Loyal Until The First Screw-Up

Like many, we received an e-mail from Netflix CEO Reed Hastings this morning concerning the controversy surrounding their sudden price increase (upwards of 60% in many cases, including ours) a few months back. In addition to suddenly increasing prices, there seemed to be zero recognition of customer loyalty. When we cancelled the “by mail” portion of our subscription, the response was an automated statement requesting that the outstanding DVD’s be returned immediately or we would be charged the full price, etc… Nice knowing you, Netflix.
Apparently, we weren’t alone. The latest results from Netflix reveal a rash of subscriber cancellations, with subscriber base declining by nearly a million. This is even more startling because the company was on a significant growth trajectory prior to this move. The streaming side has also faced its own issues of late, losing its contract with Starz, a popular source of streaming content. The stock, predictably, has plummeted from its earlier dizzying highs. And yet, two months went by without a direct response to the million(!) customers who apparently were unhappy.
So what did Reed have to say to customers today? Along with a brief apology, a more detailed explanation of the “business” problem emerges. Internally at Netflix, streaming and by mail businesses need to be nurtured and grown separately. As a result, they are officially separating the two models, even renaming the original business to Quikster. Customers who subscribe to both will now get two invoices and visit two separate websites. But, the good news—no more price increases for the added inconvenience!
While Reed Hastings has been one of the more dynamic executives of the Internet age, we suspect that this second explanation isn’t going to play much better than the first. The consumer moved from a bundled (and intuitive) solution to a separated one. We would suspect that more customers will opt out of one (or both) services and that it will be much easier to view their offers independently against other options. Two months in and can’t saw we’re missing the by-mail service and the streaming option often disappoints with limited or dated content.
While the intent of aggressively positioning the business for a streaming future so his business doesn’t become the next AOL or Borders is an admirable one, the execution of this plan has consistently lacked thoughtfulness and most importantly, a focus on the customer that Netflix (or Quickster) is supposedly serving.
So, apology not accepted. And for businesses that pride themselves on delivering customer service, the caveat in the headline applies: customers are only loyal until you give them a reason not to be.