Where Netflix blew it.

Much has already been made of the letter from Reed Hastings of Netflix regarding the price increase and split of the business.

Many people simply don’t like the new make – Qwikster. In my view, regardless of whether or not you like the name, it’s almost unprecedented that a company would choose to change the name of the service they’re most known for when the name, like Xeroxing or Googling, has become, in itself, a verb.

Netflix has become synonymous with DVD rental through the mail. If they really felt they had to split the business, they probably would have been better served maintaining the name “Netflix” for the DVD rental portion. That one was already well-established with the service and carried a power that this new name won’t have.

But backing up a step, I think their greater error is splitting the business at all. Now, obviously, I don’t have access to all of the research and customer knowledge that they do, so I have to give them some benefit of the doubt.

That said, it seems to me that if there’s a group of competitors renting DVDs and another group of competitors streaming video, if you’re the only one who’s got a customer base doing both, why would you separate them.

All of us with Netflix accounts have enjoyed the consolidation of services since they introduced streaming. And while they’re streaming has not been entirely robust, it has always been nice to go looking for a DVD to rent, seeing it available for streaming and deciding right then to just watch it on your TV or laptop.

The way I’m reading Hasting’s letter, those days are behind us. Instead of taking what I would think would be one of their main competitive advantages – the seamless (on the user side, anyway) integration of movie rental and streaming – and using it to dominate the market by offering something that no one else is (generally speaking), they chose to break them up and compete with the other businesses in those two separate markets on a more level playing field.

This seems like an amazing double whammy of bad strategy and against the wishes of a huge customer base (especially given how the announcement was received).

As an aside, I don’t think Hasting’s letter was very well written, either. It opens with this statement:

“It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology.”

Now, again, I don’t have access to their customer data, but I’m skeptical that members were telling them they were upset due to a lack of respect and humility. They were upset because they were ripping apart a business of which they enjoyed being a customer. I don’t recall hearing or reading anywhere that someone was upset about a lack of respect and humility.

What I think, skeptically, I admit, happened here is that a marketing department who has observed the transparency going on in marketing in 2011, thought they’d get more mileage by having the CEO apologize (which never used to happen) than addressing the real issue.

To me, I thought the entire letter read more like pandering… like they realize that in 2011, companies are supposed to admit mistakes and apologize to seem responsive and real. The problem is that when one apologizes, they usually feel bad about the thing for which they’re apologizing and work to fix it.

Netflix’s apology set up a straw man – lack of respect and humility – and apologized for that instead of the thing that had people most upset – the price increases and splitting up of a business model they love.

In my opinion, this was one of the greatest series of marketing missteps for a major company in some time. Let’s hope we are all learning from this one.

PS: Tack on to their list of missteps this story about the current owner of the Twitter name “Qwikster.” Should be fun watching them untangle that PR nightmare waiting to happen.

– My name is Jon Friesch, and I approve this message.

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1 Response to Where Netflix blew it.

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