The business world has changed in the recent years when it comes to measuring marketing success. It has gotten rid from the data based marketing, while measurable performance and accountability has taken its place. For few managers the wide range of marketing metrics is helpful in evaluating their marketing success.
“You can’t manage what you don’t measure” (Iacobucci, 2013). Marketing metrics are the data that can be used to determine whether the organisation is achieving its goal by their performance in the market. In today’s marketing world, marketers need to quantify and evaluate the opportunities they are getting to justify their decisions (Bendle, Neil.T, 2016).
Marketers first need to understand what are the objectives of the business and then look for the metrics to measure. They also need to understand that it’s not about one metric, various metrics has to be considered to measure the performance. Netflix is one of the company based on online streaming of media and video on demand and DVD by mail. Does the company work on its marketing metrics? Perhaps, they have a good financial metrics. Metrics which are based on financial ratios and can be converted to outcomes like ROI, Profit margin, Costumer value (Mintz & Currim, 2013).
HOW NETFLIX EVALUATES MARKETING SUCCESS
Netflix does not depend on conventional ratings that can lure advertisers. It depends solely on the customers and their subscriptions. The success depends on the signing of new customers and retaining the old ones by the TV shows and movies. They use “Valued hours” to evaluate success. It is the subscriber that is making the impact and hence is most important part in the metrics.
WHAT IS CLV
Customer lifetime value is the value of customer relationship based on the future profitability from the customer over his lifetime (Bendle, 2016). The Following formula can be used to calculate lifetime value of the customer.
CLV is considered to be effective in long run. It helps to develop a healthy customer relationship and give the marketers an opportunity to work on acquiring new customers.
If anyone has ever been a subscriber of Netflix, they would stay for at least 25 months. There will be other customers who would not last for a month but the odds are that on an average they would stay for 25 months. The lifetime customer value of Netflix is 291.25$.
Let’s break this a little, 11.65$ is what you will pay per month and 140$ revenue over the period of one year.
IMPORTANCE OF CLV FOR NETFLIX
So far we can say that Netflix is losing money if a customer pays 140$ per year. Let’s assume Netflix is paying 150$ to get a customer since they know the CLV, they could still make profits in the long run because of the fact that the customers will stay for 25 months. Overall, knowing the CLV is important for Netflix to take the risk and to optimize their profit.
How Netflix is using the lifetime value and the CLV metrics for their success is another story. To optimize the lifetime value of a customer, they keenly track the customers to keep them on board as long as they can. It is like customised service for every individual according to their needs. They have services where customers can make a list of movies to watch, and Netflix will send the DVD once you are done with a movie. Online movie streaming and internet TV applications are also there to name a few. All of these has helped them to reduce the churn to 4% and maximize their revenue per customer.
According to Netflix, they are going to spend nearly $1 billion on marketing. Knowing the CLV and with a reduced churn, we can expect them to spend big. Their affiliates get 16$ for every customer, even if the customer cancels after the first free month of the subscription. Still they can take the risk of spending money on marketing because Netflix knows that the customers are from different marketing channels, and to acquire them from each channel CLV is an important factor.
Netflix is sitting at the top in the rental and online video market. If they did not know the CLV, they would not be as large as they are. They are spending big numbers in the market because they know how to measure and hence manage as well.
Bendle, Neil.T 2016, Marketing metrics : The manager’s guide to measuring marketing performance, Pearson education, retrieved 22 September 2016, <http://proquestcombo.safaribooksonline.com.ezproxy-b.deakin.edu.au/book/sales-and-marketing/9780134086040/1dot-introduction/ch01lev1sec1_html>
Iacobucci, D 2013, Marketing Management, South-Western, Mason, OH.
Mintz, O, & Currim, I, 2013, What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?, Journal of marketing, Vol 77, no. 2, pp. 17-40.
Netflix, 2016, retrieved 22 September 2016 <https://ir.netflix.com/long-term-view.cfm>
Martin Schmidt, 2016, Solution matrix Ltd, Financial metrics explained and calculated, retrieved 24 September 2016, <https://www.business-case-analysis.com/financial-metrics.html>
Mcalone, N 2016, Business Insider, How Netflix measures success, retrieved 24 September 2016, <http://www.businessinsider.com.au/netflixs-most-important-metric-2016-2>
Zeeshan Abbas Ali