Netflix has revolutionized the entertainment industry with its data-driven and user-centric approach. From personalized recommendations to global content expansion, the Netflix product strategy is a masterclass in innovation, scalability, and customer retention.
In this article, we’ll decode the Netflix product strategy, uncovering the key decisions that drive its growth and competitive edge.
Lessons for PM:
- Focus on customer delight for retention and advocacy
- Build defensible moats for long-term success
- Prioritize profitability alongside growth
What is DHM Model?
Recently, I was tasked with working on the business case for a new product.
The assignment was straightforward: write a business case and present it to leadership, explaining why the product should be pursued.
I recalled Gibson’s DHM Model and applied its 3 pillars (Delightfulness, Hard-to-copy and Margin-enhancing).
While this framework is ideally suited for developing and assessing product strategies, I used these pillars as a reference for creating my business case.
The DHM Model encourages product managers to think strategically by prompting the right questions.
- D-Delightfulness
- Definition: How does this product/feature delight the customers?
- Key focus: Here, the focus is to ensure the product creates an emotional connection (joy/satisfaction) with the customer by exceeding expectations.
- H- Hard-to-copy
- Definition: How difficult is it for competitors to replicate this product or feature?
- Key focus: Building defensibility through unique features, intellectual property, or network effects.
- M- Margin-enhancing
- Definition: How can this be be a potential margin generating product/feature?
- Key focus: Ensuring the product or feature increases gross margins over time
Ask yourself these questions to ensure your product strategy is on the right track!
The DHM Model is a powerful framework that helps product managers and leaders think from long-term perspective and create a strong, future-proof product strategy.
In this article, I’ll apply the DHM Model to Netflix to decode their product strategy.
Key Elements of Netflix Product Strategy
Netflix’s product strategy primarily focuses on creating a compelling customer experience through continuous innovation.
Key elements include:
- Original Content: Heavy investment in original TV shows and movies to attract and retain subscribers.
- User Experience: A seamless streaming service optimized for various devices, enhancing viewer satisfaction.
- Personalization: Leveraging data for personalized viewing experience, thus increasing user engagement and retention rates.
- Pricing models: Subscription revenue with localized plans increases its addressable market and growth.
I’ve inferred these points by reading the Netflix blog and observing the product itself.
There may be many more ideas that Netflix has implemented, but for the sake of our discussion, we’ll focus on these four core points.
💡Tip: To generate new and revolutionary ideas for your product, check out this guide! Once you have your list of ideas, apply the DHM Model to evaluate how each one fares. Select the best ideas and incorporate them into your product strategy.
Applying the DHM (Delightfulness, Hard-to-Copy, Margin-Enhancing) model to Netflix provides a strategic perspective on why it has been successful and how it maintains its position in the streaming industry.
Let’s break it down:
1. Delightfulness
Netflix excels in delighting its customers through features and experiences that resonate emotionally.
- Personalized Content Recommendations:
- Netflix uses advanced AI algorithms to curate content that matches a user’s taste, making discovery effortless and satisfying.
- This creates a sense of being understood and valued, enhancing user loyalty.
- Seamless User Experience:
- Intuitive interface, easy navigation, and minimal interruptions (e.g., no ads on the paid plan).
- High-Quality Original Content:
- Hits like Stranger Things, The Crown, and Squid Game keep viewers engaged and emotionally invested.
What’s the impact: Netflix transforms passive viewing into a curated, personal, and emotionally rewarding experience.
2. Hard-to-Copy
Netflix has built significant moats that make it difficult for competitors like Prime, Disney Hotstar to replicate its success.
- Proprietary Algorithms:
- Netflix’s recommendation system, trained on billions of data points, delivers a uniquely personalized experience that rivals struggle to match.
- Global Scale and Infrastructure:
- Netflix operates in over 190 countries, supported by robust partnerships with CDNs (content delivery networks) and ISPs to ensure high-quality streaming even in remote regions.
- Original Content Creation:
- Netflix invests billions in original TV shows and movies, often securing exclusive rights. Its global production capabilities are unmatched in terms of scale and diversity.
- Data Insights:
- Netflix’s user behavior data gives it a competitive edge in content creation, enabling it to produce content it knows will resonate.
What’s the impact: Competitors may copy some features, but replicating Netflix’s global presence, data, and original content ecosystem with same impact is incredibly challenging.
3. Margin-Enhancing
Netflix’s business model and strategy contribute positively to its margins.
- Subscription-Based Revenue Model:
- Recurring revenue from monthly subscriptions ensures predictable cash flow and long-term customer value.
- Positive Economies of Scale:
- As Netflix’s subscriber base grows, the cost per user for producing and hosting content decreases.
- Control Over Content:
- By shifting to original content, Netflix reduces reliance on third-party licensing, which can be expensive and unpredictable.
- Global Expansion:
- Targeting emerging markets (e.g., India) with localized content and lower-cost plans increases its addressable market, driving growth.
What’s the impact: Netflix’s strategic pricing, global reach, and cost efficiencies ensure long-term profitability despite high content production expenses.
Conclusion
Here’s a table applying the DHM model to our 4 core points for Netflix:
| Aspect | Original Content | User Experience | Personalization | Pricing Models |
|---|---|---|---|---|
| Delightfulness | HighUnique, engaging content that attracts and keeps subscribers entertained. | HighSeamless, easy-to-use interface across multiple devices, providing a satisfying experience. | HighPersonalized recommendations and curated content that make the viewing experience highly relevant. | Medium Accessible pricing for different regions leads to customer satisfaction. But, there is no wow-factor here. |
| Hard-to-Copy | HighProprietary content (e.g., original shows and movies) that differentiates Netflix from competitors. | MediumUnique, user-friendly interface that’s integrated across a variety of devices, not so hard to replicate. | Medium-High Data-driven algorithms for personalization are unique, but competitors are also investing in this. | Medium-HighGlobal pricing strategy with regional plans, but competitors may adopt similar models. |
| Margin-Enhancing | HighExclusive content drives subscriptions, which generate recurring revenue. | MediumOperational costs are high but scalable across devices. | HighIncreased engagement and retention lead to higher lifetime value (LTV) and reduced churn. | HighSubscription-based model with localized pricing ensures a steady revenue stream while expanding reach. |
Netflix stands out as a company that scores highly across all three dimensions of the DHM model.
Its ability to consistently delight customers, maintain defensibility through unique assets, and drive profitability ensures its leadership in the streaming industry.
Similarly, we can apply the DHM model to any company and analyze their strategy.
It encourages a holistic approach that considers both the present (customer satisfaction) and the future (sustainability and defensibility).
That’s all for today, see you again!
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