Media and Crisis Management
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Media and Crisis Management

Netflix – 6 things it showed us not to do

Posted on: July 28th, 2012

Crisis Management: Netflix – 6 things it showed us not to doCrisis prevention

Thank you Netflix for reminding us business folk how easy it is to wreck our reputations, market capitalization, and chase away hard-won customers.

Let’s see, if we follow your example, all we need to do is 1) dramatically jack up prices with little warning or explanation, 2) charge for services we didn’t charge for before, 3) change our business model, 4) alter our brand name, 5) wait two months to apologize for the initial missteps, and 6) after apologizing, leave everything in the same disarray.  Netflix, you sure set quite an example in a short time.

And just how could a darned popular service shoot itself repeatedly in both feet?  It almost seems like arrogance.  Oh wait, that’s precisely what CEO Reed Hastings said in his apology this week, “I messed up. In hindsight, I slid into arrogance based upon past success.”

As you probably know, in July, Netflix suddenly began charging separately for its DVD mail service and for its Internet movie streaming.  Both had been available for one fee and now that fee was split into two fees that, combined, ran up the total bill (and during a poor economy).  Then, this week, the CEO divided Netflix itself into two companies: Qwikster to handle DVD’s and games, and Netflix for streaming.  Now there will be two services and two bills.  Oh, and Hastings threw in his apology for poorly explaining all of this.

Since this string of stumbles began mid-summer the stock price has tumbled 51 percent and the company projects a loss of customers this year, many of whom, by the tens of thousands, blistered the company on its website.  The overwhelming majority were negative and in the world of social media that is considered a crisis.

No one would argue with Netflix’s shift toward streaming video.   DVD business is flat while streaming is accelerating.  In fact, for years the amiable Hastings has said streaming was his goal because it was the future.  It’s a shame that he turned what should have been a carefully calculated and communicated shift in emphasis and pricing into a hellstorm.  It is simply astounding how one company could so quickly transform loyal, quiet customers into company-bashing banshees.  One wrote, “Now not only will we have to pay a lot more for your services, but we will also have to access two separate websites.” Another said, “Bring back New Coke while you’re at it.”

Now I’m not a marketing expert, but when I first saw the precipitous changes and gestating customer rage in July, I wondered whether Netflix had researched its makeover with customers to learn how best to communicate and implement it.  Since the CEO chalks it up to arrogance, then I assume there was indeed no polling and Netflix figured it was so terrific that it could do anything and get away with it.

And that, I think, is the lesson for the rest of us from Netflix.  Hubris.  I don’t know about you, but during the flush times in my 17 years of consulting I admit tripping over ill-considered fee changes, pursuing services that were not my strength, blindly listening to advice of others, and temporarily losing touch with the marketplace.  Fortunately, I learn fast.  It doesn’t matter how successful we are, or think we are, just a few ill-considered, impulsive mistakes can blow up a perfectly fine organization.  If we’re lucky, we quickly recalibrate and survive, smarter and more deliberate.

The Wall Street Journal said CEO Hastings believes Netflix can outlast uproar and prevail.  Given intensifying competition, I hope he’s right.  None of us wants to see a business fail, even an arrogant one.

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