Netflix – Customer Driven vs. Driving Customers Away

I’ve been writing about being customer-driven as a best practice. Today, I’m going to write about a different interpretation of that best practice – driving customers away. Arrogance as a Business Worst Practice.

In another change – although I usually write about software and software vendors, today’s target is a different kind of high tech company – Netflix.

For more detailed and expanded commentary on this topic, read my article on Sys-Con Media.

Back in August, Netflix announced that it was going to separate its video streaming and its rent-by-mail DVD services. Instead of paying a single price for a combined package, users would face as much as a 60% price increase for the same service as they had previously.
Netflix told investors to expect a windfall of profits – anticipating an increase of 400,000 subscribers.Netflix in the garbage

Did Netflix make this change because its customers or its target market demanded it? No. CEO Hastings did it because “streaming and DVD by mail are becoming two quite different businesses, with very different cost structures”. He continued to defend the change stating that the change will generate more money and lower shipping costs to the company.

The net result – rather than an increase of 400,000 subscribers, Netflix is on track to lose 600,000 subscribers in the current quarter. On 9/18, the LA Times reported that Netflix lost 26% of its market capitalization (or $2.8 Billion) in two days.
Netflix is yet another company who has made a critical mistake – they make big decisions with big customer impact based on reasons that the CUSTOMERS DON’T CARE ABOUT. That the target market doesn’t care about. From the customer perspective, nothing has changed, yet they now have to pay 60% more. There’s no benefit in it for them.

Customers don’t care that the DVD and Streaming businesses are different. They shouldn’t have to care. If the market demands a unified service, then it’s up to companies to make that happen. When companies like Netflix think that THEY control the market, they’ve made a terribly arrogant mistake. For many companies, it’s the last mistake they’ll ever make, as they can’t recover from it.

The market controls companies, not the other way around – with VERY few exceptions. Netflix isn’t one of them.

What is even more arrogant than the original communication about the price changes is Netflix’s so-called apology that Hastings made yesterday. Hastings apologized to his customers for his arrogance and then went on to defend everything that Netflix did, made it even more awkward to undo the changes by rebranding the DVD part of the business under a different name, and announced that pricing would remain the same.

The arrogant part of the apology is Hastings believing that the consumers are stupid enough to believe that what Hastings said WAS an apology. It was anything about that. In fact if the original Netflix maneuver represented a stick in the eye of the customer, THIS was Netflix sharpening the stick and then stabbing the customer in the remaining eye.

Hastings’ comments can be boiled down to the following: “I’m really sorry about what we did. It was so arrogant of us. But we’re going to keep doing it. Actually, we’re going to do even more of it”.

Try that line on your spouse or significant other. “I’m sorry I cheated on you with your best friend and was arrogant enough about it to think that you wouldn’t care. But I’m going to keep doing it. In fact, I’m going to do even more of it”. See how that works for you. (Note that I’m not actually advising you to do this – it could prove dangerous to your health).

For more detailed and expanded commentary on this subject, read my article on Sys-Con Media.

Word to the wise: never assume that your customers can’t or won’t leave you.

One thought on “Netflix – Customer Driven vs. Driving Customers Away

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s