What Your Business Can Learn From the Netflix Debacle

By Herman Pool
In Marketing
July 12, 2012

Article By Vertical Axion

Tomorrow marks the one-year anniversary of Netflix’s largest stumble. One year ago, Netflix hiked their prices from $10 a month for streaming and DVD service to $15.98 a month, leading to a ton of very angry customers. The 60% hike cost Netflix over 800,000 subscribers over the course of four weeks. Netflix’s shining reputation was dragged through the dirt, and CEO Hastings – who was once asked to serve on the board of directors for both Microsoft and Facebook – went from Businessperson of the Year to Saturday Night Live laughingstock.

There are a few lessons to learn in Netflix’s decision and management of the situation that resulted.

What Hastings Did Right: Tried to Stay Ahead of the Curve

Hastings has never admitted that what he did a year ago was wrong for Netflix. In a lot of ways, what he did made a lot of business sense. DVD’s were beginning to fade out of the limelight and digital streaming media was exploding. Hastings saw that, and moved to try and stay ahead of the curve. He directed Netflix to focus on streaming instead of DVD rental before another company moved ahead and forced him to do the same thing on their terms.

This move was exceedingly aggressive, but not without wisdom. Staying ahead of the curve can make or break your company. Take a look at Research In Motion, Blackberry producer. Their stocks have fallen, and their tablet has started to fail. Why? A pair of companies you might have heard of stepped into the game: Google and Apple. These two companies completely absorbed or crushed all other phone and software makers. RIM didn’t stay ahead of the curve, and now they’re suffering for it; predictions say the company won’t even make it until the end of next year.

Your company can avoid this with continuous progression in the right direction. You may not want to double your prices in the name of innovation, but you can certainly develop new products and services that suit what you know your audience will demand.

What Hastings Did Wrong: Sloppy Customer Service with No Apologies

Hastings, blinded by his overwhelming success, forgot to focus on what really matters: his customers. The Netflix CEO proceeded to ignore the advice of his trusted right-hand men and women. He refused to listen to anyone when they said that since his tactics were so aggressive, they needed to plan for the inevitable fallout with customers. Instead, he hiked prices, made a cursory announcement, and said that the “anger would fade away quickly”.

Instead, what Hastings got was outrage that his company had not prepared to handle. This resulted in the announcement that the Netflix DVD service and steaming service would separate into Netflix and Qwikster. This only enraged his customers further, and more people began to drop the service when a confusing, unprofessional video was released on YouTube about Qwikster. The separation proposal was tossed out less than a month after it was announced.

So what happened to the businessperson of the year? He let his personal beliefs and goals get in the way of what his audience wanted. While his intentions were in the right place, he was simply far too focused on keeping the company alive in the future instead of the here and now. Though the company did eventually issue an apology, it didn’t come with any price reduction and it didn’t happen until over 500,000 clients had already dropped the service completely. Most of them have still not returned.

Your clients are your number one asset. They are one of the few things you cannot replace if something goes wrong with your company. Treating them with respect and patience is one of the best ways to keep them around. Once you form a two-way relationship with them that’s based on trust, you need to nurture that relationship – even if it costs you some money. A good recommendation goes a very, very long way – much longer than any sum of cash.

Photo Credit: D. Norway

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