How I gained 10,000 new customers in three weeks

Online DVD rental company Quickflix is attempting to change traditional consumer behaviour. As bricks-and-mortar DVD rental businesses continue to suffer, the company hopes its range of titles and home delivery offer will help bring more customers online.

Its strategy may be working. After recording annual subscriber growth of 68% in 2009-10 to over 55,000, earlier this month Quickflix announced record subscriber growth of 10,000 in just three week, an 18% increase.

Executive chairman Stephen Langsford says the company is able to handle the growth because of its strong preparation. Now, he says, is the time to take advantage of all of their hard work.

Quickflix has been around for over five years now, so why the sudden jump in subscribers?

We’ve seen our momentum just continue to build throughout the last 12 months and our year-on-year growth is now solid in terms of subscribers, and it’s an exciting time.

We know there are three and a half million customers who are heading off to a physical DVD rental store in Australia today, and 200 million individual DVD rental transactions over the last 12 months. We represent about 1% of that, so it feels like we’ve some growth ahead of us.

So there isn’t one key event you can point to?

That growth has been building for a while. I’ve just had the privilege of spending some time with other online entrepreneurs like Simon Baker and Greg Roebuck from CarSales, and it’s fascinating hearing the early stage stories of how you sort of tough it out. There’s not really anything like an overnight success in this industry, you really have to prove your model. Particularly if you’re changing consumer habits like we are.

In the case of Quickflix, it took us six months to get us to 500 subscribers, and I know that when we listed in 2005 we had less than 2,000. In the past month we’ve signed up something like 2,000 subscribers in a day, that was our record.

I think we’re just on the cusp of our market activity. The message is that these things take time to work, you have to put a lot into the actual product. Once you have a decent product, and people start using it, they will spread the word.

Not really an overnight success, then.

Yeah, these things sometimes have an image of “it was wonderful and we had no problems”. But what happens is that everything starts to speed up at a certain point, brand recognition starts, and volumes of new folks start hearing about your brand for the first time.

The cost of acquiring the next subscriber comes down as your brand recognition increases, and that only happens if you build the business to be efficient and attractive. We’ve spent time looking at our costs, our model, our efficiency and all those things in the business, and we’ve reached a point now where customers respond.

So there wasn’t really a tipping point. I think we’ve just put a lot of effort into the model and the business and the word of mouth has grown, and we’ve gained these new subscribers as a result. And I think that’ll continue to happen as word spreads, we continue spreading the word and offering our products.

This growth obviously comes with challenges, considering the product you deal with. How do you manage this?

We’ve invested considerably in the capacity of the business, in terms of back-end infrastructure. It give the business a huge lift, I mean, growth feels great. It makes us want to work harder, and so we just have to manage that growth with infrastructure. The next milestone for us is 100,000 subscribers, and then 300,000, and then we’ll get to the point of being like a mini-Foxtel or something.

You say you want to gain a target number of subscribers before pursuing profit, are you frustrated it’s taken this long?

Things always take longer than you expect. I think as the business builds, things get easier and then you just move on from that. It sort of grows itself after a while.

How will this growth change your marketing? Are you going to ramp anything up?

We’re an online business, and we are content driven, so that’s what we’re using, and really the content does the marketing for us. Our customers evangalise the service, and there’s a virtue of word-of-mouth here that’s really helped us. And then we have deals with other brands, like with Panasonic and Nescafe. But if we have happy customers, both of these methods will keep fuelling our growth.

One of the biggest changes in your industry has been the introduction of vending machines, like Oovie. How does Quickflix sit next to those types of offerings?

I think Quickflix first and foremast is about range. We have over 42,000 titles, and the convenience of sending that straight to your home. A kiosk is a different kind of business. It’s a much narrower range, constrained by the carousel in the machine, and you’re looking at about 50 titles or often less. Of course it obviously has its advantages, convenience in a supermarket situation being one of those.

But we think people like Quickflix because it gives them that variety of choice. This is true in the US market as well, look at the success of Netflix and the decline of people buying DVDs. Rental has increased and that’s largely attributable to Netflix.

For other companies struggling with handling growth, what advice would you have?

I really think you’ve got to stick your metrics, and you need insight, first and foremost, into what it is you’re offering. Once you know what that is, you’re able to manage that growth properly. If you don’t know what your product is, you’ll focus on improving the wrong thing and then customers will turn away. Know the economics of your business extremely well, know the cost of acquiring the next customer and stick to your metrics.