#2 From DHM to Product Strategy

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Sep 19, 2023

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#2 From DHM to Product Strategy

In order to develop an effective product strategy, it is essential to combine delight, hard to copy advantage, and margin into high-level hypotheses. The key is to achieve two or three of these objectives with a single strategy. Let's take a look at how Netflix has successfully incorporated these elements into their product strategy.

One aspect that Netflix has mastered is personalization. While the platform wasn't simple at launch, it has become simpler over time. A surprising example of this is the decision to remove movie reviews in 2018. By allowing members to quickly hit "play" or "quit" at any time, Netflix eliminated the need for reviews. This change not only streamlined the user experience but also increased customer satisfaction.

Another important factor in Netflix's product strategy is social engagement. The company experimented with the TV show "Friends" for six years, leveraging the power of social connections to enhance user experience. This demonstrates the value of incorporating social elements into a product strategy to foster engagement and build a loyal user base.

Netflix has also innovated in terms of movie-finding tools. Back in 2005, the company envisioned personalized previews that would play on each member's homepage, providing both delight and margin. This unique feature not only made it easier for users to discover new content but also increased their engagement with the platform.

Price and plans have also played a crucial role in Netflix's product strategy. From ads and used DVD sales to next-day DVD delivery and eventually streaming, the company has continuously evolved its pricing and delivery models to provide value to customers. Today, Netflix has a hard to copy advantage in the technology it employs to encrypt and deliver video, ensuring a high-quality streaming experience that keeps users engaged.

Furthermore, Netflix has embraced the entertainment ecosystem by opening its APIs to enable partners to innovate on their platform. This move, inspired by the success of platforms like Facebook and LinkedIn, allowed Netflix to tap into the creativity of external developers and enhance the overall user experience.

A significant milestone in Netflix's product strategy was the development of its device ecosystem. By 2012, Netflix had established critical mass with hardware partners, creating a hard to copy network effect. This not only delighted customers who could now enjoy their favorite shows "anytime, anywhere" but also further solidified Netflix's position as a leader in the streaming industry.

Additionally, Netflix has invested in exclusive DVD content and original programming, further differentiating its offering from competitors. By providing unique and high-quality content, the company has been able to attract and retain a loyal customer base.

Throughout its journey, Netflix has learned the importance of staying focused on making the core product better. This lesson highlights the need for continuous improvement and innovation to remain competitive in a rapidly changing market.

#9 The GEM Model

Keeping organizations aligned and prioritizing growth, engagement, and monetization are essential for long-term success. However, differing opinions on how to prioritize these factors can often lead to misalignment. The GEM model provides a framework that forces cross-functional teams to prioritize growth, engagement, and monetization while building a metrics-focused organization.

The GEM model emphasizes three key factors: monetization, engagement, and growth. Monetization is measured by Lifetime Value (LTV) and gross margin, providing insights into the financial viability of the product or service. Engagement, on the other hand, is measured by monthly retention, which serves as a proxy for product quality. By assessing these metrics, organizations can gain a comprehensive understanding of their performance in terms of both revenue generation and customer satisfaction.

Netflix, for example, prioritized monetization to deliver a higher-margin business. By focusing on LTV and gross margin, the company was able to optimize its revenue streams and enhance profitability. However, it's important to note that priorities may change at different stages of a company's life. Therefore, regularly reassessing the priority of these three factors is crucial for ongoing success.

In order to effectively prioritize growth, engagement, and monetization, organizations must define the metrics they will use to measure each factor. This requires thoughtful consideration of the overall needs and goals of the company. By establishing clear metrics, teams can align their efforts and work towards common objectives.

To apply the GEM model to your own organization, start by evaluating the current state of growth, engagement, and monetization. Identify areas of strength and areas that require improvement. Then, determine the metrics that are most relevant to your specific business model and industry. By regularly monitoring these metrics and reassessing priorities, you can ensure that your organization remains focused on the factors that drive long-term success.

In conclusion, developing an effective product strategy requires a combination of delight, hard to copy advantage, and margin. By incorporating elements like personalization, social engagement, innovative features, and pricing models, companies can create a compelling product offering. Additionally, organizations must prioritize growth, engagement, and monetization to stay aligned and drive sustainable success. By implementing the GEM model and regularly reassessing priorities, companies can ensure that they are focused on the factors that matter most for their long-term growth and profitability.

Three actionable pieces of advice to consider:

  • 1. Continuously innovate and simplify: Just like Netflix, strive to make your core product better over time. Look for ways to streamline the user experience, remove unnecessary features, and incorporate personalization to delight customers.
  • 2. Embrace social elements: Experiment with incorporating social connections into your product strategy. Leverage the power of social engagement to foster a loyal user base and enhance the overall user experience.
  • 3. Regularly reassess priorities: Use the GEM model to prioritize growth, engagement, and monetization in your organization. Set clear metrics for each factor and regularly evaluate your performance. By staying flexible and adapting to changing circumstances, you can ensure that your strategy remains aligned with your company's goals.

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