NUST BUSINESS SCHOOL - EMBA 2K18

NETFLIX CASE STUDY

Q1- In what ways does Netflix employ analytics?

Netflix employs analytics in two important ways, both driven by customer behavior and buying

patterns. Netflix has developed an in house movie recommendation engine called “Cinematch”

which is managed by mathematicians with programming experience who write algorithms and

codes to define clusters of movies, connect customer movie rankings to the clusters, evaluate

thousands of ratings per second and factor in website behavior all to ensure a personalized web

page. Netflix analyses customers choices and feedback on the movies they have viewed and

often recommend movies that fit the customers preference profile but aren’t that high in demand.

Netflix realizes the vitality of their recommendation software and to make sure they leave no

room for improvement, have announced a $1 million prize for quantitative analysts outside the

company who could improve Cinematch by at least 10%.

Q2- How does Netflix use attribute analysis to predict whether customers would like some

programming?

With Netflix successful in marking its place in the development of new entertainment, the

company leveraged on its analytics capabilities to predict whether a TV show will be hit with the

audience before it is produced. Netflix used attribute analysis which it further developed on

Cinematch to enable them to identify up to 70,000 attributes for the movies and TV shows. A

famous example of a hit TV show “House of Cards” which by attribute analysis enabled them to

find the right mix of ingredients ranging from theme of the TV show which Netflix knew people

liked the UK version of the a similar program to house of cards, Famous actors with good ratings

like Kevin spacey and Directors with good ratings given by viewers on Netflix. The company

Haroon Fareed & Umair Salahuddin

 NUST BUSINESS SCHOOL - EMBA 2K18

has invested at least $200 million producing it and gained more than 3 million customers

worldwide because of House of Cards alone.

Q3- How did Netflix use predictive analytics?

From product management to their engineering team, Netflix has built a culture of quantitative

testing of data gathered through different customer behaviors who have subscribed their product.

They have several hundred variations of consumer experience on which hundreds of tests are run

all at the same time. For instance, they are currently trying out the “Screening Room” which

actually lets the customer watch preview of the movies they haven’t watched up until now.

Several versions of such tests have been created. They put twenty thousand subscribers in each

of th four test cells and have a control group that isn’t exposed to the feature of screening room

at all. The measurements taken are how long they spend viewing previews, what the completion

rate it, how many movies are added to their queue and how it affects the rating of moview they

eventually end up ordering among variety of other factors.

Simply put, Netflix uses data to make decisions that Moguls make by gut. At an average, a user

rates more than 200 movies and Netflix in turn crunches the data on consumer rental history and

film ratings to predict what they will like.

Q4- What kind of qualitative and quantitative research techniques does Netflix use to be

competitive? What lessons does it provide for other companies & organizations?

Netflix employs a number of quantitative and qualitative techniques ranging from primary

surveys, website user testing, concept development & testing, advertising testing, data mining,

brand awareness studies, subscriber satisfaction, channel analysis, marketing mix optimization,

segmentation research and marketing material effectiveness. This testing is engraved in the

Haroon Fareed & Umair Salahuddin

 NUST BUSINESS SCHOOL - EMBA 2K18

culture and extends to all areas of their business ranging from marketing to operations to

customer service. Netflix has recognized the potential of business analytics and have

aggressively moved realize it.

So in a nutshell, Netflix makes informed decisions based on the analysis of data they have on

their customers. Naturally, completely relying on data is also not the basis of their every

decision, but it gives them a head up of the likelihood of future outcome which helps them

decide on proceeding with something or taking timely action to their benefit. Analytics gives you

deep insights that help you make much more informed decisions having a better likelihood of

being successful. This aids in running a better business and offer a superior product. People with

data and research always have a competitive advantage over the ones that rely mainly on their

intuition. Many small but growing number of companies and organizations have realized the

importance of analytics and can be found in a variety of industries. The likes of Google and

Amazon are considered digital powerhouses that have harnessed the power of internet to their

analytical engines and doing wonders through informed decisive actions. Others like ABInBev

and P&G have been making superior consumer goods over more than a good part of a century

but both have two things in common, they compete on the basis of their analytical capabilities

and are highly successful in their businesses. This cannot just be a coincidence and outlines the

importance of analytics for a successful business and organization.

Haroon Fareed & Umair Salahuddin