Netflix: How Not to Communicate with Customers, Part 2

Bye Bye Netflix
In July, Netflix changed their service dramatically. Lots of people were unhappy, both with the change, and with how it was communicated.

Three months later, Netflix co-founder and CEO Reed Hastings posted an apology on the company’s blog. He also sent a condensed version of that apology to every Netflix customer (well, I got one–I assume everyone else did, too). In it, he says:

But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. 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, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

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 feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

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

Nowhere in this passage, or elsewhere in the apology, does he mention something crucial: the way they’ve been handling streaming has been wrong, and the reorganization is designed to let them keep that part of the business going. Bill Gurley does a great job of explaining how the laws regarding distribution rights for DVDs and streaming video are different.

And I think it’s worth noting that it took three months for them to figure this out. Three months and the loss of what I hear is a million customers–not to mention dwindling stock prices. All that, and an apology that doesn’t really explain the cause of the change (or indicate that they now realize that their method provided very little notice to existing customers).

The response I’ve seen has been overwhelmingly negative, which is not what you usually hope for with an apology.

Photo by ozcast, via Flickr.

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Posted on September 22, 2011, in Communication, Marketing and tagged , , , , , , . Bookmark the permalink. 3 Comments.

  1. I liked the general tone of the letter, but, as you said, it did seem like too little, too late. It also rings of desperation–that having once beaten Blockbuster in movie delivery, they’re now in the same position of losing out to other service providers. (I’m not a marketing person, but that seems like the wrong note to strike with your customers.) Finally, as a consumer, I don’t want or need to know how you provide the services, I just want to feel that you’re giving me a quality product that’s convenient to use and at a fair price. Splitting the two services may work better as a business model, but from my perspective as a consumer it’s just more cumbersome to manage the two services and pay one more bill. With Amazon Prime providing streaming, I’ll consider just sticking with them and dropping Netflix.

    • That’s what we’re looking at, as well. We switched to streaming-only in July, because we weren’t watching the DVDs anyhow. Since then we haven’t streamed anything, either. Since we’re already paying for Amazon Prime for the 2-day shipping, we need to do a comparison with that service and see if we want to leave Netflix entirely.

  1. Pingback: Redbox: How to Communicate With Customers « Kathy Lisiewicz

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