If you’ve not heard, Netflix decided a few weeks ago to nix its plans to split its mail-order DVD and Internet-streaming services. This decision is yet another awkward decision to halt complaints from its customers while building a business strategy that would still be profitable.
There are many lessons to be learned from Netflix’s “back and forth” attempts to appease both their customers and their entertainment suppliers. An obvious lesson is that confusing your customer is never a good idea. As the old sales adage goes, “A confused mind never buys.” Give your customers too many choices and frequently, they’ll chose none.
But there are other lessons.
Never tell your customer the reason for raising prices is because it makes financial sense for you.
From Netflix’s VP of Marketing, Jessie Becker:
“At the time, we didn’t anticipate offering DVD-only plans,” wrote Netflix VP of Marketing Jessie Becker in a blog post. “Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members.”
Considering this demand, she wrote, it doesn’t make financial sense for Netflix to offer DVD service as a $2 add-on to its streaming service. Nor does it satisfy the needs of people who only want to use Netflix’s DVD service.
Customers do not care what makes financial sense to your business. What they care about is if your service or product is giving them enough value for their dollar. If you offer something that seems like a good deal — then increase the price, don’t be surprised to hear complaints.
The mistake Netflix made was focusing on the wrong thing. Instead of focusing on their need to increase their pricing, they should have created a message that showed how the price changes would bring more value to their customers. Without that, the customers rightly felt like they were being taken advantage of and predictably canceled their memberships.
Don’t mess with your brand.
Netflix had the enviable name that was known throughout the country and entering into global markets. The little upstart company became the “David” who beat Blockbuster. They were known for admitting their mistakes and giving customers a break when they owned up to it. Netflix proved to be a reputable, honest company that clearly demonstrated how it always was looking out for their customers.
And then Netflix’s CEO, Reed Hastings, wanted to break the brand into two separate services.
One service would focus on the Internet-streaming movies and TV shows, and the other would focus on the direct-mail DVD side. This inexplicable decision left many customers (who already were ticked off about the price increase), even more frustrated. Before, they had one account for the streaming service and DVD service. But now, the services would separate, requiring a customer to have two separate accounts and billing information. And who wanted to check two websites to get what they used to have with only one site?
And so, all of the hard work that it took to build Netflix into a brand that listened to its customers suddenly came to a screeching halt. It’s no wonder many customers decided to get off the Netflix train.
Choose your messaging venues wisely.
I ended up having a rather “lively” discussion with my husband about this one.
CEO, Reed Hastings, did something that completely floored me. He sent an email to Netflix customers to apologize for rolling out the price changes in a manner that was seen as “arrogant” by some. He also made this puzzling comment:
For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.
AOL dialup? Borders? Both became failures but the link to Netflix’s streaming service doesn’t strike me as a smooth comparison. And why associate your name with failed business models, anyway?
But in the midst of the clumsy apology, Hastings turned around and made things worse.
So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.
It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.
What Hastings managed to do was announce a brand new approach to Netflix services, in an email, in the middle of an apology.
As a marketer, the decision to unveil something this big, in an email of all places, was wrong. And boy, did everyone let Hastings know it. At this point, I was beginning to feel a little sorry for the embattled CEO.
But the lesson is this: When you are a big brand, you do not make a major announcement that will change your product, in an email. Without a press release. Without a press conference. Without taking into consideration the impact such a decision will make upon your loyal customers.
Large companies and small businesses both have an advantage when they carefully plan their messages regarding a change in their business. When you hold a press conference, or send a press release — you are crafting a narrative regarding your announcement. Plus, when you have a reputation as big as Netflix, it would have been a good idea to invite the press to the announcement so you could address questions. The lack of both a press release and press conference made it look as if Netflix didn’t consider their customer relationships as that important. Their customers didn’t receive a decent announcement. Instead, they got a half-baked apology and then in the midst of that, another change that immediately highlighted its inconvenience.
Businesses will need to change course throughout its history. Few customers expect a product or service to never change. But as a small business, you have the opportunity to create a message that will resonate with your customer. Not make them feel used or taken for granted.
Show the value to your customer and treat them right. If you’ve been a business that goes the distance in serving your customers, there’s an excellent chance they’ll stay with you. Just don’t do what Netflix did. Their stock numbers are still reflecting the fall-out.