Admit When You Are Wrong: The Netflix Story
Posted by Erica DeWolf on October 26, 2011
The Netflix Story and My Take
I’ve been a huge fan of Netflix for about a year and a half. Although I was slow to discover Netflix, its unlimited media streaming found me and had me captivated. I used the streaming service often in the beginning, but found myself utilizing the mail delivery DVD service more. Since this was pre-price change, I was paying about $9 a month for unlimited movie streaming and DVDs by mail.
Legitimate Increase: Then they increased the price by $1 (November 2010). Fine. I was paying 9.99 I wasn’t happy, but it was a dollar.
PR Mistake #1: Less than a year later, they nearly doubled my cost, separating the unlimited movie streaming from the DVD delivery service.
Since I’m price sensitive and I didn’t use my streaming enough or send my movies back soon enough to justify the cost, I rode out my existing membership until the price increase would take effect (September 1st for current subscribers), and cancelled my membership.
I wasn’t alone.
TDG, The Diffusion Group, estimated that between 2 to 2.5 million (12-15% of dual service subscribers), would cancel their subscriptions all together, while many more would eliminate one of the two services available. But, both on Facebook and Twitter, tens of thousands expressed that their dissatisfaction was more towards how the company spun the price increase (as beneficial towards the customer), and not the increase itself.
Then, after much of the negativity resulting from the price increase had subsided, Netflix announced that they were spinning their DVD delivery service off into a company called Qwikster. Twitter and Facebook exploded with disapproval and negative reactions.
This time, less than a month after the initial announcement, CEO Reed Hastings acknowledged its customers disapproval and declared that plans for Qwikster were cancelled.
Lessons Learned from Netflix
1. Handle price Increases with care. They are inevitable; costs go up and inflation exists. Customers will not be happy, but if handled delicately with understanding, price increases will be accepted with little backlash. Netflix’s $1 increase in 2010 was accepted, reflected by the steadily increasing stock prices, appearing unaffected by the price increase. Its second price increase was not gradual at all, and, in my opinion, too much at one time.
2. Be honest and spin moderately. Don’t try to overspin things. Yes, it is Public Relation’s job to make bad news sound like good news, but don’t overdo it. As Netflix customer Greg Heitzmann stated in a comment to the official announcement on the Netflix blog,
“…Jessie Becker’s presentation of this upcharge–as an added choice for my own benefit–insults my intelligence and reveals the breadth of your arrogance. Had I been treated like an adult and informed of these changes in a straightforward, honest manner, perhaps we could rekindle our spark. Unfortunately, this course of action is no longer available; your condescending and manipulative tone has irreparably ruined our relationship.”
3. Listen to Your Customers and Admit when you’re wrong. Less than a month after the announcement of Qwikster, Netflix cancelled its plans, stating on the Netflix blog, “It is clear that for many of our members two websites would make things more difficult.”
Netflix has plenty of ground to make up. As of September 12, Netflix’s stock was trading at $213. Shortly after its announcement that its DVD mailing service would be separated from Netflix, its stock plummeted to $113 less than a month later.
Despite all the negativity around it lately, I love and believe in Netflix. Company’s management could have handled their announcements better, but the services they provide are still an excellent value for many. I hope to return as a member when their offerings and benefits match my justification for the still reasonable price of $8 per month for each service.
Share Your Thoughts
What are your thoughts on the Netflix Story? What is your take on the Future of Netflix? Are its competitors going to gain from Netflix’s recent decisions? Is there a company that can take over where Netflix has disappointed its customers?
Feel free to share your experiences with the company, or contribute your own ideas on how we can learn PR or Marketing lessons from Netflix’s recent actions.