How to Balance Customer Delight & Profits

Two Netflix cases illustrate how the DHM strategy model helps product leaders balance delight and margin.

Over two decades, Netflix improved its subscribers’ monthly cancel rate from 10% to 2%. They did this by balancing delight against margin (profit) while building a durable, hard-to-copy advantage. I call it the DHM model: Delight customers in Hard-to-copy, Margin-enhancing ways.

  • network effects (a large device ecosystem)
  • economies of scale (a $20B annual content spend), and a
  • trusted brand
  • If this experience improves retention, is it worth spending more money on DVD inventory? How much more?
  • We believed happier customers would rave about the service, attracting new members via word of mouth, so we doubled the number of saved customers. We estimated that each “saved” customer would attract one new member to the service.
  • The value of this perfect new release experience was $1 million: 5,000 saved customers x $100 (the lifetime value of a customer) X 2 for the WOM factor.
  1. It’s helpful to understand how much customers value different features. We invested in things our members valued (broader DVD selection, lower prices, next-day DVD delivery). We invested less in features they didn’t value (new release DVDs, social, unique movie-finding tools).
  • 90% of these customers transitioned into paid membership at the end of the month.



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