Focus Groups: Making Money Marketing

Growing up in Manhattan's hustle and bustle, Dany Levy delighted in discovering new things. Armed with sheer curiosity and an apparent love of show and tell, she became that girl you turned to for advice on everything from birthday gifts to restaurants. It's a talent Levy would ultimately bank on when founding DailyCandy in 2000 as an email newsletter that dishes up witty bites of insider information on everything from fashion to food.

Levy, now 38, started out as a mostly "goofy" kid, until entering the ranks of the "cool-girls clique" as a teen. She loved to write and has boxes of diaries that served her need for self-expression over the years. Her passion for writing continued at Brown University, where she studied creative writing.

After graduation, she landed an internship at New York magazine and went on to write about style and bargains. But she was miserable.

"I was being edited so heavily," Levy says, "I had a total crisis of confidence and I quit [in 1998]."

After freelancing and brief stints with other magazines, Levy's voice finally found a home when she founded DailyCandy. The New York-based email newsletter was ultimately sold to Comcast in 2008 for a reported $125 million. Levy, who lives in Los Angeles but expects to move back to New York this fall, remains chairman of the 115-employee company that now reaches 3.5 million subscribers through 26 editions worldwide.

In an interview with 'Trep Talk, Levy spoke about her effective bill-collection technique, a curious contradiction, and a "gene" she looks for in new hires. Edited interview excerpts follow.

On thinking big: I definitely took the initiative to do my own thing early on, but I wasn't entrepreneurial in a black-and-white sense. In third grade, my best friend and I decided to write a screenplay and spent an hour every day working on it. My stepmother typed it up, and it was 15 pages. Barbara Walters was in it, that's what I remember.

On creating a character: I realized soon after launching DailyCandy that people did respond to my voice. It was a nice moment because I found a place for it. I was developing a voice with its own personality: It was the DailyCandy girl. It was like character acting.

Vintage viral marketing: When I first started promoting DailyCandy, I put postcards in every restroom I went to, put stickers in airplane bathrooms. I almost got arrested for putting a sticker on a mailbox in New York City. I would chat up my company in elevators. I was shameless.

Low Point: In 2000, around the time of the dot-com bust, it was a crunch period. We'd call [past-due advertisers], be transferred around and never get anywhere, so I made a handful of collection calls in person. I'd show up and sit in the waiting room until they cut the check. Some were fairly large corporations making small ad buys, so I knew they had the money.

I'm inspired by… Tina Fey. I love her take on life, her attitude, her voice -- it's funny, wry and intelligent. She's got just the right balance of self-deprecation and confidence. And she's a creator.

Hiring tactic: I always joked that I look for people who have the 'figure it the f--- out' gene. There are people you can throw a task at and they figure it out, then there are the people who ask a million questions. I like people who are good at problem-solving.

Stress-taming tune: Public Enemy's 'He Got Game.' It puts me in a really great mood, lifts my spirits.

On staying competitive: People said, 'You should do DailyCandy for men.' I said, 'Why? We're really good at speaking to women and so why try to be something else.' It's the pure focus that I think made DailyCandy the clear leader.

Three people I'd most like to shop with: The late Coco Chanel for her impeccable taste, 'Snooki' [Nicole Polizzi] for her lack thereof and the DailyCandy editors because they surprise me every day.

Curious contradiction: For someone who writes about all the new hot spots, I have just my handful of restaurants I go to over and over again – and order the same thing. When I come in they'll say, 'The usual?' They just know.

My usual (dining) suspects: In and around L.A., Sunset Tower Hotel'sTower Bar, Capo, Chateau Marmont, Angelini Osteria and Dominick's.

Startup tip: Don't spend money until you have money. When we used to put candy in our media kits, I would go to the Duane Reade store the day after Easter because the candy was on sale. Of course, it's important to spend on certain things in the beginning. You need good servers but you don't need Aeron desk chairs.

Advice I follow: 'It's not a sprint, it's a marathon.' I can be impatient, so that's good to remember.

Favorite book: 'The Giving Tree' by Shel Silverstein.

Latest candy crush: Caramel Apple Pops by Tootsie. It's green apple on the inside and chewy caramel on the outside. It's like a Sugar Daddy meets a Sour Apple Blow Pop.

This post originally appeared at Entrepreneur.

Netflix updated its pricing Tuesday, removing the ability to combine DVD-by-mail and streaming plans and effectively forcing subscribers to choose one or the other. For those that wish to continue using both services, the change effectively raises the price of a combined plan by 60 percent, which has already caused some subscriber unrest on the blog post announcing the change and around the Internet. But why did Netflix make the change?

Ultimately it comes down to money, as Netflix VP of Marketing Jessie Becker acknowledged in the company’s blog post. “Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,” she wrote.

The cost of its DVD-by-mail operations isn’t supported by the $2 per month in additional revenues that Netflix gets from the previous add-on plan. While much of the infrastructure investment is a sunk cost and has been amortized over the years, supporting ongoing DVD operations isn’t a winning strategy for a company that is betting big on streaming. The cost of postage alone argues against such a heavy discount for a continued DVD-by-mail plus streaming offering.

But there’s another reason why Netflix is making this change: By forcing subscribers to choose, it’s likely betting that most will go streaming-only, thereby lowering the infrastructure costs of supporting them. As we wrote last year, the real cost of its streaming service isn’t defined by video storage, delivery or other infrastructure, but in the acquisition costs that come with it. That gives Netflix the ability to better manage its costs as it decides which content to invest in.

From an investor standpoint, splitting up Netflix’s operations more clearly into streaming and DVD-by-mail services could also give further transparency into its business. Doing so would enable it to break out operational costs from its DVD and streaming units, something that it has been unable (or at least unwilling) to do so thus far. With a management and organizational structure that clearly defines operations into separate units — streaming, DVD and international — financial analysts and investors will get a better idea of what’s driving revenues and costs. This could happen as soon as the fourth quarter of this year, once subscribers have been moved into one plan or another.

And finally, while Netflix weens subscribers off the combined plan and onto either a DVD- or streaming-only plan, there’s a side benefit to breaking up its plans and effectively raising rates for those who subscribe to both: In the short term, at least, we’re likely to see those who subscribe to both plans effectively subsidizing content acquisition costs for its streaming-only plan — except they’ll be doing so at a higher rate ($7.99 versus $2 a month) and with more transparency.

If Netflix does break out financial operations in the coming quarters, as we suspect it will, we could see whatever profits might come from a combined plan or DVD-only being shuffled to support content acquisition, as Netflix invests ahead to support more aggressive subscriber growth, both in the U.S. and internationally.

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Focus Groups

Monday, August 1, 2011

Making Money Marketing

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