Posted: September 9th, 2022

Assignment 1

Assignment 1

What do you think about investors taking mainly into account subscribers numbers for valuating tech companies?

The valuing of tech companies using account subscribers is a good way for companies that are involved in a business where it is easy to get a new subscriber, with corporate/small businesses as their subscribers and have a low additional cost to provide its product. As for these types of companies, their product does not require a new update every time they add a new customer or as they add customers from various geographies. Also, for companies that have corporates/businesses/large groups as the subscribers, the volatility in terms of unsubscribing is also low and a company can easily increase its product price with not many customers unsubscribing. Hence, for these types of companies, account subscribers give a good idea of the regular cash flows for the company. However, for companies such as Netflix which are catering to individual customers who are relatively more price-sensitive as compared to the corporates and who have many other alternatives at their disposal, it is important to understand the lifetime value of a customer and the cost of acquiring a customer to value the company.

What are your thoughts about the journalist’s post about Netflix relationship with customer level profitability?

The journalist’s post takes into consideration of the lifetime value of a customer and the customer acquisition cost to understand the quality of Netflix expansion. To calculate the lifetime value of a customer, the journalist looks into three things – Average revenue per user per quarter – Gross margin (To calculate the profit from each subscriber, revenue – cost) – Churn rate (Proportion of users leaving Netflix each quarter) While analysing the gross profitability per subscriber, the journalist notes that the content cost has gone higher in recent times with about a spending of close to $9.3 bn in this quarter as compared to $7.3 bn at the same point in the previous year which highlights the fact that even though Netflix is acquiring more subscribers, the content cost is also increasing significantly which directly impacts its gross margin and hence directs impacts its customer level profitability. I think given the fact Netflix is trying to expand into the more challenging market like the Indian market, where customers are highly price sensitive, Netflix needs to keep a check on the content costs as unlike the US market, Netflix cannot increase the price, to cover for the higher content costs. Increasing the price might lead to a decrease in the subscriber base in such markets. Hence, Netflix needs to optimize its spending on content creation & acquisition especially when it is looking to expand into more challenging markets.

According to the interview to Moviepass CEO Mitch Lowe in the podcast, what is Moviepass? How does it work?

Moviepass is a subscription-based business model where a person paid a monthly subscription of $9.95 and can choose to go to any movie theatre (available on Moviepass) across the country to watch a movie with a capping of one movie per day. The way it works is the subscriber has to register for Moviepass and then the subscriber has to download the Moviepass app and log in through his/her unique email id. Moviepass then sends the Mastercard debit card details to the subscriber. To watch any movie, the subscriber has to visit any partner movie theatre and when the subscriber is within 100 yards of the partner movie theatre, the subscriber has to check-in on the app. Once check-in is done, the subscriber can use the debit card sent by the Moviepass to buy the movie tickets within 30 mins of check in. The idea of the company is to capitalise on the fact that about 89% of American moviegoers would use their service 10-11 times a year and hence will balance out for the 11% heavy American moviegoer who would use their service for about ~3 times a month. This will eventually lead to about 1 movie per month per subscriber and hence will help the company in achieving the breakeven point.

Use the 5C’s framework from The Market Analysis Section on “Note on The Marketing Process” to briefly describe Moviepass business (one or two lines per C is enough).

The 5C’s framework can be used to briefly describe Moviepass’s business as follows:

– Company: Moviepass is a subscription-based service that allows users to see one movie per day at participating theaters.

– Customers: Moviepass’s customers are moviegoers who want to see movies at a discounted price.

– Competitors: Moviepass’s competitors are other movie ticket subscription services, such as Sinemia and AMC Stubs A-List.

– Collaborators: Moviepass’s collaborators are the movie theaters that participate in the program.

– Context: The current context is that movie ticket prices are rising, and Moviepass is a way to save money on movie tickets.

The 5C’s framework can be used to describe Moviepass’s business. The first C is customers. Moviepass’s target customer is someone who goes to the movies often. The second C is company. Moviepass is a subscription-based service that allows customers to see one movie per day. The third C is collaborators. Moviepass works with movie theaters to provide discounts to customers. The fourth C is competition. Moviepass’s main competitors are AMC and Regal. The fifth C is context. The current context is that movie ticket prices are rising. This is good for Moviepass because it provides a cheaper alternative.

The 5C’s framework is a useful tool for companies to understand their business. It can help companies identify their target customers, their main competitors, and their collaborators.

How profitable do you think Moviepass was (at the time of the interview) at the customer level?

The company is not profitable at the customer level with the subscription fee it is taking from the customers. As Mitch Lowe discussed in the podcast, during the initial phase of the subscriptions, customers frequency of going to a movie increased and hence Moviepass could not make any profit from the subscription fee ($9.95) it charges from the customer as the average price of a movie ticket in the US is $8.73. Hence any customer going for two movies in a month will lead to losses for Moviepass. For Moviepass to become profitable at the customer level, it needs customers who are in the 4th/5th month of their subscription as by that time the company expects the subscriber’s frequency of going to movies to drop to the normal level. Also, to cover the costs, the company is looking at other avenues to generate the revenues such as marketing the small films directly to the customers through their app and getting some revenue from the studios, getting some share of the revenue or discounts from the mid-size screen & independent group of a movie theatre for the customers coming to their screens using Moviepass. The company is also looking at advertising and building a complete ecosystem of service to generate more revenue to become a viable business model

According to the McKinsey article, what is the customer decision journey? What is the difference with the traditional purchase funnel?

According to the McKinsey article, the customer decision journey is the process that customers go through when making a purchase, from initial awareness to post-purchase evaluation. The traditional purchase funnel is a linear model that does not take into account the different stages of the customer decision journey.

The customer decision journey is a model that describes the steps a customer takes when making a purchase. The traditional purchase funnel model does not take into account the fact that customers often research a product before making a purchase. The customer decision journey model includes the steps of awareness, research, consideration, and purchase.

For which products/businesses you think this customer decision journey model fits well? For which one it does not fit well?

The customer decision journey model fits well for products and businesses that require a lot of research and consideration before purchase, such as cars and vacations. It does not fit well for products that are impulse purchases, such as candy bars.

What do you think about the customer decision journey proposed by McKinsey? Why would such a model be useful for companies? Is there something missing in this model?

The customer decision journey model is useful for companies because it helps them to understand the different stages that customers go through when making a purchase. It also helps companies to identify where they can intervene in the customer decision journey to influence the outcome.

The customer decision journey model is useful for companies because it helps them understand how customers make purchase decisions. It also helps companies identify where they can improve their marketing efforts. For example, if customers are not aware of a product, then the company needs to focus on awareness. If customers are aware of the product but not considering it, then the company needs to focus on consideration.