Netflix: A Big Business Decision Gone Awry

Last week, I wrote about the New York Times sending an email to 8 million recipients in error and how it quickly ended causing no real damage. However, emails that aren’t well thought out can cause serious repercussions, damaging the company’s reputation, causing the company to lose significant profits.

Consider the email from Reed Hastings, Co-Founder and CEO of Netflix, back in September regarding the splitting of streaming and DVD services and websites. This was following the July price increase that already caused many subscribers to drop their subscriptions. So in addition to the already unpopular price hike, subscribers now faced the inconvenience of managing their account and movie queue on two different websites if they wanted to keep both services.

Three weeks later, another email was sent out announcing that there would not be a division of the services and that the site would remain as is. Unfortunately, due to all the confusion, Netflix lost 800,000 U.S. subscribers during the third quarter of 2011, the largest drop they’d seen in seven years.

The email from Hastings almost comes off as an internal email, a suggestion for a new idea. But generally, ideas of such magnitude require planning, research and marketing. Suggesting such a big change to generally satisfied customers through an email was quite a blow. Being a subscriber to streaming services myself, I know I was shocked at this announcement and felt unsure about this new venture.

So how could this have been handled better? Rather than sounding like a cross between an internal company email and a message from a stern uncle on “how things are going to be,” Netflix could have taken a few steps to make this new idea more exciting and acceptable to subscribers.

Focus groups and subscriber polls could have been used to determine how subscribers would feel about the drastic change. With the outcry of threatening to cancel Netflix subscriptions quickly spreading across the internet after the announcement, Netflix could have quickly determined this might not be the best decision.

Rather than sending a long explanatory email to subscribers, the message could have been better controlled and spun to demonstrate the benefits to the customer of having these split services. Is splitting a service that works fine for me convenient for me? No, not at all. I don’t want to have to manage my one service through two sites. If you want to do that, then tell me why I should be happy about it and how it will benefit me.

The end-user doesn’t care how your company works internally and definitely doesn’t want to complicate their life to make yours easier. Stating “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,” is something you tell your employees, not your customers. You tell your customers “here’s what I’m going to do for you to make your life easier and make your experience with my product or service even better.”

The message could have been conveyed better as well. Rather than sending a long-winded email letter, placing internet ads, commercials announcing the “exciting new service” and easing customers into the change using controlled messages to build their confidence in it would have been much more effective. Sometimes it is better to slowly inch into cold water than to dive right in.

Waiting three weeks to announce the change was not going to occur was another blunder. Granted, big decisions take time and I’m sure it took a long time to field all the calls and emails from unhappy subscribers, but had they responded earlier, perhaps they could have prevented some of the subscriber loss.

In the end, Netflix, a company that had been functioning perfectly fine in the eyes of its subscribers, upset and confused the very people it needed to exist. The company made a very bold move that ended up backfiring, giving the impression that the company was unafraid to make drastic decisions without regard for its subscribers.

What other companies have made drastic decisions that didn’t turn out well?  Which ones made big decisions that worked out?  How would you handle a negative backlash of a recent business decision?

Article: http://www.bloomberg.com/news/2011-10-24/netflix-3q-subscriber-losses-worse-than-forecast.html

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