A lot can happen in a year. When Blockbuster filed for bankruptcy protection in September 2010, Netflix shares hit an all-time high of $163.72. The weight of all of Blockbuster’s brick-and-mortar stores left them unable to compete with Netflix, or even Redbox, who quickly eked out 25% market share.
Netflix was one of the first to offer video streaming, and their partnerships with Starz, Paramount and others gave them a competitive advantage in terms of content. By July 2011, Netflix shares were trading at around $300. And it looked like they could do no wrong.
But then a series of missteps—the restructuring of their rental plans accompanied by a big price hike, the decision to separate their streaming and DVD businesses, and then the reversal of that decision—left Netflix looking completely inept.
Recently, they closed at $111.
So how did a company that was once noted for being innovative, foresighted, and well managed get so many things so wrong?
When CEO Reed Hastings announced that they were abandoning their plans for Qwikster, he said, “There is a difference between moving quickly—which Netflix has done very well for years—and moving too fast, which is what we did in this case.”
But to this observer, that’s not the problem. The problem is that Netflix was so eager to do what was right for Netflix that they forgot about the vital importance of doing what’s right for their customers.
For consumers viewing any change through the prism of “what’s in it for me?”, creating a separate company for DVDs was nothing but a huge inconvenience. I understand why it was a good business decision for Netflix. But why didn’t they at least put the benefits to subscribers front and center? The tone of Reed’s original announcement was “Trust us. It’ll be better this way.”
When British Airways emailed me that they were making their frequent flyer program “even better,” my first thought was, “Oh no. What are they taking away now?” But at least they acted like they were doing it for my benefit.
The other thing I don’t get is how Netflix could have ignored the damage that disgruntled customers can do in the age of social media. Didn’t they learn their lesson with the price increase? Not only have large numbers of subscribers left the service, their vocal unhappiness is preventing potential new customers from signing up. This, in turn, has re-energized Blockbuster, who has emerged from bankruptcy as part of Dish Network as a formidable new competitor in the space.
To me, there are three lessons to be learned here:
1) Do your homework. Nothing makes you look worse than changing horses midstream. Know what the impact will be on every aspect of your business before you pull the trigger. Netflix’s stock price is evidence that they didn’t understand all the ramifications of their actions.
2) Ask yourself how everything will play out in social media. Be sure you can live with the consequences—and the damage to your brand—before you move forward.
3) Dance with them that brung ya. Never forget that your customers are your greatest asset, and that their loyalty is conditional on yours. Talk with them. Solicit their feedback. And make sure that as your business model evolves, they remain your top consideration. A 5% increase in customer retention produces more than a 25% increase in profit.*
*Bain & Company. “Cost-Cutting Ideas for Now That Won’t Impair Clients Later.” Tennessee Society of CPAs. Accounting Office Management & Administration Report, June 2009.