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Is Netflix Ruining Their Brand?

Blake Fehl
in user experience,web

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A year ago if you had asked most of my friends their opinion of Netflix, they would have bestowed heaps of platitudes upon the DVD/streaming company.  These days, you mention the company around many of my tech savvy friends, and you’ll be greeted by looks of disappointment, and in some cases vitriol. How does a company go from beloved to pitied and by some hated? Through a series of marketing missteps that could have easily been avoided.

Marketing Mishap #1: Splitting Plans and Raising Prices

I shall regard this as “First World Problems Day”. The amount of bitching and moaning that went on because of a price increase due to the splitting of the direct to mail DVD and streaming services, was amazing. We’ve seen a near collapse of our financial system here in the U.S., but I saw 100x the response when Netflix raised prices.  Kind of shows where our priorities are doesn’t it?

So, what was the problem? Well, Netflix announced they would be splitting the plans, and charging new amounts for both. Before, for $10 you could have 1 DVD out at a time, and unlimited streaming. For people used to $5 rentals from Blockbuster in the 90s, it was a great deal.  In July, Netflix told it’s customers it was time to cough up a bit more dough. The streaming plan starts at $8/month and 1 DVD out a month will cost you an additional $8/month. The 60% price raise caught many people by surprise, and created a lot of negative press for the company.

There were many people (myself included) who saw the price increases coming. For the past couple years Netflix has been making high dollar buys for its streaming services, and the prices have only been increasing. Studios saw the service as a threat to its revenue stream (despite billion dollar deals), and have started raising the prices of their content to protect their investments. Although, this isn’t the only conflict Netflix has had to their profit structure. ISPs have been looking for ways to up the prices on the service due to heavy demand from their video services.  At one point Netflix streaming was said to account for a staggering 20% of all internet traffic. Pretty serious right? The truth behind the story is that their hand was forced by external factors.

How could they have fixed the situation? 

Netflix exacerbated the situation by keeping silent on the matter. The company released the plan prices, and assumed that their customers would understand.  It would be hard for anyone within the marketing/PR department to not notice the backlash, but still the company was silent. Their silence only allowed for misinformation to fly freely, and for customers feeling left stranded by a company they were loyal to.

It would have been in Netflix best interest to comment on the situation, and give reasons for the price increase. It still wouldn’t have been a completely positive PR experience for the company, but it might have added a bit more pressure on the ISPs and studios who are forcing their hands. Netflix must remember that the power still lies with the consumer, and all sides should be taking the brunt of the backlash.

Marketing Mishap #2: Netflix Streaming and Qwikster

I wish I could have sat in the marketing meetings when they came up with this brilliant idea. “So, our customers are pretty angry with us right now right? How about we take our service which is easy to use, and split it into two separate services. They’ll be so confused that they can’t get mad at us!”

Let’s start by looking at their announcement of the message, in letter form from CEO, Reed Hastings.

Dear Netflix Customer,
I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

Yes…that’s it…apology….humility….yes…..

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Wait, what? No….no…..what the hell is he doing???

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

This is the point where I attempted to Force choke someone through the internet. I had no idea how anyone thought this was a good idea. Completely separate a business that has been combined for the past few years? You’ve already upset your customers, and now you think it is a great idea to make the user experience difficult? The best is the way they tried to wrap this turd up in a bow with fancy PR speak, about how they were doing this for you.

The response was immediate. If you thought the price change debacle caused a social media blitz, this made Netflix and it’s CEO Reed Hastings, the laughing stock of the industry. Much of this was shown through the steep decline of their stock (which had been falling since their price change in July). Although, you know it hit a cultural nerve when the cast members of SNL made fun of the situation in this skit.

How could they have fixed the situation? 

A little bit of market research goes a long way. Netflix was looking for a quick way to fix their PR situation, and didn’t think through the issue at hand.  The idea should’ve gone through a series of testing, to see what the common reaction would be. This was a big change, and it wasn’t one that should’ve been taken lightly.  Hindsight is 20/20, but when you are dealing with a multi-billion dollar company, you should have people on staff with a bit of foresight as well.

Marketing Mishap #3: Just Kidding, April Fools in October!!!

Someone on the Netflix marketing team finally wised up and listened to customer reactions. It was announced this morning that Netflix is abandoning their plans to divide their company into two entities. Or as their blog post says:

It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs.

This means no change: one website, one account, one password… in other words, no Qwikster.

While the July price change was necessary, we are now done with price changes.

We’re constantly improving our streaming selection. We’ve recently added hundreds of movies from Paramount, Sony, Universal, Fox, Warner Bros., Lionsgate, MGM and Miramax. Plus, in the last couple of weeks alone, we’ve added over 3,500 TV episodes from ABC, NBC, FOX, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery Channel, TLC, SyFy, A&E, History, and PBS.

We value our members, and we are committed to making Netflix the best place to get movies & TV shows.

Thank you.

-Reed

So, in other words, “We screwed up big time, and jumped the gun. Sorry!”

How could they have fixed the situation? 

Unfortunately, there isn’t a lot of ways they can improve the situation. They are owning up to a mistake, and freely admitting that they were the cause of the mistake. If they want to pull their shares out of their plummet, they’ll need some positive PR and quick. I’d expect another big announcement from them in the next month or two, one that has been vetted a bit. Netflix may not be the powerhouse they were a year ago, but they still have enough subscribers to make things interesting.

Do you have a Netflix account? Do you plan on keeping it? What would you have done in their place? Let us know in the comments!

  • http://www.facebook.com/jobrien.global James O’Brien

    NetFlix at $20 is still such a value I couldn’t get mad. But online, people are so close to it that change needs to be incremental- Facebook does a great job of this believe it or not. The last profile redesign got you ready for timeline. You can tell someone is sitting back there debating how to get you from A to B and I’m not saying the same thing happened in their privacy dept, but they too took you from totally open to you have full granular control and probably understand better what that means.

    Part of the Neflix problem is that $8 for one dvd per month sounds like the Bank of America $5 fee for the first time you use your debit card each month. It sounds like BS until you think of I can have one dvd out probably 5-10 times per month for $8. Let’s call it a buck a movie- it seems more than reasonable. At $8 or $16 per month and I know we use it everyday with the kids- I’ve never looked at a NetFlix bill. Maybe they should send out generic consumption reports so people see the value they take for granted? 

    I do look at my xobni account which is like $4 a month billed quarterly b/c i wonder if that thing is working- I question the value for even a few dollars and more than that the time wondering and managing.

    I know after 50 debit card charges a month I’ll pay BOA $5 for the convenience of it- and not having to carry cash with me. Both BOA and NetFlix launched a charge out of nowhere and failed to define the value of their service and the reason for the increases, which should have been incremental and phased in with user preference data. You want to pay both fees for services you find indispensable and only cost a few bucks anyway.

    BTW. I am now charging $7.99 for posts. See you love me sooo much I can’t possibly ruin my brand with you over such small matters. So the answer is No to ruination. Yes to no thinking it through.

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