A recent post by Alex Goldfayn on the HBR Blog Network shines a not-so-flattering spotlight on Netflix’s recent woes. As most everybody knows, over the summer Netflix implemented a sudden (and substantial) price increase for its services. The resulting outcry from customers was swift and nasty. Customers bombarded Netflix with complaints, thousands cancelled their memberships, and competitors salivated. Consequently, the company’s stock price plummeted and a wave of negative press was generated. Netflix CEO Reed Hastings was forced to send customers a meekly worded apology via email that included the following:
“I messed up. I owe you an explanation.
It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.”
Yikes.
Goldfayn suggests that Netflix could have taken any number of actions to avert disaster:
- The company might have rewarded existing customers for their loyalty by allowing them to maintain their current rates;
- It could have raised existing customers’ rates less severely;
- It could have offered existing customers a few months of free service for their inconvenience.
Here’s the bottom line:
Netflix could have done anything other than what it did do and gotten better results. Goldfayn also criticizes Hastings for his lame, late-in-coming mea culpa. “What if Hastings announced a solution – or, at least, addressed the problem – shortly after customers reacted so strongly?” he asks. My guess is that such a move would have diluted customers’ anger significantly.
What’s more, Netflix recently announced that it was creating two separate businesses: the DVDs-through-the-mail service (now known as Qwikster) and the streaming service (still called Netflix). The change only served to incite customer ire once again. As Goldfayn writes, “The decision may make sense to Wall Street analysts, but customers don’t get it…I would have advised Netflix to limit the change thrust upon customers. Do what you need to do internally, split the departments up, create new corporations, ramp up staffs, whatever. But don’t create another sudden change for consumers, who are now experiencing whiplash.”
Goldfayn is right. It’s no secret that people are uncomfortable with change. More importantly, people HATE when change is foisted upon them without warning. Although Netflix undoubtedly discussed its options in great depth, it appears to have selected the worst possible tack for preserving customer delight and satisfaction. We can all sympathize (a little?) with the company’s rising costs (many of them beyond the company’s control). However, this does not excuse Netflix’s apparent fumbling of a golden opportunity to turn lemons into lemonade. As an old Canon commercial featuring Andre Agassi once proclaimed, “Image is everything.” It’s a lesson the good folks at Netflix seem to have forgotten, and one that is likely to haunt the company for a while.
