Overview

LEARNING OBJECTIVES

• Gain experience calculating customer lifetime value (CLV)
• Gain experience calculating cost per customer acquisition
• Consider optimization of the marketing mix based on CLV and cost per customer acquisition

BACKGROUND

This assignment provides experience with marketing metrics and figuring customer lifetime value. The assignment deals with entertainment streaming service Netflix and should be completed individually.

Please use the following background information in undertaking this assignment.

TIMELINE

2000: Movie rental service Netflix delivers DVDs by mail 2007: Online streaming in the United States begins 2013: First original content is offered

2016: Netflix available in 190 countries

ORIGINAL CONTENT

Netflix, which has established itself as a successful online entertainment streaming service, is recognized for its original content such as Stranger Things and The Great British Baking Show.

COMPETITION

Netflix has a number of competitors hoping to succeed in the online entertainment streaming market, including Amazon, Hulu, Disney, HBO, and NBC.

Disneys new streaming service, Disney+, saw 15 million new subscribers in its first month. Here are a few interesting facts about Disneys new streaming service:

• Priced at $6.99/month or $69.99/year, its significantly cheaper than Netflix. They also let customers bundle Hulu and ESPN+ with Disney+.
• Released in 5 countries: USA, Canada, the Netherlands, New Zealand, and Australia, compared to Netflixs almost global reach.

• Disney+ is planned to be in all major markets by the end of 2021.

Exercise

Provide answers to the following prompts based on the METRICS and GETTING STARTED information provided at the end of this document, which includes the CLV and CPA formulas and other information. We will cover CLV in Unit 2 (Week 4) of the course.

1. Calculate the CLV for Netflix. Show your work. (20 points)

1. Calculate the CPA of all given channels. (50 points 10 points per item)
   1. PPC CPA:
   2. Social Media Ads CPA:
   3. Original content creation CPA:
   4. Email marketing CPA:
   5. PR & Events CPA:

1. Optimize the marketing mix. Considering the calculated data from prompts 1 and 2, make a recommendation for a marketing mix. Allocate your marketing budget and content creation budget to optimize the spending among marketing channels. (30 points)

Additional Exercise (for extra credit)

1. Will Netflix subscribers over time fall out of interest with Netflix and move on to different streamingproviders? (10 points)

1. What can Netflix do to keep their current customers happy on top of gaining new ones? (10 points)

METRICS

Although Netflix obtains paying subscribers through unique deals like bundles and discounts, these are the numbers you should use to calculate your metrics in this assignment:

$12.99/month for a paid subscription * 12 = $155.88 annual revenue Cost to acquire and maintain each subscriber = $99 annually Annual Retention rate =60%

Annual Discount rate = 10%

GETTING STARTED

Customer lifetime value (CLV) informs companies about how much a customer is worth to them. Its especially important for companies like Netflix, where they want customers to continue to subscribe to services. These metrics focus on the LONG TERM value a single customer brings to the company.

You can calculate the Customer Lifetime Value using this formula:

CLV = (Average Profits per Customer per Period)

Retention rate = percentage of customers who remain loyal over time

Discount rate = cost of capital for the organization

CHANNEL METRICS

Netflix uses pay-per-click (PPC), social media advertising, original content creation, email marketing, and PR & event channels to acquire customers. Use these metrics as assumptions for Netflixs ad spend per channel:

PPC: $60m

Social Ads: $175m

Original content creation: $300m Email marketing: $50m

PR & Events: $75m

And assume these are the total conversions per channel: PPC: 500k

Social Media Ads: 2.3m Original content creation: 2.8m Email marketing: 300k

PR & Events: 200k

The formula to calculate cost per acquisition:

(Retention Rate) 1+( Discount Rate) ( Retention Rate ) CPA= Total Ad Spend Total attributed Conversions