Over the months, this blog has featured a lot of lists of best practices and tips. This post is going to be a bit different. There’s nothing better than learning from experience, and this time we’d like to learn from Netflix’ bad experience when it mishandled attempts to change its offering and rates.
For those of you who don’t know, Netflix is an American company that offers streaming media and DVD rentals to its customers. In recent months, it made several changes to its service model and then had to roll back some of them in the face of severe customer opposition. Some of these changes could have been presented better; others simply needed to be thought through in a better manner. Either way, we can learn some very important lessons from the Netflix debacle:
- First, the bad news: Netflix began announcing its changes by broadcasting a 60% price increase. Leading with the bad news of a price hike is never going to win your audience over.Even though the increase would actually translate to small increase in costs for most customers, the announcement made a lot of people think twice about continuing with Netflix. Clearly, timing the announcement of a price hike is very important.
- The reason is the reason: Netflix had to increase their prices partly because licensing payments have shot up. But Netflix didn’t make this as clear to their customers as they should have. They did put out a blog post explaining the changes but they never really established the larger context. This lack of transparency and accountability did a lot to further alienate unnerved customers.
- Making life harder for customers: Then, Netflix announced that it was going to hive off its DVD rental business into a new entity, Qwikster. This served to further drive the wedge between Netflix and its customers, who now had to deal with two entities businesses instead one. Customer experience needs to be a prime factor in new business decisions and Netflix had clearly lost sight of this fact.
- Accepting a trade-off: Netflix basically traded customer satisfaction for increased operational efficiency. While operational gains are a valid improvement, they should have realized that this is not an acceptable trade. It’s important to work harder to find ways to streamline operations in a way that does not confuse customers and make life harder for them.
- Losing your way: Netflix began as a DVD rental company, and then added streaming to make life easier for customers who preferred their content delivered in that form. By choosing to hive off their original business, they showed that they had lost sight of their customized core offering to the customers. This definitely incurred the wrath of long-time customers who were content with the old model.
- Overtaking your customers: In future, physical DVDs will likely become obsolete or at least less of a prevalent option than on-demand streaming media. However, the ground reality is that a vast customer base is still invested in DVDs. Netflix overlooked this, focusing on its own vision of the future rather than a knowledge of the present.