Movie-rental company Netflix raised its prices last week, and its customers have set the Internet aflame with their ire.
Customers left more than 12,000, mostly angry messages on the company's blog. Many vowed to leave Netflix for Hulu, Blockbuster and other competitors.
What lessons can you learn from Netflix's massive customer backlash? Here are six:
1. Do market research. Netflix's change seems to have hit members like a board upside the head. Did they not test the waters and ask customers what they might pay for these services? Perhaps a better price structure could have been devised with more customer input.
2. Raise prices for new clients. Netflix might have stemmed the backlash by keeping existing prices for current members and charging new members the higher price. After a time, Netflix might have phased in the new price for older members or offered them incentives to keep their old rate -- for example, by paying a year up front.
3. Offer a discount. Netflix introduced two new, higher set prices for DVD-only members and streaming-only members at $7.99 each. Then, its rate for access to both services is simply $7.99 times two. This may be the most outrageous aspect of the change -- American consumers are trained to expect a discount if they buy the full meal deal from you. It probably would have smoothed many ruffled feathers if customers could get both services at a discounted bundle price.
4. Consider the competition. Netflix has now priced itself higher than Blockbuster, which has a larger stock of streaming-video movie choices. Their long-beleaguered competitor sees its chance here and quickly set up a custom landing page on its website just for Netflix customers that offers 30-day free trials and discount prices. Asking customers to pay more when you have less to offer seems like a bungle.
5. Think of the economy. It's still really slow, and some are thinking double-dip recession. Maybe the timing was simply wrong for the price increase. In better times, a few bucks more to rent videos might not have bugged so many customers.
6. Netflix will still make more money. Even if a substantial portion of customers quit Netflix, projections show that the company will still see a revenue increase. Wall Street did some quick math on the announcement and sent the company's stock higher, despite the backlash.
Sometimes business growth isn't without growing pains. Netflix seems to have decided to take its lumps now because it needs the cash.
What do you think of Netflix's move? Leave a comment and let us know.
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Comments:
Streaming choices are horrible. There one day and gone the next. We used to have two adults in the household subscribe-now there are none! Do they really think we are stupid enough to believe that this will not have a negative effect on their company?
I just think Qwikster's a stupid name. No one can spell it right, and it's dorky. And not a "cool indie" dorky, but an embarrassing-to-be-seen-with dorky. Probably invented by a forty-something year old who called his frat friends "Jim-oroni!!" and "Dave-miester!!" and never really got the memo that it went out of style. They should switch to Snailster. It's at least ironically cute. Besides, DVDs by snail-mail isn't "qwick". It's relatively slow compared to "instant" streaming. I haven't cancelled yet, and I'm kicking myself for not buying Netflix stock at the bottom of the drop. But I am more open to other options now. Options that don't have dorky labels like Q... no, I can't even say it and can't stand to misspell it one more time. Just too painful.
Consumers now expect a seat at the table when it comes to branding. When a company like Netflix attempts to usher existing and new consumers to streaming-only subscriptions using price as the incentive, it sparks a backlash. This is an old-fashioned push marketing technique from a company that presents itself as new school.
They might make more money at first however, losing loyal customers is not a good thing, and to lose that many is going to turn out to be a huge blow to Netflex in the long run. Bad business decision on their part.
I like the comment about how the company" will still make money" and the stock starts back up..Short term reaction. Long term-Management that doesn't think through their actions will make other more serious mistakes.
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Netflix, could have owned the dvd market, but for impatience and arrogance. I'm not surprised, as I've delt with their customer service folks, who do not really have a clue what c.s. really means.
I currently subscribe to Netflix, but will probably drop the DVD plan and just take streaming. By the time the video is sent out, I watch it, and a new one is sent back, I only get about 1 movie per week, or about 4 per month. At $8 per month, that comes to $2 per rental. Why pay that when I can go to RedBox and rent it for $1 and return it the next day? And RedBox is at my grocery store, so it's not even out of my way. I like Netflix streaming, but there is no point in paying for DVD's if it costs extra.
I am inspired to check out other options and leave Netflix altogether. The impact of getting the price increase email was dramatic and negative.
The price increases are minimal but the message delivery poor. We should be able to slightly raise prices without causing such an uproar. It just takes some empathy, anticipation and planning.
I love Netflix, and the price increase per se isn't that big of a deal. I teach Social Media Marketing online at http://www.jm-seo.org/, and this is just another example of how marketing has radically changed. Everything any company does is 'under the microscope.'
I agree that they really alienated their core customer base. It's very difficult for current customers to palette that there is going to be a 100% increase in prices, and there is not a defined "good reason" besides shareholder value. Unfortunately, many companies don't think of their customers as shareholders- only those that actually own the stock. I also wrote about how they really communicated the change poorly via social media as well, including deleting comments here- http://info.ottopilotmedia.com/blog/bid/82722/Netflix-Muffs-the-Punt-New-Subscription-Pricing-Outrages-Online-Fans. You add some great points for small business, especially the sad reality that Netflix will still make more money even after we all boycott. :( Alexandra Gibson www.ottopilotmedia.com
The reality is, once your company is live, there's never a great time to increase prices or do any kind of pricing/tiering adjustment....unless you're just dropping prices for everyone. When you make changes, people get upset, period. And it seems that the more connected to a company people are, the more emotional changes become, so you get a bigger response. Think of what happens any time companies like facebook tweak their pages - people go crazy. And they don't even charge. Pricing is difficult.
I left BB for Netflix last year primarily for the streaming aspect of their service. However, the streaming has not lived up to my expectations. (older titles, art house, foreign films and very delayed new releases) When i got the email from Netflix that my plan was jumping by that much, I immediately dropped the DVD portion of my service and went back to BB for their 2 dics unlimited in-store swap plan. I may soon also dump Netflix streaming as I do not get much use. I thought it would be good with our iPhones but after the first month I have not found we use it much. I was surprised in the manner by which they made the price structure change. I still have a BB nearby and will return to by-mail and in-store for newer releases there for the time being.
How do you know what research they did or did not do? Losing customers is not necessarily a bad thing. 12000 expressed anger. And then what? I'm amazed at the number of upper deck quarterbacks online with their lists of what someone else should do or should have done. So what's your record with running a $2B company?
Just got my first Blockbuster disc. I signed up on Friday night, it was shipped Monday and in my mailbox Tuesday. The shipping center is in the same city as Big Red. I have decided to support the competition and go with BB. I hope DISH can leverage its customer base and library into streaming.
Obviously Netflix got hammered by the refusal of Sony to allow their content to be streamed. This came along with a story about a 240 million dollar deal for movie rights that runs out next year (?) to be replaced by Sony's generous offer of 1.2 billion!!! No wonder Netflix had a heart attack and instantly responded with a price hike!. Could they have done this better? You betcha. Did they have a choice? Not really.
I did the 30 day free trial with redbox a while back. Limited selection and the turn around on the dvd's was poor and the dvd's themselves most of the time were bad. So I just watch whatever is online and use redbox. I just might check out BB...but I doubt it. Nothing is THAT important to watch right now.
We can't stream so we too will save money. That said, it sounds as if Netflix could have done a better job at breaking out this change in pricing. I have been happy with their turn-around time; I wish fewer discs had "skips" in them as that is kind of annoying.
NETFLIX couldn't have done a better job of shooting itself in the foot. Doubling it's rate's overnight without any prior announcement, apparently no market research regarding loyalty vs. cost's and a host of competitor's who are just waiting to grab a lost market share, and with a roadmap of how not to lose it, for free no less, is another example of 'my way or the highway' thinking. NETFLIX deserves to lose every customer they've grabbed from the market over the past 2 years. I rank this right up there with the Time Warner / AOL merger.
So not really the same thing at all.
What a poorly written article, presented with little if any research. I am hearing impaired. As a result I do not watch streaming video because they do not (yet) offer subtitles. As a result I only watch DVDs. Guess what? My cost at Netflix went DOWN. Think how many people choose to only watch DVDs and not stream content. For all those people, there is a savings. I'm confused by the amount of people who say they hate Netflix's streaming content...yet subscribe to it anyway instead of just getting DVDs. Also, the article compared the plan to other plans that do not offer both DVDs and streaming. Poor "reporting".
Hello, I looked at the TVDevo website... Do they have HBO, Showtime ect shows... that is one of the biggest draws for myself to NetFlix, We don't get those channels. Thanks...
Blockbuster is happy with this move, short term cash seems like a fountain, but if the water becomes a drain, ooops
Friends at BB headquarters are happy!
John, I agree with you man, Netflix holds only Crap selection, and plus thier is faking it with stocks, truly are not making money. Tey tracked a lot of people by offering them cheap and then rise the price. I have never seen rise by 60% in my life. This company will file chapter 11 soon. The master
John, I agree with you man, Netflix holds only Crap selection, and plus their is faking it with stocks, truly are not making money. They tracked a lot of people by offering them cheap and then rise the price. I have never seen rise by 60% in my life. This company will file chapter 11 soon. The master
In my business.........tax business many seminars other preparers tell us raise your prices you lose a few but they were probably not your best clients and you still make more money...........and do less work
Liked Netflix, but canceled them altogether. There are other ways to watch streaming TV and movies online. Look at the TVDevo website. There are no limitations to what can be watched online and there is tons to watch. Amazon is good for movies too. Sorry Netflix...
It's definitely Blockbuster. They have newer movies and more titles than Netflix on streaming. Except they have them in a la carte. Which means some are free to watch, then it goes from $1- $3 dollars.
I just left Blockbuster a month ago to save a couple bucks a month, and now I'm canceling my new Netflix subscription to go back to Blockbuster. Not to mention the fact that Blockbuster has newer releases on demand, and before anyone else through mail, as well as free in store exchanges. I can't imagine Netflix doing well with this new price increase, they just lost a new customer.
I have canceled my Netflix account of almost 10 years and have signed up with BlockBuster. That is how I feel about this. Streaming on Netflix sucks. They have a crap selection unless you like 80s and 70s TV shows. Comcast and many providers are now capping internet use, which limits streaming movies. Further, I didn't by an HD TV and Blu-ray to watch substandard streamed HD.
The last part is true. I do plan on keeping my streaming video subscription (until a competitor appears) :(
Hey Carol, Thanks for the lessons. I was looking for some tips and lessons for startups. Thanks again.