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The Importance of Market Connection

The headlines for Netflix of late haven’t gone the way they would have hoped or anticipated. Until recently, Netflix was seeing good performance in the market and taking steps internally to reach their goals and vision. But when a company plans on and performs to the wrong market perception, results are inevitably disappointing.

As most of you probably know, the Netflix business model is subscription-based and involves DVD by mail as well as streaming video. The success of their DVD by mail business had a big impact on the fate of Blockbuster and other brick and mortar video stores. The growing popularity of streaming video, which continues to shake up the media market, has also contributed their success.

Then they raised their prices.

Then they split their business in two, and rebranded the founding part of their business (DVD by mail) as a separate business.

And their customers are not happy.

What happens when a company’s success allows them to reach their ultimate vision? Did Netflix assume that customers would understand that their name said it all? Netflix had a self-perception that was not necessarily in line with that of their customers.

They neglected to stay connected to their market because they failed to fully consider their perception in the context of the market’s perception. Perception, along with Plan and Performance, make up the three key drivers of business.  (See: The Three Drivers)

If one of these three drivers is out of proportion because a company is too focused on it, or is defining it out of context, the other drivers inevitably get distorted. These distorted drivers become compensatory to the disproportionate driver and will weaken market connection. In the case of a poor or wrong perception, the plan and performance will be aligned to the wrong perception and inevitably create problems. This disarray weakens a company’s connection to the market, hence lowering market value:

From an outsider’s view, Netflix was so focused on the Perception that they are a streaming business that they failed to consider the context of their customers’ perception(s). When this occurs, plan and performance fall short of creating a full, meaningful, and valued connection to the target market.

Netflix’s lack of connection created ire and rancor among their customers who felt unconsidered. This necessitated the apology email from the CEO, who felt it necessary to write a mea culpa letter in order to save face and customer base.

When the three P’s or drivers are more balanced and considered fully in the context of the market, then maximum connection and relevance to that market is established. This optimizes both opportunity and profit. The perception drives the fitting plan and the performance to plan is more naturally achievable.

Diagnosing a company’s imbalanced driver starts with paying attention to what your own employees, your customers, and even your competitors might say about your brand, products and services. May you never need a mea culpa.

Check out our quick assessment that may indicate whether your three drivers are in balance.

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