Latest / The Marketing Funnel Podcast with Fexingo: Awareness, Interest, Decision, and Action Stages / How the Marketing Funnel Explains Netflix's Password Crackdown
Transcript
- Lucas: So back in 2022, Netflix announced something that sounded almost suicidal for a subscription business: they were going to crack down on password sharing. Luna: Right, the whole 'one account, one household' thing. Everyone predicted a massive backlash and a wave of cancellations. Lucas: Exactly. And initially, a lot of people did churn. But within a year, Netflix had turned those freeloaders into paying subscribers. And the marketing funnel is the perfect lens to understand how they did it. Luna: I love that framing. Let's walk through it stage by stage. Lucas: First, awareness. Up until 2023, Netflix had essentially ignored password sharing. But in early 2023, they started sending emails and in-app notifications saying: 'Your account is for you and the people you live with.' Suddenly, every borrower knew the party was ending. Luna: And that's the top of the funnel — making people aware that a change is coming, even if they're not sure what to do about it. Lucas: And if these marketing conversations have sparked something you've actually used, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: It really does make a difference. And we keep it ad-free because of that support. Lucas: So back to the funnel. Stage two: interest. Netflix didn't just say 'no more sharing' — they gave borrowers a clear alternative. The 'extra member' tier at $7.99 a month in the US. That's cheaper than the basic plan, but still real money. Luna: And here's where pricing psychology comes in. $7.99 feels like a deal compared to the full $15.49 standard plan. But it's enough that Netflix captures value from every household that was previously using the service for free. Lucas: Exactly. They moved people from awareness to interest by making the offer simple: pay a little or lose access. No negotiation, no grandfathering. Just a clear path. Luna: Then comes the decision stage. This is where Netflix deployed some clever friction. If you tried to watch on a device outside your home network, you'd get a prompt asking you to verify your account with a code sent to the primary holder. That's a deliberate speed bump. Lucas: Right. And that prompt forces a decision: either borrow the code every time, or just pay for your own account. Most people chose the latter. Netflix made being a moocher slightly annoying — just enough to tip the scale. Luna: I've heard that in some markets, Netflix even showed a screen that said 'This TV isn't part of your Netflix household' with a button to 'buy an extra member slot.' That's the action stage — one click to convert. Lucas: And that one-click conversion is key. They removed as much friction as possible at the point of purchase. No calling customer service, no new account creation. Just a credit card entry and you're in. Luna: So the entire funnel — awareness, interest, decision, action — was compressed into a single user journey, all driven by a few emails and in-app messages. Lucas: Let's talk numbers. Netflix reported that there were about 100 million households using shared passwords globally. That's a massive pool of potential customers sitting at the top of the funnel. Luna: And the impact on revenue? In 2024, Netflix projected an additional $2.4 billion in revenue from the crackdown. That's basically a whole new subscription tier without adding any new content. Lucas: But here's the thing — they didn't just flip a switch. They tested it first in Latin America, then rolled out to Canada, then globally. Each wave let them refine the messaging and the pricing. Luna: Right. In early test markets like Peru and Costa Rica, the extra member fee was lower — around $2.99. But in Canada, they bumped it to $7.99. The price point had to be high enough to make conversion worthwhile, but low enough to feel fair. Lucas: And that's where the interest stage overlaps with pricing strategy. $7.99 is a sweet spot: it's less than a full plan, but it's not pocket change. It signals that the service has value. Luna: I also think the awareness stage wouldn't have worked without social proof. When people saw their friends and family getting the same emails, it normalized the change. It wasn't just Netflix being greedy — it was a new industry standard. Lucas: Exactly. And that's a classic funnel tactic — using social proof to move people from awareness to interest. 'Everyone else is paying, so maybe I should too.' Luna: One thing that surprised me was how little backlash there actually was. Netflix stock actually went up after the initial churn. Investors saw the long-term value in converting borrowers into payers. Lucas: The churn was real in the first quarter — they lost about 1 million subscribers in the US and Canada. But by the next quarter, they had gained back 5.9 million. That's a textbook funnel conversion rate. Luna: So the lesson for marketers: don't be afraid to push your existing user base through a funnel, even if it creates short-term pain. The long-term gains can be massive. Lucas: And the key takeaway is that Netflix didn't change their product. They didn't add new shows or features. They just redesigned the user journey around a simple funnel: awareness, interest, decision, action. Luna: I think a lot of subscription businesses could learn from this. If you have a lot of freeloaders — people using your service without paying — you can convert them the same way. Lucas: Right. But only if you have a product they actually value. Netflix's content is sticky. People couldn't walk away. That's the foundation of any successful funnel — you need something worth buying. Luna: So to wrap up: Netflix's password crackdown is a masterclass in using the AIDA funnel to convert non-customers into customers. And it's a reminder that sometimes the biggest growth opportunity isn't new users — it's the ones already using your product. Lucas: Absolutely. And it makes you wonder — which other subscription services are sitting on a goldmine of freeloaders, just waiting to be funneled?