenhe failed to return a video on time and had to pay a late fee of over $30.  Can you relate? I know I can.  I’d forget to return a video, or our child would misplace it and we’d have to pay a late fee that was 2-3 times more than the cost of the video itself.  Each time I’d be angry at myself for missing the deadline and irritated with the video store for charging wildly high late fees.

Reed Hastings, after visiting the gym, considered their business model, i.e. pay one monthly fee and have unlimited access to the gym and thought the same business model could be applied to on-line video rentals.  A subscription based service that allowed its subscribers to have unlimited video rentals with no late fees. How awesome was that.  Subscribers would simply order the videos they wanted to view, the videos would be mailed out to them with a return envelope.  No more trips to the video store looking for unavailable videos or settling for B rated movies.

The company has not stopped innovating since its inception.  It transitioned from being an on-line video rental subscription based provider to being the leader in supplying video and entertainment on-demand throughout the world.  They have over 50 million subscribers in 50 countries and provide more than, a mind blowing, 2 Billion hours of programming per month.

Netflix understands that it’s future success depend on winning, what it calls, those “moments of truth” with their customers.  A point in time when consumers have options to play a video game, order a pay-per-view movie, watch a DVD or use Hula.  Their goal is simple, make it easy for customers to choose Netflix by making available, at a low cost monthly subscription fee, remarkable content with no barriers, no longer term commitment and allows consumers to control their viewing experience, i.e., they can play, pause, rewind shows with no commercial interruptions.

Netflix recently developed its own original content based on customer input. Recognizing that its customers want to control their viewing experience Netflix, rather airing only one show per week according to a prescribed schedule, posts its shows for an entire season at one time.  This allows its viewers to binge watch its original content.

Here are the Takeaway Lessons from Netflix.

1. Innovation is critical to growth.

Blockbuster’s old model of a brick and mortar store did not last the test of time.  They failed to respond or innovate until it was too late.  They made a feeble attempt at establishing an on-line presence but by that time Netflix was eating their lunch.  They had developed a system and loyal subscriber base that allowed their customers to receive and view content on their terms and not Blockbuster’s terms.

When evaluating your own services and products look to other business models or technologies and evaluate whether ideas from other industries/businesses can be applied to your business.  Learn how to innovate, focusing on improvements that will enhance and improve your customers’ experience.

2. Innovations do not always have to be major undertakings

Innovation can be small incremental changes.  What’d important is using innovation to continue differentiating your products and services from those of your competitors and improving your customers experience.

Innovations can be as simple as improving on how you respond to customer inquiries, directing customers to the right person with no wait so there questions can be answered quicker.  Wouldn’t you love to call a credit card company, tech support, insurance provider or any large corporation and within 3 rings have your call answered by a real person that can respond immediately or get you to a real person that can resolve your problem, answer your question, take your order, etc.?  How awesome would that be?

3. Central to any innovation is the customer and customer’s experience. 

Are your innovations improving your customers’ experience, helping them solve their problems in a more meaningful, efficient way, making their life easier or enhancing their experience?  Central to all innovation is your customers’ experience. Do you have a system for customers delivering feedback on recent innovations so you can measure the impact they are having?   Are you innovating to make your internal processes and procedures easier at the expense of your customers?  Reducing cost and sacrificing quality to improve margins?  Over the long haul if you are not creating added value for your customers you will see your sales erode.

4. Listen and let your customers inspire ideas for innovation 

Don’t be afraid to use gather customer feedback and gain inspiration for innovations from your customers.  Evaluate how your customers are using your products or services and how they view them. You may be surprised and can open up other opportunities in ways you never imaged.

Dunkin Donuts has a great social media campaign where every day they receive pictures and tweets of customers consuming donuts and drinking coffee and coming up with creative ways of how they use Dunkin products.  On Pinterest they found customers creating recipes using Dunkin Donuts products.  They leveraged this feedback and partnered with their customers to create mouth water recipes using Dunkin products.

Your customers love to give feedback and can become your best source for inspiration to innovate.  Think of the feeling your customers will have if they know they are part of the development and creation process.

A process and mindset of continuous innovation that is customer-centric allows you to create powerful Unique Selling Propositions (USPs) that set you apart from your competitors.  The stronger your USPs the more differentiation you have.  Customers willingly pay a premium for products or services to companies with awesome USPs.

Michael Beauchemin

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Certified Inbound Marketing Consultant committed to helping businesses grow sales through measurable, accountable marketing metrics.
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