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6 Customer Experience Lessons to Learn From Netflix

by Linda Ireland  |  
February 2, 2012

In recent months, Netflix made big changes to its service offerings. First, a 60-percent price hike, then an announcement that it was spinning its DVD mail service into a new company called Qwikster, and finally a decision not to split off its DVD service after all. Whatever you think of the changes, I think most of us agree that Netflix could have handled things a bit differently in terms of communications and customer experience.

Change is necessary for almost any business. In fact, two of the most important jobs of any marketer are to anticipate customer needs as they evolve over time, and then translate those emerging needs into the next thing you do for customers. Change can be positive and very profitable if these two jobs are done well. If not---as I believe we have in this case with what Netflix did---change can be stressful for customers and shareholders (and you).

With that, let’s take a closer look at a few of Netflix’s missteps—and lessons you can take away, as marketers, and use in your day-to-day work:

1. Leading with a price change. A 60-percent price increase was the first of many changes Netflix customers would hear about. Ouch. Right off the bat, customers were riled up. Although the reality that the 60-percent increase translated to just a few dollars more per month for most customers, the problem was that customers began to re-evaluate the value of Netflix’s service. Lesson: Carefully consider where price increases fall on the timeline of announcing business changes.

2. Failing to explain why in an authentic way. Prices often change for goods and services, but when times are tough, people want an explanation for price increases. To be fair, Netflix did write a detailed blog post on the changes. However, had they offered more insight into why the changes were happening in the first place, customers may have been more understanding and accepting. One possible reason it could have pointed to: Netflix’s licensing payments for content have become more expensiveLesson: Be authentic. Most customers will understand business decisions if they are given a full explanation. And, don’t be afraid to provide more detail to your customers—it will help them better understand the change.

3. Losing sight of customer effort. When Netflix announced it was creating a second entity, Qwikster, it split its core services into two separate businesses. Let’s look at this from the customer perspective: One day, there’s one company handling all your entertainment content needs, and the next day, there are two companies. Customer translation: Two bills, two websites, two account logins, and two customer service numbers. Whose life was made easier by this decision? Netflix simply lost sight of its promise of convenience and effort in its target customer experience. Lesson: Every decision you make should be driven by the clearly defined, ideal version of your customer experience. Plain and simple.

4. Forgetting why your business exists. When Netflix launched and later added instant streaming, it filled a need for customers who wanted any media, at any time, through one service. By splitting into two companies, Netflix lost track of the problem they originally solved for their customers. The company literally moved backwards. Lesson: Remember the original need your business filled for your customers---the offering that made you successful in the first place. Even as your business changes and evolves, don’t stray from that mission.

5. Falling into the trade-off trap. Netflix made massive operational changes, and in doing so, short-shrifted their customers’ experience. It doesn’t have to be an either/or proposition, though. Does it take more planning and thoughtfulness to achieve both? Yes. Is it worth it? Absolutely. Lesson: Don’t fall into the trap of thinking operational excellence and customer experience is a tradeoff. You can have both. Top performers in any industry know this.

6. Leaving your customers behind. Netflix has always been ahead of the curve, but this time they were leaping a bit too far ahead of its customers. There will likely come a day when everyone will be streaming, and DVDs will fall by the wayside; but we’re not quite there yet. The infrastructure for streaming is simply not available to all consumers. In addition, not enough in-demand, “hot” content is available via streaming from Netflix (or anywhere for that matter). Netflix’s aim to solve an emerging need for anytime, anywhere streaming is smart and spot on. It just executed too early. Lesson: Be careful not to move your customers to a future they can’t have yet. You can make a good decision---just make it at the right time.

One thing Netflix did right: They recognized that it wasn’t worth pushing a bad plan forward and decided not to split the company in two (although they did keep the increased prices). They didn’t avoid a few bruises, though. The company lost 800,000 subscribers in Q3.

What did you take away from the Netflix debacle? What lessons did you learn?

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Linda Ireland is a partner at Aveus, a strategy and global operational change firm based in Minneapolis. Before joining Aveus, she was CEO of FORWARD I, a strategy and marketing consulting firm. She has also held executive positions at several companies, including Wilsons Leather, Digital River, Genesis Direct, PaperDirect, and Deluxe Corporation. Linda is also the author of DOMINO and blogs regularly at the Customer Experience for Profit Blog and contributes to a number of other industry websites.

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  • by Jill Thu Feb 2, 2012 via blog

    One of the things that I took away from this situation was the value of proactively communicating with your customers. As a Netflix customer, I never received any direct communication telling me about the changes. Rather, I heard about all of the changes from my friends in their Twitter and Facebook streams, and I heard about it from the media. Not hearing it directly from the company that I've been a customer of for a few years made me feel de-valued. And, when Netflix reversed their decision we didn't hear from the company directly either -- leaving some with a very poor customer experience.

    Regular, honest, and proactive communication would have gone a long way in salvaging relationships with their customer base.

  • by Linda Ireland Fri Feb 3, 2012 via blog

    Jill, I couldn't agree more. Another great lesson. Ever notice that "proactive" is one of those capabilities that too often gets usurped in the rush to "how will we deal with the reaction?"

  • by Reza Salis Sat Feb 4, 2012 via blog

    A very good engrossing article...! The 10 deadly marketing sins mentioned by Porter seem relevant here.
    Marketing is understanding customer need and providing them with products relevant to them and upto their satisfaction. The old marketing funda of making a product or service and then pushing it to sell by its own is fading...
    People are more price sensitive and with increasing competition even a single decision is more than enough to turn you business upside down.

  • by Linda Ireland Fri Feb 10, 2012 via blog

    Great points. There is a reason "people don't buy drills; they buy 1/4 inch holes" is a cliche. It's because what gets solved is much more important than what gets sold. You are so very right that simply pushing a product no longer works (if it ever truly did).

    Personally I'm looking forward to see how Netflix applies what they've learned from this to future actions. I know it's reminded me of a thing or two! THanks for your comment, Reza.

    LCI @lindaireland

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