The irony is that new pricing and a hastily conceived change in business model, aimed at boosting Netflix’s stock, turned off customers, inviting reputation-drubbing reviews, and ultimately caused scared investors to dump shares.
There were three separate chances – the pricing change, the Qwikster announcement, the Qwikster demise – for Netflix to communicate effectively and help their customers adjust to change, yet the company seemed to bungle each opportunity, infuriating customers to such an extent that they unsubscribed from the service.
Why did communications go so wrong? And, once they’d created a problem, how could Netflix have handled communications to keep customers and investors happy? How do you successfully retract messages and deliver newer, better ones?
In the interest of full disclosure, I’m a Netflix customer and have been for about seven years, though I don’t own stock in the company. I am probably what Netflix considers a Luddite user – I’ve always had a low-priced DVD-only plan. I was unaffected by most of this as a customer; as a communicator, I learned, and was reminded of, some valuable lessons about messaging change. Here’s what Netflix could’ve done before, during and after…
Introducing the Higher-Priced, Reduced-Service Business Model
In July, Netflix announced it would change its service offerings and price structure. Up until then, folks who had DVD-by-mail accounts also had the option to stream some movies for free from the Netflix library.
Here’s Lesson #1: When you give away a product or service for free, as the old joke goes, you’ve just established its worth. Netflix should have done a better job communicating why it was offering free streaming to begin with, and it should have been explicit about how long the free offer was going to last, so customers weren’t surprised when it went away. Even if they didn’t do this when they launched free streaming, there was still time to communicate before the price hike and service change.
Lesson #2: Explain your decision clearly and provide evidence. When you’ve offered something for free, then decide to charge for it, it’s going to feel like a loss to your customer. When brands and companies retract an existing feature, they need to make the case for change to the audience. The explanation – and any research backing it up – must be compelling enough to convince the audience to adapt to the change. The rationale can’t simply be about a company’s bottom line. (For an effective example of charging for an online service that used to be free, check out this NPR story on The New York Times’ paywall.)
Instead, Netflix choose to deliver the news about changes in pricing and service like this:
“Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on [sic] to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only [sic] plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs.”
Lesson #3: Know your audience. Buried inside this price-change announcement was the news that Netflix had plans to eliminate DVD-only plans. Essentially, they were telling customers with DVD-only preferences that they’d better jump on the streaming bandwagon quick-smart or they’d find themselves paying for a combo plan while using only one part of it. Kind of like paying for a surf-and-turf platter and only eating the steak.
If this wasn’t confusing enough – and if freaked out customers were still reading – Netflix abruptly reversed itself: “Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members.” (Italics mine.) The language takes the form of a pronouncement: We’ve decided this for you in consultation with ourselves. With any change – and any decision that affects customers’ wallets is always going to feel like a big change – audiences like to feel as if they’ve been consulted, like they’ve had a chance to provide their point of view. This messaging is entirely one-way communication. It’s no surprise that customers took to social media to voice their complaints…and that Netflix remained silent in those channels for days afterward.
Lesson #4: Be human. Statements like “…treating DVDs as a $2 add on [sic] to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs” reinforced what many Netflix subscribers viewed as a money-first, customers-second approach. This will happen when the words “financial sense” appear before “people who just want DVDs.”
When communicating about change or any difficult subject, always, always place human beings before any other issue. And try to make those human beings your audience, your customers or your stakeholders, not you and your investors.
With each of its decisions, Netflix failed to indicate if they’d done research into what customers wanted and needed and the price points they were willing to pay. How difficult would it have been to poll customers, invite them to focus groups, or engage them in social media channels before making a business decision?
But, companies on the brink of change are often ruled by fear – of what customers really think, how they’ll react, and what any hint of change will do to Wall Street. Decisions based on research into stakeholder perceptions – part of the due diligence of change management – are a lot more strategic than ones based on assumptions. When we engage stakeholders, we start to think of them as individuals and spend more time with them in two-way conversations, listening and learning. As a result, our communications become a lot more relevant, relatable, human.
An Apology Minus a Strategy
It took until mid-September for Netflix CEO Reed Hastings to jump into the fray the company had caused.
“I messed up,” he began. “I owe everyone an apology.” It was such a promising start, seeming to acknowledge the problem. Unfortunately, this was also the email that begat Qwikster and foisted the awkward two websites/two passwords/two credit card charges business structure onto baffled customers.
Lesson #5: Demonstrate that you’re sincere. Apologizing was the right move for Netflix, and the CEO was the right person to deliver the communication. The apology itself was well-worded; it didn’t resort to any “I’m sorry you thought I said that when I really said this” shenanigans.
Hastings went on to provide some context, pointing to companies, such as AOL and Borders, which had failed to adapt to change. “Companies rarely die from moving too fast, and they frequently die from moving too slowly,” he wrote.
Then, he added, “When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.” But, when he tried to re-explain the pricing and service changes, the language again turns a deaf ear on customers:
“So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to ‘Qwikster.’”
“We realized….we need…we think it is necessary and best…” I’ve included the link to the full email so that you can see for yourself that, besides the apology, there’s little in the way of an explanation that takes into account the needs of and what’s best for customers. Really, it’s not about you, the email essentially says, it’s about how hard this is for me.
“For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of you. We’ll also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand.” [sic]
Lesson #6: Pinpoint the issue and address it directly. In its haste to announce and explain Qwikster, Hastings and Netflix lost sight of the real issue at hand: customers were upset over a perceived loss of service combined with a price hike. They weren’t clamoring for Qwikster as a solution. This lesson goes hand-in-hand with the previous one – it’s impossible to be (or sound) sincere when you’re addressing the wrong subject.
For this to feel like a genuine apology, Netflix needed to clearly state its rationale for the price changes and back up its words with tangible improvement to existing service(s) that demonstrated a benefit to customers despite the price increase. The Qwikster announcement merely changed the subject, it didn’t make the issue go away.
Lesson #7: Unless you can poke fun at yourself, don’t try to be funny when communicating difficult information. “There are no pricing changes (we’re done with that!),” Hastings added to his email, striving to be jocular. Humor is tough under the best circumstances; it never works when your audience is angry (actually, it works to make them angrier) because it sounds like you’re missing the point. Which is exactly what Hastings was doing.
Customers weren’t the only ones left scratching their heads. Investors, the audience Netflix was preaching to all along, became equally irate as the missteps shone a spotlight on an utter lack of strategic thinking in the executive suites. Stock price reflected this loss of confidence, plummeting some 70 percent in three months, after visiting $300 a share in mid-July of this year.
On Oct. 10, a terse email from “The Netflix Team” – rather than the CEO this time – announced that Qwikster had imploded on the launch pad.
The note reiterated its pricing messaging without acknowledging the customer outcry that had led to Netflix’s disastrous business model revamp: “While the July price change was necessary, we are now done with price changes.”
The brevity of this communication was designed to get the whole thing out of the way quickly. Yet there are still lessons to be drawn:
Lesson #8: Don’t market, explain. With every announcement, Netflix felt the need to market some additional service. Here it’s a giant paragraph (far longer than the space allotted the slap-dash demise of Qwikster) devoted to their streaming services. It’s random, it’s off-topic, it’s just not helpful. Mainly, it suggests Netflix is just going to keep hammering away at their messages and not listen to or care about what the audience has to say or needs to know.
Lesson #9: Enlist back-up. Work with industry pundits and influencers among your target audience in advance of any big announcement. Explain what you’re about to do, demonstrate the research you’ve done to support the change, detail how you plan to message about it, and listen to their reaction. Adjust your message accordingly, then ask for their support when traditional media come calling with questions and on social networking sites, before chatter gets loud. Netflix should have enlisted industry analysts and techies before its first announcement; it was an absolute requirement by the time they retracted their position on Qwikster.
Some final lessons that may help brands and companies avoid PR disasters like this:
Lesson #10: PR can’t solve everything. You gotta feel for Netflix’s spokesman, who was sounding mighty beleaguered by the time announcement No. 3 rolled out. This was one of those PR disasters where Netflix basically revealed that “the Emperor has no clothes.” There was no strategic thinking or planning behind Qwikster – it was a knee-jerk reaction to a deluge of angry customer comments – and no PR can dress that up.
Lesson #11: Focus on the future. This is where your customers and Wall Street want you anyway. It’s clear Netflix had a vision of a future where clunky old DVDs – easily damaged, slow to mail – were no longer part of the business model. Instant streaming seemed to be the way of the future. But, the company needed to do the work to get customers to share the same vision, understand the value proposition, overcome any technology gaps or fears, and adopt the new way of accessing the Netflix library.
To be visionary, you have to know how to lead. In this case, Netflix needed to invest time, money and, goodness, yes, communications to educate the portion of its customer base that wasn’t in that magical early-adopter space. Teaching, sharing knowledge and information, is always preferable to pronouncing. And, like two-way communication on social networks, it puts you squarely in touch with your most valued constituents and helps you understand what they’re thinking, what they need, and when they’re ready to make the leap with you.