Ancillary Revenue

Adding Value: Netflix's Winning Formula.

An important lesson for Airlines

“How can we add more value to our customers?” said every exec at one time or another.

How can a company create an experience for their customers that increases revenue and customer loyalty at the same time?

It’s a billion dollar question and has often been answered with guesswork and adolescent whimsy like “Free Hug with every refrigerator sold.”

Now, I like a good hug as much as the next guy but the delivery man lingered a bit too long - not an experience I want to remember.

Robert Kaplan and David Norton state: “Satisfying customers is the source of sustainable value creation.” 

As you seek to satisfy customers, opportunities to add value to their experience will emerge.

So, why Netflix?

Netflix, the behemoth streaming service offers one product with multiple streams of value.

They are exemplary in the field of “sustainable value creation.” How exemplary? 90 million satisfied customers (mic drop).

They achieve this through personalised recommendations and curation

Personalised Recommendation - Remove the guesswork

Netflix understand three things about their customer:

1) Often, customers do not know what they want - they browse.

2) Humans are poor at making decisions, and increasing options decreases the ability to make a decision. (The Paradox of Choice) 

3) Consumer Research shows when a user arrives on Netflix homepage they have 90 seconds to make a decision. Once that time lapses the bounce rate increases significantly. 

How do you help a customer make a well informed decision they will not regret, against a ticking clock?

Simple answer: personalised recommendation and limiting choice.

The streaming service combines a number of different algorithms to power segmentation of content and users. This surfaces data that when applied in a collaborative filtering model will produce recommendations personalised to each user.

Added Value through Curation

Netflix curate the recommendations into columns under various headings, each a different value proposition that is personalised to the user. Content is the product, and while the user has access to it all, the added value is in how Netflix curate the experience.  

Read: Elements of Value 

Headings like Trending, and Popular on Netflix speak to the value Belonging and Affiliation. This positions Netflix as more than just a service, it’s a hub of activity, a community.

Because You Watched are recommendations based on your Netflix community. The more relevant the recommendation, the more valuable the perception of Netflix as a guide and brand.

As more users engage, and new material (Recently Added) is refreshing content, we Connect with one another in the context of a journey.

Netflix uses their matching system to revive older content with a personalised context. Hence, as a service Netflix ranks highly for Nostalgia - a powerful element of value.

Continue Watching For (your name) uses the context of your prior engagement with content, which Saves Time for the user.  What is the quickest route to unwinding on the couch? Saving time supports the Therapy value of Netflix.

Added Value increases Revenue and Customer Loyalty

In September’s issue of Harvard Business Review, Bain and Company published their research on how the Added Value of a product/service is directly linked to sustained revenue growth and customer loyalty.

To better understand value, they divided it into 30 elements and depending on how a company ranks for one or more of these elements directly reflects in revenue and brand equity.

Netflix estimate that their approach to adding value for their customers saves them $1 billion per year

$1,000,000,000

Perhaps a visual might help:

Airlines walk a dangerous path between OTAs threatening brand commoditization on one side, and powerful mega-brands like Google and Airbnb actively pursuing to absorb air travel into their vision for travel, on the other side.

The traveler purchases a flight with a view to exploring, experiencing and being transformed on a journey. Airlines have long reduced their role as a delivery service from point to point - it’s no wonder the industry is considered transactional.

Airlines must actively engage in reclaiming their brand. It begins with a shift in perspective: airlines must align their vision of travel with the customer’s and market their product from the experience it facilitates.

If an airline replicated the Netflix approach to Added Value, they would immediately differentiate their brand in the marketplace by becoming a useful guide to the traveler.  

. . .
LikeWhere's award winning recommendation engine helps airlines and travel brands increase sales and brand trust by matching a destination, a city, even a single neighbourhood to the lifestyle interests of their customer.
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