Five Ways Netflix Used Psychology to Become the World’s Biggest Streaming Platform

If there’s a company synonymous with a seamless customer experience, it’s Netflix. Over the past two decades, the platform has become the default entertainment source for many. Fifteen percent of the world’s web traffic goes to Netflix, and during the first few months of the pandemic, streaming traffic increased another 12%.

Netflix has grown from a plucky startup to a company with a market value of $247 billion. And that growth mainly came from subscriber acquisition. As of 2020, the platform had more than 200 million total customers. But new customers can’t drive Netflix’s business forever — eventually, there won’t be enough new subscribers to convert.

That’s why the goal of Netflix’s experience is to keep customers streaming. Co-founder and CEO Reed Hastings has often cited “hours per subscriber per month” as Netflix’s number one measure of success. The brand considers its real competition to be time, not other streaming platforms. Netflix thinks of activities like video games, hobbies, YouTube, and even sleep to be competitors.

The brand’s success is down to many factors, but its customer experience is one of the biggest. But how did Netflix create such an industry-leading experience? And now that they are at the top of their game, how can they evolve their experience without disappointing customers?

Its down to Netflix’s application of proven psychological principles such as the Cocktail Party Effect and Social Proof.

1. The Cocktail Party Effect in Netflix’s Approach to Personalization

Netflix describes itself as “customer-obsessed” and aims to deliver a totally personalized experience. CEO Reed Hastings views Netflix’s personalization as a competitive advantage:

“If the Starbucks secret is a smile when you get your latte, [Netflix’s secret] is that the Web site adapts to the individual’s taste.”

Why is personalization such an essential element of Netflix’s experience? It’s down to a psychological principle known as the Cocktail Party Effect.

What is the Cocktail Party Effect?

The Cocktail Party Effect states that people like to focus on information that’s relevant to them. But if a brand applies personalization to its entire experience, it can drive incredible results.

In its eCommerce Quarterly Report, consulting firm Monetate found that the value of personalization compounds with each experience. In other words, the more personalized content a user sees, the better their engagement — Monetate found that viewing three pages of personalized content versus viewing can double conversion rates.

The more personalized content a user sees, the better their engagement.

Since the brand’s goal is to increase “hours per subscriber per month,” it makes sense that Netflix leans heavily on behavioral science personalization principles like the Cocktail Party Effect. But how and where do they apply this principle?

1. Netflix’s Recommendation Engine

Netflix’s vast content catalog — about 50, 000 titles — is part of their appeal. HBO Max, for example, only has around 10, 000 titles. But a product with that amount of choice can be a double-edged sword.

A related behavioral science principle, the Choice Overload Effect — says that lots of options will attract customers to browse, but fewer options get them to buy (or stream, in this case).

Netflix’s challenge is landing the size of its content library but quickly surfacing the most relevant titles for an individual. As researchers Chris Alvino and Justin Basilico put it:

“A problem we face is that our catalog contains many more videos than can be displayed on a single page, and each member comes with their own unique set of interests.”

To surface the right content, at the right time, to the right people, Netflix relies on its recommendation engine. Netflix knows if it can get the right content in front of the right people, its experience can significantly increase “hours per subscriber per month.” And research has shown that personalized content is more salient — or noticeable — to customers.

“Because you watched…”

Netflix Because You Watched

Source: Netflix

Netflix describes itself as “customer-obsessed” and wants to deliver a totally personalized experience. Its “Because you watched…” category is a prime example of this philosophy in action. This section suggests content related to titles you’ve already enjoyed.

Netflix’s recommendation engine is clearly effective. More than 80% of Netflix shows that customers watched in the last two years have been as a direct result of Netflix’s recommendation engine — not someone searching for a specific piece of content.

80% of Netflix shows that customers watched in the last two years have been as a direct result of Netflix’s recommendation engine.

3. Thumbnail Design

Netflix was an early pioneer of thumbnail optimization in digital environments. Initially, Netflix would use the general-purpose images provided by content studios. Many of these images were just resized billboards, print ads, or DVD covers. Not images created for a digital experience, like the Blade DVD box in the snip below.

Netflix Old Thumbnails

Source: Netflix

Netflix began creating and testing different thumbnails to see if it could match the right audience to the right content. After thousands of experiments, the tech team developed three insights about well-performing thumbnails:

  • Faces conveying emotion that aligns with the title’s genre perform strongly. In other words, a person screaming if the subject is horror or laughing if it’s comedy, will drive more clicks.
Netflix Thumbnails Stranger Things

Source: Netflix


  • When a thumbnail features a famous or “polarizing” character, it performs better. For example, showing the villain Voldemort’s face would perform better than showing Harry Potter’s face on a thumbnail.
  • Different images do better in different parts of the world. Therefore artwork testing and image delivery need to be localized.

Netflix’s ability to serve relevant and personalized content is what makes its experience industry-leading.

Why Applications of the Cocktail Party Effect Must Also Be Transparent

Netflix considers transparency to be an essential part of its personalization strategy. Its technology research team described the advantages of transparency this way:

“[Awareness of how the platform is using customer data] not only promotes trust in the system but encourages members to give feedback that will result in better recommendations.”

When applying the Cocktail Party Effect, this is a crucial point to keep in mind. Without transparency, personalization can come across as intrusive and creepy rather than helpful and intuitive.

2. Social Proof in Netflix’s Top Ten and Trending Now Categories

Coined by Professor Robert Cialdini in his book, Influence, Social Proof describes our tendency to look at others’ behaviors for psychological permission to try something new. According to Nielson research, 83% of consumers in 60 countries say they trust social proof over any other form of marketing persuasion.Social Proof describes our tendency to look at others’ behaviors for psychological permission to try something new.

When a user browses the Netflix homepage searching for something new to watch, they’re actually evaluating risk. Using just a title and thumbnail to decide whether a movie or TV show is worth hours of your time, is risky.

That’s why Netflix uses Social Proof — one of the most effective persuasion principles — to help users overcome the psychological risk of trying something new.

1. Top Ten

Netflix Top Ten

Source: Netflix

 

Netflix leverages Social Proof in its “Top 10 TV Shows…” section. Top 10 lists drive traffic because they not only show what’s popular in your area but how popular particular products are. Knowing that a title is the most popular in the country takes away the risk from watching something new.

Bonus Effect At Work: The Top Ten Effect

This behavioral science principle states that people naturally arrange things into round-number groups, and everything outside of these groups is considered inferior. In other words, top ten lists naturally grab people’s attention. This combination of Social Proof and the Top Ten Effect provides a powerful persuasion effect.

2. Trending Now Categories

Netflix Trending Now

Source: Netflix

Netflix’s “Trending Now…” category is another good example of Social Proof at work. Whatever reason they’re trending, be it a new season or titles having a cultural moment — think, Tiger King — this section surfaces what’s popular across the platform. Again, by communicating these titles’ Social Proof, Netflix helps de-risk content for customers.

The bottom line

In the past twenty years, Netflix has grown tremendously. The platform’s expansion was made possible because of Netflix’s customer experience.

And it’s the applications of psychology and behavioral science, like the Cocktail Party Effect and Social Proof, that have helped create such an engaging experience and create, in their words:

“… a 100 million different products, with one for each of our members…”

Interested in learning more? Check out our YouTube video on this subject here: 

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