Referral marketing is one of the most successful techniques that companies can employ to ensure they stay on top of their market. And many iconic companies like Uber, Airbnb, Dropbox, and Netflix, owe much of their incredible initial growth to supercharging natural word of mouth with a referral program. But a mistake that we think many of these titans have made is in not realizing that no brand is too big for referral marketing and, once they have become established household names, they have often failed to update and upgrade their referral marketing program to support the continued growth of their business.
An example of this is Netflix, the hugely successful and world-leading streaming entertainment service with 300 million paid memberships across more than 190 countries (Q4 2024). It’s probably hard to find someone who hasn’t heard of the brand, and we’d bet that many of your social chats these days involve discussing the latest series that you are watching on Netflix or asking friends for a recommendation for a new one, now that you reached the end of your current favorite.
Netflix faced several challenges following the Covid-19 pandemic. During the lockdowns, demand for entertainment and streaming services surged as people were confined to their homes. However, as restrictions eased, viewership habits changed, presenting new challenges for Netflix. With people free to do more with their time than just sit at home and binge-watch Floor is Lava, Love is Blind and Too Hot To Handle, it was inevitable that that growth would tail off. However, the problem for Netflix has been compounded by the entry into the market of many new or revamped streaming services, like Disney+, HBO Max, Amazon Prime, Paramount, Hulu, and YouTube TV, etc.
Facing the challenge of so many competitors fighting over a market with lower projected growth, it’s unsurprising that this affected Netflix’s valuation at the end of 2022. As a result, the company has looked at innovation to keep its audience engaged and subscribing. Part of their focus has been on expanding their product and service offering. Recently Netflix has implemented its “Play Something” feature that suggests content to users who can’t decide what to watch. Additionally, Netflix has invested heavily in producing original content, such as with hit shows like “Stranger Things” and “The Crown,” to differentiate itself from competitors. As a result, the company has become a major production house in its own right, as well as a streaming service.
But depending on how old you are, you may or may not remember that Netflix began life as a mail-order DVD rental service. Back in those days, Netflix operated a a “Tell-a-friend” referral campaign, in which they gave away one month for free for a successful referred-in new customer. This boosted their audience and allowed their customers to become salespeople to help accelerate their growth. However, since then, the business relaunched as an online subscription service where members pay a flat monthly fee to access unlimited movies and series streamed over the Internet to TVs, PCs, and more. It appears that, around the time of the launch of Netflix Originals, the marketing department decided to discontinue referral rewards. While they had previously marketed Netflix as a service, the introduction of the production studio model led them to shift toward a content-focused marketing strategy, emphasizing the quality of their series over friend recommendations.
Given all the innovations in programming and service delivery, it might seem like a natural step for Netflix to use referrals to drive new customer acquisition and rewards to help maintain current subscribers. However, as of the latest updates, Netflix does not operate a typical ‘Refer-A-Friend’ program that offers incentives such as discounts or subscription extensions typically associated with such schemes. Instead, they have shifted their focus towards other marketing and retention strategies, which may include occasional promotions like free trials or promotional discounts to new users as part of their broader customer acquisition and retention efforts. We think that this is a missed opportunity, as recent research from Harvard Business School, Washington University and UC San Diego has reaffirmed the importance of incentivised referrals in acquisition and retention. In fact, referral rewards also play a significant role in helping referrers overcome the risk of losing social currency if a recommendation turns out to be bad, as recently highlighted by Yale and UC Berkeley.
In contrast to Netflix’s current approach, Competitors like Sling TV and Mubi have leveraged referral programs to enhance customer engagement and growth. For instance, Sling TV offers a $5 discount to both the referrer and referred friend, encouraging longer subscription periods, while Mubi enhances its community of film enthusiasts by offering a free month of service for both parties involved in a referral. Similarly, Amazon Prime has historically utilized referral credits to expand its subscriber base, demonstrating the varied potential of referral programs in the streaming industry.
In the wake of this increased competition and market saturation, Netflix has innovated to maintain its market leadership. In late 2022, Netflix introduced a lower-cost, ad-supported subscription tier at $6.99 per month, which is a strategic response to a broader range of consumer price sensitivities and a growing demand for affordable entertainment solutions. This move not only broadens Netflix’s audience base but also opens up new advertising revenue streams, smartly integrating market-driven pricing with product accessibility.
Furthermore, starting in early 2023, Netflix’s decision to restrict password sharing was another strategic effort to ensure revenue integrity by converting shared viewers into individual subscribers. This policy, aimed at reducing unauthorized account sharing, helps to sustain revenue growth by ensuring that all viewers contribute to Netflix’s earnings. It’s a strategic maneuver that respects both the value of the service and the necessity of supporting its extensive content library and innovative features like the “Play Something” option.
These moves aren’t just tactical — they’re tied to some ambitious long-term goals. Netflix has reportedly told staff it aims to double its revenue and hit a $1 trillion market cap by 2030, while also growing its subscriber base from just over 300 million to around 410 million. With growth in the US market plateauing, the focus will shift to international markets like India and Brazil — markets where the right referral strategy could play a critical role in scaling efficiently and cost-effectively.
Through these initiatives and a sustained investment in unique, high-quality original content, Netflix has not only navigated the post-pandemic landscape but also set a benchmark for continuous adaptation and growth in the digital entertainment industry. The results speak for themselves: a 15% revenue increase in Q1 2024 alone, highlighting the efficacy of Netflix’s strategic adjustments in response to evolving market dynamics.
Such proactive adaptations are critical not just for surviving but thriving in competitive markets. Netflix’s ongoing innovations in both product and marketing strategies offer a compelling case study for how dynamic referral marketing can be integral to sustaining growth and maintaining market dominance. This is a strategy that many enterprises, regardless of size, could look to emulate to bolster their own growth trajectories.
What would we change?
- As mentioned above, rewards and incentives play an important role in helping grease the wheels of referral marketing. Not least by offering a small thank you for the effort involved from the referrer. We think that by testing different rewards and incentives, Netflix could substantially increase the number of customers likely to recommend the platform. But referral rewards and incentives don’t just positively affect customer acquisition, they can also improve customer retention. This is, in part, because when a customer recommends you to a friend, he or she risks some of his or her credibility with that friend. For example, if you recommend BMW to all your friends and convince them to buy a brand new BMW, and then turn up in an Audi, you will likely lose all credibility with those friends. But particularly for a business like Netflix, where there are net positive social effects of having more friends watching the content, you are likely to want to continue to watch so you can chat with your friends about the new series they found.
- There is little point having a referral program if you don’t push it across all your marketing channels, as we advise in part two: Discover more referral marketing best practices. Because, quite simply, if your customers don’t know the program exists, or can’t find it, how can they refer friends? So we think Netflix should be constantly pushing its referral program in all emails, on its website, and across every customer touch point.
- Now that Netflix is a content production powerhouse, we think that they are missing one of the best tricks in the referral marketing playbook. Given that more than 80% of all referrals are likely to be made by far less than 20% of your customers, Netflix should be galvanizing their potential super-referrers with gamification to offer money can’t buy rewards to the top referrers each month, quarter, or year. Can you imagine the motivation to refer your favorite series if, as a prize for being the top referrer, you could get a small walk-on role in the next season? Or even signed merchandise or backstage passes to meet the cast? Being a content studio, rather than just a content channel, offers them so many options to get creative with rewards and incentives.
- As well as focusing on star referrers, Netflix should also try and encourage their typical referrer to go a little further and refer more friends. A free month might be fine as a reward at the beginning, but once you have accumulated a stack of free months, the marginal utility of an extra month is likely to decline. So why not offer tiered rewards where, say, after five referrals the referrer gets a cash reward or third-party credit card? With varying rewards depending on the number of referrals, their referrers would have a goal in sight to work towards.
- Speaking of varying rewards, how does Netflix know if their rewards will be engaging to every customer? Their target demographic spans far and wide and, a free month might not be equally engaging to everyone. Why not let the referrer choose from a selection of different rewards? As we’ve seen in the UK Banking sector lately, having a cash reward option almost guarantees attention. And with a handful of other options, like gift cards, experience days, or a gifted item, the program would spark the interest of a far wider demographic.
- Clearly a risk in offering free months is that some unscrupulous characters will try to game the system to access the service for free by self-referring themselves for multiple free trials. Quite simply, to avoid this, rewards should not be paid out until the referral has been verified as being for a brand-new customer and all payments have been made. This is something that we support at Buyapowa.
- Where you have a pre-condition for a successful referral, such as verifying that the referral is a new customer and that payment has been made, it is useful to provide the referrer with an account area where he or she can see the status of his/her pending, successful or unsuccessful referrals. This will remove the need to contact customer service.
- As mentioned above, we think Netflix should constantly be testing its referral program. Back in 2019, they were doing this with Netflix India. So one bonus point for Netflix!
- Finally, we think it’s pretty important that Netflix implements a social-media-based recommendation program since movies are one of the most highly discussed topics among friends, family members, and contacts on social media. Why not make it easy for me to tell everyone on social right when I finish watching a great movie and automatically include the referral link in the post?
Do you run a business like Netflix? If so, and you think you could benefit from a referral program, or perhaps you think your existing program could be improved, then get in touch and we can talk you through your options.