When Customer Sense is Common Sense: Netflix, a Lesson Learned
By James Koller, Email: jkoller@vipdesk.com, Phone: 703.837-3525
“A wise man learns from his mistakes, but an even wiser man learns from the mistakes of others.”
--Zen Proverb
Netflix is the latest in an ever-growing list of brands that have changed the course of their corporate marketing—and even overall business—strategy due to customer outcry. Last year, we had Gap’s ill-fated attempt to change its iconic logo, which prompted a customer backlash so rapid and fierce that not only did the company reverse course, but eventually replaced its creative agency.
Netflix invented the DVD-by-mail industry over a decade ago—a plucky upstart that perfected supply chain management and nearly single-handedly bankrupted the video king Blockbuster. Netflix honed in on customer frustrations, and blended new (Internet) and old (USPS) to make customers happy: by removing reviled late fees in the brick-and-mortar model, greatly expanding the video library available to its customers and utilizing a movie queue, customers were empowered in a way that was never possible prior to the inception of Internet.
Fast-forward to the present day—Netflix has become an industry giant offering both DVD-by-mail and streaming video delivery options. In mid-September, customers (already fuming due to a recent rate hike), learned that the company’s popular DVD-by-mail business was being spun-off. The DVD-by-mail business would be branded under the name Qwikster, while the flagship Netflix would remain a streaming-video only offering.
The problem with this new business model is that it required customers to have accounts with both Netflix and Qwikster in order to enjoy both the dual streaming and DVD services currently provided. This solution was not easier, cheaper or more convenient.
The response was swift, predictable and a testament to the immutable voice of the customer. Loyal customers who remained after the previous rate hike claimed this was the last straw to their membership. This was followed by investors abandoning ship, sending the stock plummeting. Management backpedaled and Qwikster was dropped in a mere 23 days, making it one of the shortest-lived new product flops in history.
There are a few simple steps that companies can take to learn from Netflix’s mistakes?
- Take a step back and ask “does this make sense to my customers?” Chances are, radically changing the way customers access your service while providing them no added benefit will be a controversial decision.
- If it does not simplify or improve the customer experience, it probably will not be popular. Customers only see “improvements” that improve something for them. That means that if it does not reduce cost, increase access, improve selection, or enhance the customer experience, then don’t do it!
- Soften the blow of potentially unpopular decisions. Periodic price hikes are a part of any business. Yet, smart companies keep rate hikes minimal, infrequent and on the back pages. Netflix has previously increased revenues by adeptly creating more options for its customers, such as new tiers of fewer disc memberships. Customers who were price sensitive could trade down, while new potential customers could sample the product at a lower pinch. The absence of a clear benefit to justify the changes was perhaps equally problematic to the actual changes.
- Remember what made you successful. Netflix became an industry giant by household name through development of a business model that fed on the collective resentment movie watchers felt toward brick-and-mortar video stores whose late fees did not match with busy lifestyles and limited selection that was hit-or-miss. It was time for a change, and Netflix was the brand to provide that change. Coming full-circle, Netflix created resentment with its business practices, ignoring its customer-centric roots.
- Communicate first with your customers. Because most of the company’s customers learned about the Qwikster spin-off via social media and mainstream media channels, Netflix was unable to control the messages its customers were receiving. By the time many customers heard the news, it was delivered alongside industry gossip explaining the corporate benefit of this business change. Customer-centric companies know the importance of their customers, and make sure to let them know what they are doing, why, and what’s in it for the end user … before it can be learned elsewhere.
Unfortunately, Netflix could not completely “be kind, rewind” the situation. The good news for consumers is not that Qwikster is gone. The good news is that companies (including Netflix), can easily learn from the Qwikster experience by employing more customer sense in the future.