AMB340 SERVICES AUDIT · Netflix works in a cycle of success as the company encourages employee...

AMB340 SERVICES AUDIT

1


2

Table of Contents

1. Introduction ............................................................................................................ 3 2. Service Marketing Mix Analysis .......................................................................... 3 2.1 Service Product and Positioning .............................................................. 3 2.2 Pricing, Productive Capacity and Demand .............................................. 4 2.3 Physical and Electronic Distribution ........................................................ 5 2.4 Integrated Service Marketing Communication ........................................ 5 2.5 Service Processes ...................................................................................... 6 2.6 Managing People ........................................................................................ 8 2.7 Servicescape and Physical Evidence ....................................................... 9 3.0. Recommendations ........................................................................................... 10 3.1. Recommendation 1 ................................................................................. 10 3.2. Recommendation 2 ................................................................................. 11 3.3. Recommendation 3 ................................................................................. 12 4. References ........................................................................................................... 13


3

1. Introduction

The rapid progression of digital distribution channels is driving a significant shift away

from traditional means of entertainment in Australia. Netflix is the key player in this

new and evolving market, a service allowing members to stream a selection of TV

shows and movies in HD quality from their various devices. The company began in

the US in 1997 as a mail order DVD rental service and now serves 190 countries

globally, making it a powerhouse in the online entertainment industry (Minaya &

Sharma, 2016).

According to Lovelock’s service classification framework, Netflix, due to it’s intangible

service delivery and user participation, classifies as a mental stimulus processing

service (Snyder, 1984). Using this theory to understand that Netflix is a service

directed at people’s minds is crucial in analysing the marketing mix and in

determining any opportunities to improve organisational efficiencies and

effectiveness.

2. Service Marketing Mix Analysis

2.1 Service Product and Positioning

Targeting the appropriate audience and determining optimal positioning are the key

foundations of a successful and influential communications strategy (Robertson,

2005). Netflix currently appeals to the masses, targeting men and women ranging

from 25 to 55 years of age with middle to upper socio-economic standing. Achieving

effective positioning in such a large market is seemingly difficult, however Netflix

attempts to differentiate themselves by pushing “convenience, selection and value,”

claims former Vice President of product management, Gibson Biddle (2015). Their

product appeals to a variety of entertainment preferences, offering a diverse

selection of movies and TV series of all genres from action to comedy. In order to

personalise content for their audience, Netflix has employed prediction algorithms

and recommendation systems to provide users with a unique viewing experience

upon sign in (Biddle, 2015).


4

While the company currently holds the positioning statement, “Movie Enjoyment

Made Easy,” this in recent years has become far too similar to competing services

such as Stan and Presto, also offering convenience (Biddle, 2015). In such a wide

and competitive market, Netflix must focus on the emotions, feelings and drivers of

their consumers in relation to the entertainment they are providing, to differentiate

themselves (Mahajan & Wind, 2002). Appealing to the emotions of their customers,

through marketing the sentimental value of watching TV and movies with loved ones,

is crucial in positioning themselves in such a huge market.

Additionally, the inconsistencies in content between the US and Australia is

presenting an issue for the company. Netflix Australia fails to add new content in a

regular and consistent manner. By updating product offerings to standardise content,

service quality will enhance and positively influence customer satisfaction.

2.2 Pricing, Productive Capacity and Demand

Netflix offers Basic, Standard and Premium subscriptions, each offering differing

features such as HD and the number of devices members can watch at the same

time. The most popular, the Standard subscription costs $11.99 a month and offers

members HD streaming across 2 devices. Also, the company tactically allows

members to trial the service free of charge for the first month.

Netflix operates at industry average pricing, engaging in comparable price levels to

similar services such as Stan and Presto. Due to the magnitude of the company’s

target market, they do not employ means of price differentiation, but simply advertise

their non-restrictive, cancel at any time membership, presenting a very affordable

price per month. This reasonable price effectively matches the productive capacity

and demand of the target market, however to improve, Netflix could engage in

furthering sales promotions throughout the year.


5

2.3 Physical and Electronic Distribution

Netflix currently uses the self-service channel, where the customer is the only person

involved and performs all activities. The only moment when an employee of Netflix

would become involved is when there is an issue that occurs using the service and

the customer seeks assistance. Customers often prefer remote channels because of

their convenience and when they have high confidence in and knowledge about the

product and are technology savvy (Wirtz, Chew, & Lovelock, 2012).

Today, the Netflix service is able to be accessed 24/7 every day of the year due to its

self-service technological nature. Netflix can be assessed on PC, laptops, smart

phones, tablets, smart televisions, BluRay players, gaming consoles, streaming

media players and set-top boxes (Netflix, 2016). In Australia, Netflix only operates in

the electronic channel of distribution. Netflix in other countries, such as America,

operate in physical and electronic distribution channels.

Netflix could additionally add optional physical distribution channels by where Netflix

employees go to customers who are seeking assistance. 55-64 year olds are the

lowest users of Netflix and older age brackets are not represented in current statistics

(Statista, 2015). Generally, elderly fear the risk of having their personal information

exposed, so that they will avoid engaging in Internet activities (Huang & Lee, 2016).

Therefore, Netflix could attract more elderly users by providing interpersonal services

due to perceiving Netflix as a ‘high-risk service’ given it is only accessed on the

Internet.

2.4 Integrated Service Marketing Communication

The marketing communications mix for service organisations includes advertising,

personal selling, sales promotion, public relations and direct marketing in order to

pursue marketing objectives (Wirtz et al., 2012). Netflix Chief Content Officer, Ted

Sarandos explained Netflix does not spend much money on marketing as the user

interface drives service usage (Schwerdtfeger, 2015). Netflix adopts advertising,


6

public relations and direct marketing in their communications strategy. Netflix has

used interactive, outdoor and television advertising, all being extremely effective.

This advertising has led to public relations coverage, increasing engagement with

Netflix customers. Direct marketing, specifically email, is used by Netflix to announce

new content. Overall, the marketing communications mix that Netflix uses is very

effective in addressing its customers who directly affect the organisation.

Personal selling could be used when targeting elderly people to start using Netflix,

who might be technologically challenged. However, this marketing strategy is

expensive, therefore, it is advised to utilise test marketing. Sales promotion could be

used in conjunction with personal selling when targeting elderly customers to sign up.

Although interactive, outdoor and television advertising has been used widely

overseas, it would be beneficial for the business to incorporate this in Australia in

order to increase user sign ups and customer engagement.

2.5 Service Processes

The Netflix service process is very simple and has very little steps involved. Netflix

partners with content providers to license streaming rights that allows them the ability

to provide such a variety of TV shows and movies to viewers (Netflix, 2016).

This self-service distribution is defined in the Netflix Service Process Blueprint (refer

to figure 1) (Wirtz et al., 2012). This low-contact strategy has worked well for the

company as it makes the process very convenient for the customer, allowing them

the ability to consume wherever and whenever they choose.

Netflix’s videos are only available to stream over 0.5 Megabits per second (Netflix,

2016). As the company expands its service across the world, it may be problematic

for certain regions to view where internet connections may be unstable (Kovach,

2016). A solution that would enhance the customer experience is to provide an offline

streaming option for consumers who cannot access steady internet connection at all

times (Kovach, 2016).

Implementing this solution would increase customer satisfaction, service quality and

the experience to profits model for Netflix. Growth in customer satisfaction and


7

service quality creates cumulative satisfaction, increasing loyalty behaviours from

consumers, which increases loyalty monetary results, providing a return on

investment for the company (Wirtz et al., 2012).

Figure 1: Netflix Service Process Blueprint


8

2.6 Managing People

Netflix bases their company culture and potential employee qualities on the following

aspects seen in figure 2.

Figure 2: Netflix Company Culture and Employee Qualities

Company Culture Employee Qualities

Values are what we value Judgement

High Performance Communication

Freedom and Responsibility Impact

Context not control Curiosity

Highly aligned, loosely coupled Innovation

Pay top of the market Courage

Promotions and Developments Passion

Honesty

Selflessness

(Netflix, 2016)

Netflix works in a cycle of success as the company encourages employee freedom

(Netflix, 2016). Netflix believes it attracts and nourishes innovative people to increase

the chance of sustained success (Netflix, 2016).

Netflix believes that flexibility outweighs efficiency in the long term (Netflix, 2016).

The company does not have a workday policy where employees work specific hours

a day, but rather, focuses on how much work an employee can accomplish within the

hours they choose (Netflix, 2016). Employees are also encouraged to take vacations

in order to come back refreshed and inspired to innovate and work smarter (Netflix,

2016).

Employees are paid well as it is the key to high performance culture (Netflix, 2016).

Employees are provided with challenging work, developing an employee’s

progression of skill (Netflix, 2016). Promotions are given out to employees that

exemplify great work ethic, talent and an example of the company’s culture and

values (Netflix, 2016).


9

Netflix’s management framework is reinforced by the Wheel of Successful Human

Resources theory as the company ensures they hire the right people, enable,

motivate and energise their employees (Wirtz et al., 2012). According to this theory,

Netflix does not need to improve or enhance their current management framework.

2.7 Servicescape and Physical Evidence

The servicescape of a particular business is considered in terms of three physical

factors: ambient conditions; spatial layout and functionality; and signs, symbols and

artefacts (Bitner, 1992). Although Bitner’s Servicescape Model relates to physical

places, many sensory attributes hold up metaphorically when examining virtual

spaces that exist during a service delivery. Netflix embodies ambient conditions

online through capturing imagery of current TV favourites, and the use of the

excitement-stimulating colour: red. Although spatial layout of the website is simplistic

and concise, the functionality suffers as signs, symbols and artefacts are limited.

Without utilising the ‘Sign In’ option, the website offers very little information to a new

customer – a sole FAQ page is offered discreetly at the bottom of the page. A study

conducted by Harris and Goode (2010) found that loyalty intentions are linked to

perceptions of online servicescapes and their trustworthiness. To depict a reliable

website and to further clarify customer expectations, a Netflix information segment

should be included and displayed clearly on the homepage.

Moreover, Netflix’s servicescape extends beyond their website to smart phone and

smart television applications which act as tangible products for consumers. Although

the apps are sufficient physical evidence for many technology-familiar consumers,

they may be easily overlooked for those who do not have the same understanding.

As a result, a bi-monthly or quarterly Netflix TV guide could be released via mail to

subscribers, filled with Netflix-related information of upcoming releases and Netflix

Original series to minimise distance between consumers and the intangible virtual

service.


10

3.0. Recommendations Following the SMART goal-setting criteria, three recommendations have been

formed to assist Netflix in remaining efficient and effective in the current climate.

3.1. Recommendation 1 Recommendation 1: Improve Australian Content

S Specific Netflix must improve the content they share to Australian users to avoid Australian consumers using VPNs to access US content.

M Measurable Numbers of unlawful VPNs accessing US content will decrease as improved content will warrant no need to access US content.

A Attainable Netflix Australia is able to meet the expectations that Netflix US provides to the US market through regular release of new content and keeping up to date with TV series.

R Realistic Since Netflix has set content expectations in the US, it is reasonable to believe Netflix can achieve the same content and maintain consistency in Australia.

T Time-bound Improving content on Netflix Australia will be achievable in the short-term.

Netflix US subscribers enjoy an average of six times as much content as Australian

subscribers (Gambino, 2016). Due to this, around 200,000 Australian users accessed

Netflix US unlawfully via VPN at the time of launch in Australia, with numbers

increasing ever since (Gambino, 2016). The lack of consistency between the two

countries’ content has resulted in many Australian subscribers threatening to end

their subscription if their access to US content is blocked (Dunn, 2016). Providing

Australian subscribers with frequent renewal of content, as well as keeping up-to-

date with the newest series of already uploaded content will ensure Australian users

feel satisfied with the content they can access. Over-time, Netflix must increase this

to match the US content, to create value for Australian consumers’ money.


11

3.2. Recommendation 2 Recommendation 2: Increase Advertising in Australia

S Specific Netflix Australia must increase advertising communications in order to appeal to markets that are being lost to competitors: Stan, Presto and FetchTV.

M Measurable Numbers of new subscriptions or subscriber upgrades will demonstrate effectiveness of increased advertising in Australia.

A Attainable With Netflix’s recent rise in popularity following its new business model of online streaming, and with the amount of advertising strategies used for Netflix US, it is plausible for Netflix to do the same in Australia.

R Realistic Since Netflix has serious implementation of marketing strategies in the US, it is a realistic proposition for Netflix to do the same in Australia.

T Time-bound Creating advertising content for Netflix Australia is possible in the short-term.

For the Australian Netflix launch, Netflix bypassed traditional advertising and

marketing expenditure to utilise a campaign solely within digital marketing (Bodey,

2015). Although this initial campaign created much WOM surrounding the launch,

with an industry speculation of 60% brand awareness (Bodey, 2015), Australian

broadcasting competitors seem to have captivated much of the potential market for

Netflix. This is evidenced by the increasing numbers of subscribers to the likes of

Stan who have the largest library of content; Fetch TV with the backing of Optus and

Dodo; and Presto who offers free subscriptions for Foxtel users (as shown in Figure

3) (Chistensen, 2015). With the increasing amount of advertising coverage from

Netflix’s Australian competitors, advertising in more traditional media (print,

television, radio or outdoor media) is required to engage with other target markets.

Figure 3: Foxtel subscriber growth from December 2013 to June 2015


12

3.3. Recommendation 3 Recommendation 3: Increase Tangibility of Service

S Specific To differentiate from competitors and appeal to a wider market, Netflix should increase service tangibility by developing a ‘TV guide’ quarterly that is distributed via print mail, as well as introducing service personnel to assist consumers who struggle with technology.

M Measurable Implementing trial periods of service personnel will provide statistics on the effectiveness of this enhancing service. Furthermore, introducing timelines for the completion and distribution of the TV guide will monitor the development process.

A Attainable Implementing a tangible product such as the Netflix TV guide will be achievable for Netflix. Depending on demand, implementing service personnel will need trialling before formal implementation. Alternatively, how-to videos with service personnel speaking in them should be posted online to assist with Netflix set up.

R Realistic Setting up the means to develop a Netflix magazine, and introducing service personnel is a realistic achievement for Netflix to work towards.

T Time-bound Increasing tangibility is possible in the short-term if Netflix begin TV guide production and service personnel trials are implemented ASAP.

As an extension of the previous recommendation, to increase Netflix’s reach in

Australia, Netflix must differentiate from the now crowded market. It is recommended

that Netflix create more tangibility in its service, considering Netflix’s service blueprint

is conducted online with no service personnel interaction. This can be very

discouraging to those who are unfamiliar with this form of online trading. For this

reason, Netflix should employ service personnel to assist users in Netflix set-up tasks

or walk-throughs of how Netflix works. This additional education will reduce the

perceived risk factors associated with Netflix. Moreover, introducing a Netflix TV

guide where information of new releases are displayed; hype for new Netflix Originals

is created; and where dates are given for the addition and removal of content is

showcased, will provide a tangible product for consumers to engage with Netflix

outside of virtual media.


13

4. References

Biddle, G. (2015). The Three Tools Netflix Used to Build Its World-Class Brand. Retrieved from http://firstround.com/review/the-three-tools-netflix-used-to-build-its-world-class-brand/

Bitner, M. J. (1992). Servicescapes: The impact of physical surroundings on customers and employees. Journal of Marketing, 56(2), 57-71.

Bodey, M. (2015, March 30). Netflix relies on digital-only strategy. The Australian. Retrieved from http://www.theaustralian.com.au/business/media/netflixs-digital-campaign-strategy/news-story/6e300bb1c5dfa363fd43159a18bc3299

Christensen, N. (2015). Presto, Stan, Quickflix: You need to come clean on your numbers before it's too late – Mumbrella. Retrieved from https://mumbrella.com.au/presto-stan-quickflix-you-need-to-come-clean-on-your-numbers-before-its-too-late-316781

Dunn, M. (2016). Netflix cracking down on geo-dodgers. News.com.au. Retrieved from http://www.news.com.au/technology/home-entertainment/tv/netflix-cracking-down-on-geododgers/news-story/2541193e189f3be94fa3c920c54f8069

Gambino, M. (2015, May 1). One month in: why Netflix Australia is a letdown. The New Daily. Retrieved from http://thenewdaily.com.au/entertainment/2015/05/01/one-month-netflix-australia-letdown/

Harris, L. C., & Goode, M. M. H. (2010). Online servicescapes, trust, and purchase intentions. Journal of Services Marketing, 24(3), 230-243. doi:10.1108/08876041011040631

Huang, C.-K., & Lee, P.-L. (2016). When the Ageing Society “Encounters” the Information Society: Internet Risks for the Elderly in Taiwan. International Journal for Innovation Education and Research, 4 (3), 1-12.

Kovach, S. (2016). Netflix is open to letting you save shows to watch offline. Retrieved from http://www.techinsider.io/reed-hasting-comments-on-netflix-offline-viewing-2016-4

Mahajan, V., & Wind, Y. (2002). Got emotional product positioning? Marketing Management, 11(3), 36-41. Retrieved from http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/194201330?accountid=13380

Minaya, E. & Sharma, A. (2016, January 6). Netflix Expands to 190 Countries. Wall Street Journal. Retrieved from http://www.wsj.com/articles/netflix-expands-to-190-countries-1452106429

Netflix. (2016). Connect to Netflix using your favourite devices. Retrieved from https://devices.netflix.com/en/


14

Netflix. (2016). How does Netflix Work? Retrieved from https://help.netflix.com/en/node/412

Netflix. (2016). Internet Connection Speed Recommendations. Retrieved from https://help.netflix.com/en/node/306

Netflix. (2016). Netflix Culture: Freedom & Responsibility. Retrieved from https://jobs.netflix.com/

Robertson, B. (2005). Ten Rules of Product Positioning. Medical Marketing and Media, 40(5), 52-58. Retrieved from http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/228337321?accountid=13380

Schwerdtfeger, C. (2015, August). Why Netflix Doesn't Spend That Much Money Advertising Its Shows. Retrieved from http://www.cinemablend.com/television/Why-Netflix-Doesn-t-Spend-Much-Money-Advertising-Its-Shows-82167.html

Snyder, D. R. (1984). An empirical investigation of two categories within the Lovelock service typology as they relate to service loyalty. Retrieved from http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/303341448?accountid=13380

Statista. (2015). Netflix user share among internet users in the U.S. Retrieved from Statista: http://www.statista.com/statistics/421839/netflix-internet-user-age-usa/

Wirtz, J., Chew, P., & Lovelock, C. (2012). Essentials of Services Marketing (2nd Edition ed.). Singapore: Pearson Education South Asia.

AMB340 SERVICES AUDIT · Netflix works in a cycle of success as the company encourages employee...

Documents

Transcript of AMB340 SERVICES AUDIT · Netflix works in a cycle of success as the company encourages employee...