What Netflix Teaches Us About Parity

July 23, 2015

What Netflix Teaches Us About Parity

One word we don’t hear a lot in business is parity, but it’s something we should talk more about. Points of parity refer to the features or functionality of your product that are similar to your competitors – and provide the platform for discussing differentiation internally.

There are three huge reasons to think about parity:

  • People struggle to understand what your product does without them
  • People have difficulty understanding the value
  • People are less likely to buy your product

Before we talk about why you should be spending more time on discussing your company’s points of parity, let’s define the idea in greater depth and take a look at some examples.

The definition of parity

The word parity refers to “the state or quality of being equal or equivalent” and in business this refers to equivalencies in many areas. These areas can include technical functionality, utility, user experience, marketing, and many others.

It is in your best interest to know your customers so well that you know what is most important to them. Note that changes in consumer preferences can necessitate changes in the points of parity.

Lets look at Netflix as an example. Originally Netflix was a movie rental company. Now you may be thinking, “But, Netflix was so much more! They conveniently delivered to your home, they had a much larger selection than the local movie store, and they let you keep the movie for a while without racking up late fees.” That’s true – they are the points of differentiation; the single point of similarity (parity) is that it was a movie rental company.

Is Netflix a private online library or a movie rental company?

Imagine Netflix originally identified its main point of parity as being a private, online, mail-order library? Is it fair to say that was an accurate description and would Netflix have been as successful? People would not have understood what Netflix was about because they would have assumed they were expensive (private), they were slow (mail order), and that they had a limited selection (library). Without pointing out the single parity, people would not have accurately understood what Netflix did.

Would people have valued the larger selection Netflix offered as a point of differentiation, if it had they identified itself as a private, online, mail-order library? Using the library as a point of similarity would have created the perception of limited selections. People with specific tastes would have not considered using Netflix. For example, the college kid trying to watch violent, new release, action movies with his buddies; the college kid would have walked down to a local movie store as usual.

Which leads us to our final point. When your customer doesn’t understand what your product does and why it’s valuable, they are less likely to buy it. Be honest with yourself, have you ever purchased something when you weren’t clear what it was or why it was valuable? I didn’t think so.

So how can you tell if you are using the right point(s) of parity to highlight the value of your points of differentiation?

Well, the two ideas are linked. By talking to your customers and discovering what is important to them about your product’s design, utility, function, and more you will discover what to highlight: which similarities and which differentiations.

Going back to Netflix, over time consumer preferences changed with the advent of video streaming and people began to want to watch high quality videos. It was then that Netflix’s point of parity ceased to be as a video rental company and became a video streaming company.

So please, think hard about your points of parity. They may be the single most important thing your business is not talking about. I dare you to avoid customer confusion, a muddled value proposition, and lower than expected sales!

Author

Will Mattfeld-Sarbaugh

Through his work with Epic Perks, Will Mattfeld-Sarbaugh helps SMEs access business perks that give them the ability to compete with large business for customers and talent. Find Will at epicperks.com or on twitter at @Epic_Willms.