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Where Netflix Went Wrong (or How Bad Communication Killed My Brand)

September 20, 2011 6 comments

Today a co-worker forwarded the now-infamous Reed Hastings email about the changes coming at Netflix (and to a TV/DVR/DVD Player near you). Lots of consumers were pissed off and rightly so. This coworker along with some other people in the office thought it was a pretty good email. Being the top communication guy, they passed it along to me for a perspective. What follows is my response to him (with some minor edits). Please feel free to comment!

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I read this yesterday like everyone as a customer, then read it again as a communicator. At the top level, it reads more like an explanation to investors rather than customers. The communicating “after the fact” is typically a sign of “oh crap, we probably screwed this up.” Customers and investors never like surprises, especially when it  means they have to change.

And overall I think the email caused more harm than good. Here’s why based on the content of the email.death by a thousand tweets

1 – Customers don’t clearly and fully understand why you would separate the two entities. From a customer perspective Netflix is “where we get movies” – regardless of the technology and delivery source. Which means customers don’t get that this is a technology-based business decision (one that’s more about cost and business structure than immediate customer value).

Customers do understand that it impacts how they watch movies right now and that’s what pissed them off. It changed their perception of value and convenience – which is hat Netflix was built on. They’re making the customer change a lot. So if you’re a customer and not a business person, then this change really doesn’t make sense.

2 – It’s not clear if Qwikster and Netflix are going to be two companies or two brands under one. This is subtle but important. The company is going to make this move – period. So if it’s two companies – then it looks like two different purchases will need to be made and different decisions to make about each service. Customers will have to choose one over the other. The switching cost from an emotional and convenience perspective is huge. If it’s two companies, then customers ultimately can begin to compartmentalize and digest the change a little better. If it’s one company they will continue to ask why can’t I have both through one website? Why do I need to go through two sites? So they missed clarity here big time.

The customer perceives this change like minor surgery – it’s not a big deal as long it’s happening to someone else.  But when it’s ME, that’s different. Here you’re making the customer separate him/herself from something they grown dependent on. Either way, Netflix didn’t give customers a clear enough way to think of their present and future as as a customer.

3 – Lastly, there is no call to action. Again, this change is going to happen – period. The number one thing customers want to know is what do I need to do now? In this regard, Netflix pulled the trigger too soon. There is no direction and no expectation that more direction is coming anytime soon. They understand that when there is direction, it’s going to be a lot of work. What happens to my list? My ratings? My shares with friends? What stays? what goes and where? All these questions and uncertainty makes them angry. So while they’re waiting to hear what to do next, there will be lots of hand-wringing and anxiety  (seriously) about my watch list, queues, billing, costs,  etc. which will lead to endless tweets and whines.  Which in turn will affect ability to acquire new customers for both entities.

Nostalgia about red envelopes and all may sound nice but at the end of the day doesn’t get it done. Especially after they misjudged the impact of the price change earlier in the year. For all they know about distribution, it appears that they didn’t learn much about their customers along the way

All in I give it “C-” effort – and I’m being generous, mostly because there were no misspelled words. It looks like they don’t understand the perceptual value they provide to customers nor what customers really like about the brand or even how they use it. The fall out will be that they’ll have to work extra hard to retain customers (for Qwikster) and attract new ones for Netflix streaming over the near term certainly, and likely over the long-term.  And those long-term revenue losses (opportunity cost) could be significant.

This is a seminal moment in the history of that company. History will tell us if it was good or bad. Netflix is the star quarterback of the team of the digital entertainment team. The price change and this action comes off like the star only wants more money and only wants to play when the team makes the playoffs, skipping the regular season. We know what fans would think of that.

All that said, I think it’s probably the right business decision (streaming is the future), just that it was executed very, very poorly. Never doubt the role communication has in the future of an organization poised for success (or failure).

Thanks for sharing – feel free to pass along as you want to…

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