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Cloud Computing: Article

Netflix: Customer-Driven vs. Driving Customers Away

Arrogance as a worst business practice

I've been writing about being customer-driven as a best practice. Today, I'm going to write about a different interpretation of that best practice - driving customers away. Arrogance as a Business Worst Practice. In the past few months, Netflix has been a poster child for so many "worst practices," I've lost count.

Background
Back in August, Netflix announced that it was going to separate its video streaming and its rent-by-mail DVD services. Instead of paying a single price for a combined package, users would face as much as a 60% price increase for the same service as they had previously.

Surprise Results
Netflix told investors to expect a windfall of profit
s - anticipating an increase of 400,000 subscribers. The first sign of corporate narcissism is a complete and total misread of how the market reacts to your decisions. It shows that you either know nothing about the target customer, or that you don't care about the customer. Or both.

Did Netflix make this change because its customers or its target market demanded it? No. CEO Hastings did it because "streaming and DVD by mail are becoming two quite different businesses, with very different cost structures." He continued to defend the change stating that the change will generate more money and lower shipping costs to the company.

The net result - rather than an increase of 400,000 subscribers, Netflix is on track to lose 600,000 subscribers in the current quarter. On 9/18, the LA Times reported that Netflix lost 26% of its market capitalization (or $2.8 billion) in two days.

Corporate-Driven Decision Making as a Worst Practice
Netflix is yet another company that has made a critical mistake - they make big decisions with big customer impact based on reasons that the CUSTOMERS DON'T CARE ABOUT. That the target market doesn't care about. From the customer perspective, nothing has changed, yet they now have to pay 60% more. There's no benefit in it for them.

Over-justification and Re-affirmation of Bad Decisions - Another Sign of Arrogance
Hastings' so-called apology
drones on about how the price increase allows them to do a number of things that they could have done anyway (such as adding video games). He also talks about how having two websites rather than one is somehow an advantage to the customer, because we all know that having two websites to accomplish basically the same task is somehow easier and better and cheaper than one. His blabbering about how much the Netflix red envelope means to him and how the new Quickster logo will grow on him is a telling commentary of narcissistic personal disorder on a corporate scale.

Hastings "apology" tossed out examples of failures like Borders bookstores or AOL dialup as an excuse for the changes. In an extreme case of irony, what Hastings' hubris blinded him from realizing is that AOL and Borders both shared something with Netflix (aside from arrogance) - they totally misread the market because they were too occupied thinking about themselves and not their customers/target customers.

What is even more arrogant than the original communication about the price changes is Netflix's so-called apology that Hastings made yesterday. Hastings apologized to his customers for his arrogance and then went on to defend everything that Netflix did, made it even more awkward to undo the changes by rebranding the DVD part of the business under a different name, and announced that pricing would remain the same.

Markets Are in Control - Not Companies
Hastings then continues with yet another justification for doing stupid things - "companies rarely die from moving too fast, and they frequently die from moving too slowly." Well, companies also die from doing stupid things, and they especially die when they get arrogant enough to think that THEY are in control, rather than the MARKET being in control. Not even Google, Microsoft or Apple think that they are in control.

Customers don't care that the DVD and streaming businesses are different. They shouldn't have to care. If the market demands a unified service, it's up to companies to make that happen. When companies like Netflix think that THEY control the market, they've made a terribly arrogant mistake. For many companies, it's the last mistake they'll ever make, as they can't recover from it.

The market controls companies, not the other way around - with VERY few exceptions. Netflix isn't one of them. David Taber did some nice writing on this topic some years ago in The Taber Report

Never Assume that Customers Are Stupid - Another Sign of Arrogance
The arrogant part of the apology is Hastings believing that the consumers are stupid enough to believe that what Hastings said WAS an apology. It was anything about that. In fact if the original Netflix maneuver represented a stick in the eye of the customer, THIS was Netflix sharpening the stick and then stabbing the customer in the remaining eye. And then expecting the customer to keep loving them.

Never Assume that Customers Need You
Hastings' comments can be boiled down to the following: "I'm really sorry about what we did. It was so arrogant of us. But we're going to keep doing it. Actually, we're going to do even more of it." There are a lot of options out there for customers. Never assume that your customers need you, and that they "can't" leave.

Try that line of reasoning on your spouse or significant other: "I'm sorry I cheated on you with your best friend and was arrogant enough about it to think that you wouldn't care. But I'm going to keep doing it. In fact, I'm going to do even more of it." See how that works for you. Note that I'm not actually advising you to do this - it could prove dangerous to your health.

If you decide to try it because you think it's a good idea, well, that just shows you don't understand the dynamics of how relationships work - good luck to you in your next relationship.

More Stories By Hollis Tibbetts

Hollis Tibbetts, or @SoftwareHollis as his 50,000+ followers know him on Twitter, is listed on various “top 100 expert lists” for a variety of topics – ranging from Cloud to Technology Marketing, Hollis is by day Evangelist & Software Technology Director at Dell Software. By night and weekends he is a commentator, speaker and all-round communicator about Software, Data and Cloud in their myriad aspects. You can also reach Hollis on LinkedIn – linkedin.com/in/SoftwareHollis. His latest online venture is OnlineBackupNews - a free reference site to help organizations protect their data, applications and systems from threats. Every year IT Downtime Costs $26.5 Billion In Lost Revenue. Even with such high costs, 56% of enterprises in North America and 30% in Europe don’t have a good disaster recovery plan. Online Backup News aims to make sure you all have the news and tips needed to keep your IT Costs down and your information safe by providing best practices, technology insights, strategies, real-world examples and various tips and techniques from a variety of industry experts.

Hollis is a regularly featured blogger at ebizQ, a venue focused on enterprise technologies, with over 100,000 subscribers. He is also an author on Social Media Today "The World's Best Thinkers on Social Media", and maintains a blog focused on protecting data: Online Backup News.
He tweets actively as @SoftwareHollis

Additional information is available at HollisTibbetts.com

All opinions expressed in the author's articles are his own personal opinions vs. those of his employer.