Hard times for Netflix: lessons learned in the wake of a PR disaster

A Thin Line Between Love and Hate As you’ve probably heard, the last few months have been rough for Netflix as the company tried to raise prices and then spin off its mail-order DVD business and Internet streaming business into two separate companies. The fallout from Netflix’s recent changes has been swift and severe, with hemorrhaging subscribers and a noticeable decline in its stock price.

In response, Netflix abandoned its decision to separate its DVD-by-mail and streaming services, even though industry pundits agree streaming video over the Internet is clearly the wave of the future. All the data seemed to indicate Netflix customers were ready to migrate to streaming -- so why is everyone so upset?

It’s Not Just What You Say, But How You Say It It’s difficult to know what was most responsible for Netflix’s customer exodus – the price increase or spinoff.  What we do know is that Netflix was woefully out of touch with its customers and absentminded in communicating change. Contrary to what events suggest, there should have been a comprehensive communications plan in place, and customer surveys or focus groups would have helped Netflix determine how to navigate the way forward. It also took Netflix roughly two months after its price increase before it finally apologized to customers – an anemic response that, right or wrong, smacked of irreverence and may have fanned the flames of discontent. Some even argue that Netflix should have announced a return to their old pricing model rather than blindsiding already-angry customers with their decision to split the company in two.

While Netflix’s business decisions may have been unavoidable, its failure to listen and respond to customers was not. Netflix PR missed an opportunity to engage with customers in a way that leveraged their brand loyalty. As noted in a recent New York Times article, Netflix “underestimated the unquantifiable emotions of subscribers who still want those little red envelopes, even if they forget to ever watch the video.”  Consumers sometimes have strong emotional attachments to products that go far beyond their practical utility. Remember “New Coke” and Coca-Cola Classic?

Moving Forward It will be interesting to see if Netflix learned its lesson on the communications front.  Reed Hastings, co-founder and CEO of Netflix, recently attributed customer anger to the restive mood of the nation, calling out the Tea Party and Occupy Wall Street movement by name. If Netflix has learned anything from the past few months, it should be not to alienate but rather take its customers seriously when they have something to say.

Netflix’s jumble is a cautionary tale for companies that need to transform or combine new and legacy businesses. How can they learn from this experience and avoid a similar public relations backlash? With so many social media channels to tune into what your customers are saying, companies are not short of ways to listen carefully to customers, gauge perspectives and enter the conversation slowly.