Netflix Stumbles; Amazon Sails On


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Netflix Stumbles Netflix

I was greatly relieved to hear this week (October 10, 2011) that the Netflix board and executive team had come to their senses. They didn’t really need industry pundits and critics telling them they had screwed up when they split the Netflix brand into two: one renamed Qwickster that would continue to ship DVDs to customers, and the remaining Netflix brand that would deliver streaming video on demand. That was a terrible idea!

From an organizational standpoint, it makes sense to focus operations on what you need to optimize. But from a customer perspective, this “create a new brand” approach breaks the bond that customers have with your brand. Worse, it causes customers to have to DO something! And Netflix had already confronted customers with painful choices 90 days beforehand.

In July, Netflix told customers: We’re raising prices. If you want to keep your low $7.99/month price you have to opt for digital service only. If you want to keep getting DVDs, you need to make a change to your service plan (we’ll double your price to $15.98 for unlimited DVDs AND unlimited streaming). This actually made sense to me, although I’m never happy to have prices raised, and I didn’t want to have to DO anything right away. My reaction, like that of many customers who are too busy to be bothered, was to ignore this completely. They would just adjust my price and/or stop sending me DVD’s. Either way, I didn’t really care. At some point, when I wanted to actually watch a movie, I’d tell them what I wanted.

Then, in September, Netflix announced a MAJOR reorganization. They were dividing the company into two. They were rebranding the original DVD-delivery subsidiary Qwickster. Huh?? Why spend money to build a new brand in a highly competitive and mature market? Why rock the boat further? Sure, you can optimize your internal organization to deliver DVDs more cheaply to those who still want them, but don’t change the brand or send us to a different web site, or dilute the investment that both the company and we customers have made in the brand by rating all our favorite movies and organizing our lists!

So the “rebranding/divide the company into two” idea was a really bad one. Luckily customers and the stock market voted and tweeted vociferously. Netflix management realized their gaffe. They have now reversed that decision and they are trying to make amends. But considerable damage has been done. Trust has been lost.

Amazon Sails On Amazon Prime Videos

In the meantime, Amazon, which had already been offering a streaming video service in competition with Netflix and others, has been telling Amazon Prime members that, in addition to free shipping, we now also get unlimited movie downloads. (I’ve been an Amazon prime member since 2005. My $79/year membership renews automatically and includes up to 4 household members.) Sweet! While I couldn’t be bothered to go to Netflix and change my subscription options, I was intrigued enough to go to Amazon and make sure that all the devices on which I’d like to be able to stream movies were registered with my Amazon Prime account. It’s in Amazon’s best interest to wean us away from Netflix videos and over to its own streaming video service. It builds a habit that will translate well both to the Amazon Fire and to all the other devices on which we can enjoy video entertainment.

The Moral: Don’t Make Customers CHANGE Things!

There are many fascinating business case lessons to mine from the Netflix stumble. But here’s the one that I find so basic and critical from a customer experience standpoint: If you have customers signed up for an automatic service, don’t rock the boat. You can make improvements and offer more. You can even reconfigure the value proposition slightly (e.g., more streaming video, fewer DVDs for those who behavior shows that’s what they want). But don’t make customers have to make changes in order to continue to use the service they are paying for automatically. That’s just stupid. As soon as you tell me I have to DO something in order to continue to receive the service I’m paying for, you are asking me to reconsider whether I want to jump ship or discontinue entirely. Amazon’s approach is elegant: add free video streaming to its already profitable Amazon Prime free shipping service. Get us addicted. Then gradually raise the price and/or vary the Amazon Prime offer based on our behavior. “Congratulations! Because you’re a loyal Amazon Prime customer, you now get….XXXX.” That’s how customers think about the value equation. “I give you money each month for a certain level of service. You earn the right to keep getting that money by delighting me with great service and convenience, and things I value.”

Republished with author's permission from original post.

Patricia Seybold
With 30 years of experience consulting to customer-centric executives in technology-aggressive businesses across many industries, Patricia Seybold is a visionary thought leader with the unique ability to spot the impact that technology enablement and customer behavior will have on business trends very early. Seybold provides customer-centric executives within Fortune 1 companies with strategic insights, technology guidance, and best practices.


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