How to Lose Fans and Alienate Customers – Take a Queue from Netflix

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September 29, 2011
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October 3, 2011
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If Netflix has done anything right in the past few months, it is how to turn a seemingly trust- worthy brand into public corporate enemy number one. If this is the kind of ungraceful bowing out you’d like for your company, take these queues from the DVD service (pun intended).

1. Change your rates, but don’t notify your customers.

Nobody likes when prices go up, especially a spiked increase as high as 60 percent.

Nobody likes to be uninformed of monthly subscription rates increasing, especially when automatic bill pay is set up.

And nobody likes bank overdraft fees, especially when ovedrafted by only $3, because you were uninformed of a 60 percent price increase of your monthly subscription rate and had automatic bill pay set up.

2. Separate your services, but don’t consult your customers.

Was there a demand for two separate services? Was there a problem, a request from customers, complaints from those only subscribed to one service to prompt the split?

I didn’t notice one. As a member of Netflix and a subscriber to both DVD and streaming services for several years (although in light of recent happenings I am only streaming), there was not an apparent reason for dramatic changes. In fact, I still didn’t know until I started writing this blog and sought financial advice (see #6).

3. Ignore your plummeting customer base

Netflix, who reported gaining 400,000 new customers in the current quarter, stands to lose 600,000 next quarter. The company that had predicted having 25 million users in America is now expected to have 24 million. One million is still a lot of people, but Netflix CEO Reed Hastings insists revenue and earnings will not be affected. Read: Hastings does not care about a measly four percent of his customers. Maybe he should, since the anti-Qwikster page on Facebook quickly had more fans as the actual, yet recently MIA Qwikster page.

4. Create a new brand without finding out what it is already associated with.

In Netflix’s case, it was the name of their new segregated DVD service Qwikster already in use on twitter by a starry-eyed Elmo smokin’ a doobie. One very lucky stoner with extremely poor grammar has been thrust in the spotlight, and while he stands to make a pretty penny by selling his handle, he has yet to turn it over.

5. Be delayed in your response and untimely in a public apology.

Netflix offered “An Explanation and Some Reflections” on their blog in which Hastings admits in the second sentence that “it is clear from the feedback over the past two months” – wait. Stop there. Two months? In a world of real-time news, two months is a very long time. News from two months ago has already been archived.

As far as being an apology for “the lack of respect” the company has given its members, “sorry,” “regrets,” “humbled,” and “mistake” never make an appearance. The word “apology” shows up once, but only in reference to those who still subscribe to the service. I suppose an explanation is not the same as an apology, so maybe we are still waiting for one.

6. Watch your stocks fall.

I’m not one for numbers, nor am I fluent in Wall Street jargon, but I’m pretty sure Netflix is hurting. I chatted with my financial advisor friend, Salar Naini, about his thoughts on the matter from the businessman’s perspective:

“From a business standpoint is makes total sense. Reed Hastings realized he didn't want the DVD service to drag down the future that was streaming and he wanted to get rid of it on his crusade to establish Netflix as ‘The Streaming International Service.’ He figures he will separate the companies and that way when the DVD becomes obsolete he can sell off that asset and continues pushing streaming forward.”

Ah. So does this mean we should all stop whining and those who are invested in Netflix shouldn’t worry?

“The stock has dropped tremendously since its $304.79 high. (Closed at $133.19 on 9/29) What Hastings didn't factor in was how much customer loyalty he was losing and the fact that his approach could forever tarnish the Netflix name. Google and Apple both are rumored to be introducing similar services. With both companies’ reputations of perfecting old technology and services….well, I can’t give you a recommendation (on this blog), but people should contact their advisors before making any major decisions.”

See, even finance people realize the importance of protecting your brand’s reputation.

7. Lose important contracts that attract members.

Starz Entertainment, a significant source of Netflix’s content, did not renew its contract with the streaming service. Without Starz, customers will not be able to stream movies from Walt Disney, Columbia, Touchstone and Sony. Ouch.

8. Strike up a deal with a major production company, but don’t offer major productions.

In light of losing Starz, Netflix signed a contract with DreamWorks Animation that will allow the streaming of their movies. However, big named titles like Shrek and Kung Fu Panda will not be offered until 2013, leaving us with hits like Sinbad: Legend of the Seven Seas.

9. Don’t offer a solution.

As a former subscriber to both DVD and streaming services, and now a subscriber to only streaming, I certainly haven’t been offered any remedy to fill the void left in my DVD player. I’ll gladly accept any offers (you listening, Redbox?)

10. Let your arch nemesis rise from your ashes.

Netflix has provided Blockbuster with more than enough reasons to hold a bit of a grudge. Although Blockbuster may have closed its doors on hundreds stores, there seems to be a new opportunity for DVD delivery and streaming services, one that is perfect for a familiar and trusted brand. Starting October 1st, Blockbuster’s streaming and DVD service will be available for Dish Network users, perhaps foreshadowing the future of streaming services teaming up with cable providers.

 

Stephanie Lough
Stephanie Lough
A former HMA Public Relations employee.

9 Comments

  1. Nacho says:

    Stephanie, I love you, but #1 and #2 are factually incorrect. They consulted the members of NETFLIX and informed them of the changes occurring MONTHS prior to the actual change. I say this because I am a current member and I received said notifications. Perhaps you didn’t read the notification because you thought it was junk mail?

  2. Stephanie Lough says:

    Nacho! Thanks for reading – you are entirely correct that I did not read the notification as I don’t receive any emails from my account. I would have opened something mailed to me directly, but I did not get one to my knowledge. That being said, #1 is factually correct because that is an honest account of what happened to me. I probably should have noted that it was a personal experience, and the fault of not having $20 in my bank account is my own. Thanks for pointing that out.

    As far as #2, I wasn’t referring to being notified as much as being consulted. Again pulling from personal experience, I had no problem with the two services, and I was never prompted to take any kind of survey. Perhaps they did to a select amount of users. The point I was trying to make there was that during my research for this blog – which is largely in part influenced by PR focused outlets and therefor primarily about the company’s lack of communication – I could not find the reason for the division. Financial planner and businessman Salar cleared that up for me.

    But you are right – Netflix did notify customers before change (I don’t believe the company has even split services yet) but they way they went about it seemed blunt and unfair. I like to think I represent the “average customer”, meaning, I don’t pay close attention to details on repetitive things until it affects me directly.

  3. Nacho says:

    You’re right, I completely misinterpreted #2. Maybe you can let me take you out to dinner to make up for it… ;-P

  4. David Landis says:

    Stephanie – great post. And Nacho, I was a Netflix subscriber and never received any notification either. Because I received DVD’s via mail, they should have sent me notification via snail mail. First rule of good PR – use the same communications channel that your customers are using. But besides that, a 60% increase – during a recession – is completely disrespectful to customers (even if it is explained). You can’t do that to customers and expect them to stay with you. We’re lucky if we get a 5% increase from our clients year over year and even then they object.

    Needless to say, we were one of the many that cancelled their Netflix subscriptions. Comcast on Demand is way better – at no additional cost to the monthly cable fee.

    • Nacho says:

      “Use the same communications channel that your customers are using”? So, did you use snail mail to update your DVD queue then? That’s funny. I thought that could only be done on NETFLIX’s website. Weird.

      The notifications were sent out and, in addition, there were multiple articles floating around stating that the company was planning on changing its policies. Here’s a few for good measure:

      http://www.huffingtonpost.com/2011/07/12/netflix-price-subscription-plan_n_895779.html

      http://www.washingtonpost.com/blogs/faster-forward/post/netflix-faces-backlash-over-price-changes/2011/07/13/gIQAs8QHCI_blog.html

      http://news.cnet.com/8301-13506_3-20078765-17/netflix-hikes-prices-adds-dvd-only-plan/

      As for the price hike, I am not happy about it, but they were in a tug of war match with the production companies. The production companies saw how NETFLIX was a cash cow and began demanding a higher cut in order to stream/deliver their content. This was the straw that broke the camel’s back, leading to inflated rates. NETFLIX didn’t get greedy, they were doing what they need to do to remain competitive.

      Now, we can all argue that this move is alienating its customers (and in many ways, I agree), but what other options do we have? More importantly, what other options do we have that are cheaper than or equal to NETFLIX’s current price?

      • Stephanie Lough says:

        Nacho, you are taking David’s quote too literally. Netflix is an online service, you go online to order your DVDs, so to suggest that he is implying we should send our updated queue through the mail is absurd. The communication channel through the mail is one way – Netflix to us. Just like I get those ads in the mail asking me to pass our free trail cards, Netflix should have used all it’s communications channels to notify its customers.

        Say you are shopping online for a shirt, and when you receive it you find it is too small. You aren’t going to write a letter to the company asking for an exchange. You are going to contact them through the channel you originally used and in return, they are going to respond using the channel they used – the mail, to send you a new shirt.

        As to the articles you posted, there are similar links in this post. In fact, the second link is to an article written in July and is about the price increase that was to and did start Sept 1. This is how I received the news of the Netflix spike – through the media, not from Netflix. And even though there was warning, the reaction is the same: pull out or deal with it.

        I think the questions you bring up are exactly why this turned into such a big deal and really angered the customers – we don’t have a choice. For now, I’ll go to Redbox for DVDs (they have new titles sooner, anyway) . As for streaming, people will always be able to get their streaming content, just like they will always be able to share music. It’s not just a matter how how much a person is willing to pay, but how many laws a person is willing to break.

  5. Stephanie Lough says:

    Thanks David! I’m not sure how much longer I’m going to keep my subscription around either. I really don’t use it enough to justify the cost. When I was getting DVDs delivered, I’d average about one a month and now I’m watching mostly new shows that won’t be streaming anyway.

  6. David Landis says:

    Methinks Nacho doth protest too much! And there is a choice: Comcast on Demand – for free!

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