Back in July, I wrote a post that questioned Netflix’s decision to increase prices, “Is Netflix courting disaster with its latest price hike?” As I have noted elsewhere, sometimes it is worth losing price sensitive customers in order to boost margins.
However, I would have expected the company to research its pricing decision ahead of time, rather than relying on feedback from irate customers and closed accounts. And if it had carried out the research, maybe its share price would look a lot better than it does now.
Back in July, Netflix introduced a new pricing plan: $7.99 a month for Netflix Instant Streaming, $7.99 to receive discs in the mail but $15.98 for the combo. The latter price represented a 60% hike over the previous fee of $9.99.
Customers weren’t happy with the surprise price hike, and Netflix responded publicly by positioning the pricing move as a mistake. But in an email apologising for having “messed up” by announcing the new price scheme, Netflix chief executive Reed Hastings, added fuel to the fire and promptly compounded the mess. His e-mail introduced to users that Netflix was to be split in two. The DVD service was to be rebadged as Qwikster and separated from the streaming service.
If the pricing announcement was a big mistake, then this one was a monster.
How on earth anyone believed that the announcement that Netflix was to split into two separate services would be well received, I have no idea. Instead of one account, they were asking you to manage two and pay for the privilege? Get real!
Qwickster proved quick to stir customer’s anger. After angry complaints and an epidemic of defections, Netflix announced that Qwikster would not become a reality and the DVD and streaming services would not be split after all. The announcement did little to stem the bleeding. In the last quarter, Netflix has lost 800,000 users and seen its share price plummet.
Thus ends a quixotic attempt to place business needs over consumer needs. It is a classic example of completely misjudging customer sentiment. In an interview with Andrew Goldman at The New York Times, Hastings refers to the debacle as follows:
We simply moved too quickly, and that’s where you get those missed execution details.
The problem is that an execution detail for Netflix is a very big deal for the end user. Rather than researching alternative names for the DVD service (as reported in the article), Hastings and team would have been far better off talking to existing customers about their plans. It could have saved a lot of money and embarrassment. Netflix might then have realized that the affection people have for the service is entirely based on the ease and simplicity of the user experience, not love for the intangible Netflix brand.
So what do you think? Do you agree with my assessment? Why did Netflix get it so wrong? This blog post was spotted on Straight Talk with Nigel Hollis