Netflix Splits and So Do Customers: What NOT To Do in Online Business

19 Sep Netflix Splits and So Do Customers: What NOT To Do in Online Business

netflix-qwikster-splitIf there’s ever been a question of the power of the consumer in today’s market, look no further than what’s been going on with Netflix over the past few months.

For those of you not familiar with Netflix, the service became synonymous with DVD rentals by mail, offering a popular alternative which reinvented the entertainment and rental industry. After essentially bankrupting its largest competitor in Blockbuster, Netflix enjoyed a sizable advantage over any of the nearest competitors.

Netflix internet streaming offerings now appear on many “smart” televisions, gaming systems and other television accessories as a complement to their DVD service. Before the change, Netflix bundled both the DVD and internet streaming services together in unified pricing packages as low as $9.99 per month for the best of both worlds. As a result, subscribers continued to increase and Netflix became a competitive alternative to traditional cable and television providers.

In July, Netflix announced an overhaul of their pricing structure, raising prices for the joint DVD and streaming package 60 percent to $15.98. Not only did angry customers use their voice across comments and social spaces, but investors reacted as well. This has resulted in a large number of user cancellations, as well as decreased third-quarter forecast and shares of Netflix going down 40% since the July announcement.

Obviously, the voices of angry customers have been heard loud and clear.

So clear in fact, that Netflix CEO, Reed Hastings, released a stunning announcement that divided Netflix DVD rental and streaming business into two separate companies. The DVD branch of the business will now be known as Qwikster, while streaming lives on under the Netflix brand. In his blog, Hastings cites how “companies rarely die from moving too fast, and they frequently die from moving too slowly.”

As entrepreneurs, what specific lesson can we take from such a dramatic story?

The voice of your customer matters more than ever. As a small business, situations like what Netflix just experienced on a large scale can literally be crushing to an entrepreneur.

In fact, with partner-based marketing becoming the predominant source of traffic in online business today, maintaining brand integrity is vital. Many business owners have made the bad decision of avoiding social interaction with their audience, either on their own websites or on social networks, out of concern for dealing with objections or complaints.

The opposite is actually true in most cases: managing your brand reputation and customer service in a public forum can actually be beneficial for your long-term success.

By giving both current and future customers a glimpse of your responsiveness, you are providing a road map for future interactions. Creating transparency in business interactions is not only becoming normal, increasingly savvy audiences are demanding it more and more. As the world grows more “on-demand,” your audience will expect both content and customer service to be delivered how, where and when they want.

Although it’s on a large scale, Netflix has painted a glowing example of what NOT to do in this situation. The voice of the customer MUST be heard and understood regardless of your size, delivery method or strategy. There simply is no alternative.

4 Comments
  • Jacob Roig
    Posted at 19:59h, 19 September Reply

    Ken, great share and insight. People need to be made aware of what was done so they do not get in to the “need to get paid” mode and forget why their customers loved them to begin with. Too often the initial meaning of why we get in business get’s forgotten when the money train get’s rolling. If you keep your intentions on what you can over deliver on and provide each client with value the money will show up. Politicians go through he same thing, often much too quickly 🙂

  • Rick Cooper
    Posted at 20:28h, 19 September Reply

    Great post about the Netflix debacle Ken. It just shows what can happen when you ignore the wishes of your customers. Thanks for the thorough analysis!

  • Rick Cooper
    Posted at 20:28h, 19 September Reply

    Great post about the Netflix debacle Ken. It just shows what can happen when you ignore the wishes of your customers. Thanks for the thorough analysis!

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    Posted at 13:36h, 30 October Reply

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