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Digital Marketing Insights | The Marketpath Web Digest

Netflix: How Customers are the New Shareholders

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If you haven't followed the Netflix debacle, here's a quick overview:

  1. In July, Netflix announced it was raising prices on accounts that have both streaming and DVD rentals from $9.99 to $15.98. This actually reflected separate pricing for each service ($7.99 each). Customers were outraged.
     
  2. Netflix almost instantly lost hundreds of thousands of subscribers and was expected to lose a million total - mostly from the DVD-only side. By mid-September, the Netflix stock price was down 20%.
     
  3. Immediately following the stock sell-off and mass cancelation spree, CEO Reed Hastings sent a letter to all subscribers  explaining the reasoning behind the split. The company would be split into two entities, one for streaming (Netflix) and one for DVD's (Qwikster). That quelled some anger but others persisted.
     
  4. Today, amidst the continuing outcries, CEO Hastings announced that there would be no split and the Qwikster initiative would be killed off.

Now how's that for customer complaints turning the tides? Even ten years ago if a company made a major change like this you would have to assemble a small army of protestors and march on their headquarters to get a company to reverse course. Not anymore.

With Facebook, Twitter, blog comments, customer forums, and other social channels you can instantly create an army of a million or more who share your viewpoint. Protesting consumer brands can be incredibly viral. And Netflix' price increase and service changes are no exception.

Here are a few lessons to take away from Netflix' errors:

  1. Test, test, and test again. If you are a public company with a market cap of 5.8 billion dollars, test the Qwikster concept on a small segment of your subscribers. Keep it private and see how many from that group cancel their account as a result. It's insane to think that you would split your company with little input from your customer community. Granted, you're raising prices and that won't go over well anytime. But you never mentioned the split at the time so there was no correlation to the 60% price increase.
     
  2. Don't raise prices 60%. I used Netflix before they offered the streaming service and hung it up after I realized that I could only rent two movies every 8-9 days. That's three days in the mail, 2-3 days at my house, and another 3 days back to Netflix in the mail. Do the math and you can only get 4-6 movies a month. 

    About this time, Blockbuster offered their unlimited DVD rental plan for around $15 per month (2 or 3 DVD's out at a time). I could actually rent movies, watch them, and pick up new movies on my way home. I cut out six days between each change-up. Then they raised prices on this service to $24.99 per month. I dropped out. $15 of entertainment per month was worth it. A 60% increase to $25 was not. Perhaps Netflix should have read their business history books before they made the same change.
     
  3. Honest Communication. â€‹Netflix has been stuck in a reactive course of action since July. This would have been much simpler if they were more open and honest about their price increase and stagger the plan. Perhaps something like this:

    "Dear Netflix friend, we are working hard to provide you high quality entertainment at a competitive rate. While our costs have risen over the last several years we've kept your fees unchanged. I sincerely wish that we could continue these rates but for us to continue providing great service and great entertainment, we must raise prices to cover our increased costs. We won't do it all at once. Instead we'll make those increases over the next six months to a year and here's what they will look like....."


    See the truthful, planned nature in the response? It's proactive and addresses the issues honestly and straightforward. There will still be repercussions but you will have an informed customer base behind you. Those that love the service might even stick up for you.

With the new power of social media channels, and the potential of major influencers to raise a fuss more quickly than ever, I don't see why any company with an informed customer base would make major changes to their services without testing the waters first. The mass fury of Netflix customers could have been avoided  if they had an approach that was less of a "screw them, they'll deal with it" approach and more of a "hey, we need to make some changes and would like to hear your feedback first" approach. This is all goes back to the 2nd website marketing pillar, engagement. Talk with your customers through the most active channels and don't puke your plans all over them without expecting a backlash.

Customers are the new shareholders. Through social channels they can make your world an awful place to live if you don't provide a good return on their investment.

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