If you’ve read the news today, you know that Netflix messed up. They are being largely ridiculed on a variety of social media platforms and even on their own blog. If you haven’t followed Netflix in the past few months, here is the basic breakdown. After years of having a simple streaming/DVD package, Netflix elected to separate those two packages and raise the prices on each. While they expected some backlash, the actual loss of customers was higher than anticipated. Combine that with the botched deal with Starz, and Netflix’s stock plummeted. Today, via the Netflix Blog, CEO Reed Hastings announced that Netflix would become a streaming only company and a separate company, called Qwikster would handle all DVD rentals. Instantly, Netflix was widely ridiculed and Qwikster is already being compared to other failed entities like Napster and Friendster.
It’s possible that Netflix will weather this storm and Qwikster will rise to the top, but I don’t believe that will happen. Full admission: I was a Netflix user for close to a decade, but cancelled my account in July when Netflix announced the change to the plan. I now use other services. While Netflix deals with movies and rentals, I believe we can learn from Netflix’s recent mistakes and help prevent ourselves from making the first mistake in our own organizations.
1) Failure to Communicate
Today’s blog entry is too little too late. Rather than initially communicating the price change to existing customers, Hastings announced it via press releases. As customers complained (me included) Hasting and some phone tech people failed to acknowledge the frustration of customers. I was told to just give up two Starbucks a month and the money wouldn’t be a big deal. It was arrogant and it was flippant from a customer service representative. I recognize I live a privileged life, but the tone of the communication was arrogant. Hastings acknowledged this today, but by that point over a million customers had already left. Had he taken a more humble tone initially talking about the rising costs of leading both business and recognizing that all customers couldn’t afford the shift, he might have at least kept some more loyalty. There would have been frustration, but loyalty would have shined through.
Our tone with our own members is incredibly important. Member loyalty is one of the most important thing we have and while we may have to make changes, honest and upfront communication is key.
Years ago, I saw a friend of mine make a mistake while putting on a youth convention. While the mistake wasn’t entirely his fault, he took to the stage at the end of the session and told everyone where he would be if they wanted to talk about it. For over an hour people yelled and him and complained, but he listened and validated their concerns. His humble approach went far in keeping attendees loyal to the event even though that one year wasn’t 100% perfect.
We can do the same if we authentically communicate and keep our arrogance dialed down.
2) Failure to Understand Their Core Advantage
Netflix had an incredible catalog of movies. When it first launched, you could find more movies there than you could ever find at your local video stores including several older films. As Netflix entered streaming, their search interface became more difficult to use. Streaming also lacked consistent quality and selection. While many purchased devices to watch on their home TVs, Netflix rarely offered hit movies via streaming. Now that the Starz deal is over and other studios are going to bat against Netflix, that selection appears to decline. With rising costs, many customers say it isn’t worth the rising cost.
Netflix describes incredible research and surveys, but I know of no friend who ever received one. Had they looked beyond simple dollars and cents they would see the specific advantages they had over Redbox, Hulu, or Amazon streaming. Yet Netflix didn’t take the time to be curious.
As we implement changes, we need to be incredibly curious about what our membership values. We must make sure those major values are still addressed and/or met in major changes. If we change a core value for membership, we need to spend some time to really address this and we can’t simply say “it’s to turn a profit.” Starbucks has done well in addressing these shifts over the years.
3) Failure to Plot Out a Timelime
It’s obvious with today’s announcement that this was Netflix’s plan for several months. The rapid change is too quick for their loyal customers. Several friends of mine feel like there was a bait and switch. Had Netflix initially announced this change as well, the shift might make a bit more sense, but just about one month after the first major change ANOTHER major change has taken place. Customers now have a sense of uncertainty as the timeline has been too rapid. Netflix could have gradually phased this in over the course of a year or just been more upfront from the get go (see communication).
As we make changes to our organizations, we must figure out how we announce these shifts and communicate it to membership. Gradual implementation over time can work best or sometimes we have to tear off the bandaid. We need to spend some time thinking about how it feels on the other end. Obviously, Netflix wanted to quickly offload the DVD portion of its business, but it didn’t take the time to consider how this might feel like a bait and switch to customers who had been loyal from the beginning.
Let me be clear: I do not doubt that Netflix had to change its business model. I admire the company for thinking 5-10 years down the road, rather than just in the immediate future. Their name, Netflix, was perfect as it allowed them the chance to transition into streaming seamlessly. It’s the recent mistakes that I question. Netflix could have handled this whole transition much better. Due to their arrogance, their lack of communication, their failure to listen to customers, and their failure to look at a timeline from the customer perspective, I am honestly not sure if the company will survive long-term.
Let’s make sure our organizations don’t make the same mistakes.
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