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Lessons from the Netflix Debacle : IMT Industry Market Trends

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Category: Shopping
Published on Thursday, 20 October 2011 Written by Super User

In July, Netflix announced it would be separating the cost of its DVD-by-mail and its online streaming services, effectively implementing a price hike for customers who had taken advantage of the movie-rental company's bargain bundle subscription. Customer outrage ensued.

Two months later, Netflix CEO Reed Hastings issued an apology to customers and announced another change: Netflix would be separating its DVD and streaming services entirely, redubbing the former "Qwikster" and assigning it a separate website. More outrage ensued.

Then, earlier this month, Netflix announced a change to the change. The customers had spoken: Qwikster was a bad idea. The plan to divide services would be scrapped.

"To say the company lacked respect and humility is an understatement: Netflix had no regard for their customers whatsoever in this situation," CareerBuilder.com's Hiring Site blog explains. "As a result, the company will — and already has — lost a great deal of customers and business from the ordeal."

Now, as Netflix desperately attempts damage control, businesses have the opportunity to learn what not to do when it comes to customer service, communicating change — particularly bad news — and correcting mistakes.

Understand What Customers Want
Great businesses keep customers' needs at the forefront. Successful service is about communicating with customers and building relationships that allow a company to introduce or expose its products and services again and again.

"Netflix has considerable image-rehab work ahead... . It still has 24 million subscribers who need coddling," New York Magazine notes. "To mend fences, Netflix might start by asking its customers what they want. Because in this case, that's probably a better plan than telling them."

Before a major change is rolled out, businesses should get feedback regularly by welcoming any customer suggestions for how to improve the quality of their products or services. They should ask questions and concentrate on what customers are telling them without making undue assumptions.

Communicate Change Responsibly
Businesses should help customers understand new changes by offering a transparent explanation of the business and its methods. One big change can be a shock to existing customers. A series of big changes is more likely to drive customers away.

"If Netflix was set on both raising prices and separating its two services, it ought to have made those announcements simultaneously," MIT Technology Review's Hello World blog recommends. "The steady pulse of one weird, sweeping change after another was too much to bear; it was only after the Qwikster announcement that I personally decided to cancel my DVD subscription."

Treat Existing Customers Well
Showing appreciation to your employees can improve their disposition toward customers, making customer service more effective. Business offers should be based on serving a purpose in customers' lives, and changes to the norm should not require extra work on a customer's part. Even if the business case for a price hike is sound, existing customers should be provided with an extra level of care to show their early loyalty to Netflix is being honored.

"Netflix could have avoided penalizing its 22 million passionate, energized customers by rewarding them for their loyalty and allowing them to maintain their current favorable rates," ConsumerEvangelists.com's Alex Goldfayn writes at Harvard Business Review online. "Or, alternatively, Netflix could have raised their prices less than for new customers. Or, they could have offered existing customers a few months of free service for their inconvenience. Something, anything to assuage the entirely predictable shock and awe that occurred. Then, at least, Netflix would have held on to more of its hard-won happy customers who disseminate its most powerful marketing via word of mouth."

Own up to Mistakes
Apologizing is not a sign of weakness. If something is wrong and a customer is dissatisfied, it's never a bad idea to apologize. If a company's business strategy receives the amount of backlash that Netflix's approach did, there's really no question whether a mea culpa is warranted. Apologies are free, easy and, above all, appreciated by customers.

"Some leaders frown on admitting wrong, but in Netflix's case, the admission was necessary. So overwhelming was the backlash from customers, that for Hastings to do anything less than apologize would be an even bigger insult — and more fuel for unhappy customers' fire," CareerBuilder's blog explains. "Sometimes, all customers want is to know they're being heard, and Netflix finally took the time to acknowledge their customers' feelings. And while many will see Hastings' post as too little, too late, it's at least a start in a long way to winning back customers."

Of course, an "apology" that begins with "I messed up" should contain some sense of remorse, rather than expressing irritation. "Stepping on someone's toe repeatedly while saying 'I'm sorry' is an apology in name only," Hello World notes.

Respond to Customers Promptly
Rather than wait two months after the initial price-hike announcement, a faster, more effective response from Hastings could have done a world of good.

"What if Hastings announced a solution — or, at least, addressed the problem — shortly after customers reacted so strongly?" Goldfayn asks. "The radio silence was as deadly as the price hike itself."

"By the time Netflix customers got the 'apology' from the CEO...the story had already been circulating the Internet for weeks, and Netflix was way past the 'My bad! Forgive us?' stage of admitting wrongdoing," the Hiring Site explains. "This, in my opinion, was the company's biggest offense of all."


Resources

Netflix Introduces New Plans and Announces Price Changes
Netflix, July 12, 2011

An Explanation and Some Reflections
Netflix, Sept. 18, 2011

DVDs Will be Staying at Netflix.com
Netflix, Oct. 10, 2011

How NOT to Break Bad News to Employees: Lessons from Netflix's CEO
by Mary Lorenz
The Hiring Site (CareerBuilder.com), Sept. 19, 2011

After DVDs: The Meaning of Netflix's Stumbling Summer
by Mark Harris
New York Magazine, Oct. 14, 2011

Understanding Why Netflix Changed Pricing
by Bill Gurley
AboveTheCrowd.com, Sept. 18, 2011

How Netflix Is Losing Its Evangelists
by Alex Goldfayn
Harvard Business Review, Sept. 20, 2011

Netflix's Qwikster Debacle
by David Zax
Hello World (Technology Review), Oct. 11, 2011

Wired and Tired: The Long View on the New Netflix
by Tim Carmody
Epicenter (Wired.com), Sept. 19, 2011

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