Tuesday, September 20, 2011

Why Netflix will flame out

Reed Hastings, CEO of Netflix messed up. Now he's apologizing for it. If you're a subscriber as I am, his mea culpa email was in your inbox yesterday morning. If you're not a subscriber, you can read his it here on Netflix blog.

The problem is, he's apologizing for the wrong thing to the wrong people and taking the wrong steps in an effort to correct the problem.

He's apologizing to customers for not communicating about the service and pricing change that caused over a million of them to leave. And in response he's splitting the company in two and making it harder for people who want access to both DVDs and streaming video.

First of all, he doesn't need to apologize to his customers. He needs to provide them with the service they want at a price their willing to pay and all this will be over. Too many businesses overestimate the power of social media and how it can help them maintain a "relationship" with their customers. Here's a clear demonstration of what that relationship is really about. Give me the service that I want and I'll give you money. Period. End of story.

Stop wasting so much time and money trying to be "friends" with your customers.

The people he needs to apologize to his investors who lost half their money when Netflix stock price plummeted over the past two months thanks to their inability to anticipate consumer rejection of their business decisions. He will also need to apologize to those who will be losing the rest of their money in the coming months thanks to the incomprehensible business model they've created moving forward.

How did this happen? Just read the blog post and see how many times the pronouns "I," "me" and "we" are used versus "you." (It's funny the only time he uses "you" is when he describes the inconveniences of the two company structure).

Netflix is operationally focused around what's best for them, not their customers. and that's ultimately why they will fail. Not because they communicated a pricing change badly. If that were the case most companies would be in trouble.

1 comment:

  1. Harvey, good take on what is certain to become a biz school case study on how not to change your business model and connect with your customer base simultaneously.