Customer-Focused Strategy and Customer Communication Failures of Netflix

Netflix is regularly at the top of consumer-satisfaction polls, praised as a beloved company with an impressive business strategy. But on July 12, 2011, Netflix made a seemingly poor strategy decision with questionable communication that has alienated thousands of its subscribers. The company announced new pricing plans that break out the costs of streaming and by-mail services.  In the official press release, Netflix Inc. stated that the separation of services is meant to give members a choice; a decision that appears to be a client-focused strategy that provides flexibility.

However, the execution falls short of winning over their subscribers.  Instead, the break-out of costs amounts to a 60% price increase to keep the same services enjoyed today. In addition, the quality of the streaming service does not accurately reflect the new cost since a huge portion of desirable movie and television titles remain unavailable by stream. The announcement of the pricing plan changes and subsequent follow-up communication has been informative at best, with little empathy perceived by the public. A Netflix spokesman, Steve Swasey, was quoted as saying, “We knew there would be some people who would be upset,” he elaborated “To most people, it’s a latte or two.

It is true that the company needed to increase prices as the cost of providing these services is rising and some analysts actually predict that the boost in revenue will withstand the loss of some customers, but Netflix has damaged the glowing reputation it once held by consumers. BrandIndex reports that consumer perception of the Netflix brand was pushed from the top spot all the way down to the bottom of its competitive set, where it remains today.  Many of the company’s 23 million subscribers are outraged over the money issue and they’re disappointed in the way Netflix is behaving.

The backlash has been posted all over the internet and even in print. One source counted more than 67,000 comments, mainly negative, that have been posted on Netflix’s Facebook page, and thousands more filled the comments section of the company’s blog to capacity. According to a recent poll conducted by CNET, as many as 55 percent of the former faithful Netflix subscribers say they will abandon the service entirely. One angry subscriber posted this comment on the Wall Street Journal discussion board: “Netflix, you just lost my affection and loyalty and you pushed me to start looking for other options!”  Meanwhile, Netflix itself has been silent since the announcement, not responding to any of the social media outbursts.

How can an organization institute savvy business strategies without harming their relationship with the customer? Take a note from Howard Belk, co-president and CEO of the global branding firm Siegel+Gale of New York. He pointed out that Netflix customers who loved the company “thought they were in a special relationship. They thought they were buddies…and all of a sudden, they realized, oh, this is a business relationship.” He went on to say that, “The American people can take bad news. They just want it explained clearly and honestly and simply.

Just as Netflix saw its costs rising and had to pass on some of those expenses to the consumer, recent legislation has led the banking industry to do the same.  To make up for the billions of dollars in lost revenue, many banks have eliminated reward programs and added fees to existing products, effectively ending  free consumer checking accounts. Banks are finding it necessary to please stockholders and at the same time customers who may not understand the value of what they are currently getting. 

Prime Performance has studied the service strategies banks use with their customers for years and we would have to agree with Belk. Customers want more than just the best deal on a product; they want a relationship built on trust and to be treated in a way that reflects that emotional connection. Provided below are some strategies that may help to retain your customer relationships as your organization works through these new banking trends:

  • The best companies have a clear passion for serving their customers. Remind yourself that this is an ongoing relationship that should deepen with every decision made.
  • Find a way to enhance the Customer Experience in a way that is dramatically different from your competitors (in-person, online and over the phone).
  • Communicate openly and honestly. Above all, use language that reinforces the emotional bond you wish to forge with each of your customers. The opposite type of language can erode years of positive brand image.  (A “what not to do” customer communication example from Netflix can be found here.)
  • Respond quickly, and with empathy, to any negative feedback that results from strategic business changes. Offering an apology is a strategic strength, focus on this exercise first and an explanation of the “why” behind business decisions second.

If the lessons learned from strategy or customer communication missteps help an organization to grow past those fruitless decisions into bigger and better strategies, then a failure can be a success.  Netflix has given us a list of mistakes that should be noted, studied and avoided on the path to making customer-focused decisions that help maintain customer loyalty and positively promote your brand.