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Posted by James McQuivey on August 23, 2011
All through the past decade, observers in industry and on Wall Street have offered reasons to discount Netflix’s efforts. Supposed obstacles ranged from Blockbuster to scant streaming options to recent rate hikes on DVD renters. When will these people ever learn? We understand why people cheer against disruptive players like Netflix — it would be nice if we could pretend all these digital disruptions will go away. But they won’t, and neither will Netflix. We’ve written about this in our latest report that people who keep an eye on content strategy will find valuable (see our newest report on Netflix).
But it’s not really written for them – it’s written for people who take an even bigger view, as do we. These people – today’s product strategists – know that Netflix is a powerful example of disruptive digital product strategy and are eager to learn how to act like Netflix in their own context and industry. In our report, we extract three specific lessons from Netflix:
- Control the product experience. The company that controls the user’s total product experience will win, whether retailer, producer, distributor, or platform. That company will have ultimate control over what options people have, what prices they pay, and what value they believe they are getting. It’s a big responsibility, but it’s one that people charged with product strategy must be willing to accept. Makers of products as wide-ranging as sleeping pills, running shoes, and auto insurance should all follow Netflix’s lead and control the total product experience they deliver.
- Use digital processes in every facet of the business. A digital disruptor does not merely use digital to alter the customer experience. Instead, digital becomes a key element of product design, development, testing, production, distribution, and customer satisfaction. This way, a company dramatically reduces its cost to satisfy customers as well as the time it takes to trial and release new products, leading to an economic advantage that analog-dependent companies cannot touch.
- Price based on your current and future costs, not historical rates. Netflix kicked off its digital business by adding digital streaming for free. This is classic digital price disruption, and this same disruptive pricing model is about to hit other business. Taking an example from a recent report about product innovation (see our Innovating the Adjacent Possible report), a cosmetics company that doesn’t have to invest in department store consultants and displays because it controls a digital Magic Mirror experience in its customer’s bathroom has an unassailable cost and experience advantage.
So it’s time to prepare, no matter what industry, for digital disruption. You could be Netflixed tomorrow by a digital disruptor that lives by these patterns and rules. Or you could turn the tables and be the Netflix in your industry. It’s up to you.