Netflix, Qwikster, & the Official Guide to Killing your Customer Base
Watching Netflix management make mistake after mistake has kind of been like watching a painful blooper reel of a viral YouTube video that makes you cringe – e.g. some guy doing a backflip off his roof only to impale himself on the white picket fence. You know that even if he lives, he’ll never be the same man.
First, the BIG Price Increase
Two months ago, I highlighted the second Netflix price increase (less than a year after the first) as Netflix unbundled its DVD and streaming services and cranked up total price for those who used by (half of its customer base) by 60%. I predicted at the time that Netflix would lose a ton of customers over the move.
They did. Over 1 million in less than two months.
At that time, I also noticed something a little bit fishy. You couldn’t see pricing for DVD’s on their home page anymore. It was buried deep on another page. More on that later…
What happened other than losing a million customers? At the time of the price increase, the Netflix (NFLX) share price was at its peak at just under $300. Today, the share price now sits at $130. Ouch.
Business Lesson #1 on how to Destroy your Customer Base: Raise prices on your loyal customers by 60% in troubling economic times while offering a weak service offering (streaming) when your very identity is to be an alternative to pricey cable providers and movie theaters.
What is a Qwikster?
This week brought another painful-to-watch move.
Netflix CEO, Reed Hastings, issued a public apology for the way they raised prices without giving full clarity for splitting the DVD and streaming bundle.
In the same apology, Mr. Hastings explained that they are completely splitting the DVD and streaming services and renaming the DVD service you have come to know and love “Qwikster”.
Oh… and by the way, customers will now have two separate bills, two separate accounts, and have to manage two separate movie queues.
That “apology” and move has been blasted by investors (the stock has dropped over 30% in just the last week) and customers (only about 25,000 commented on the blog post with almost all of them being frustrated and angry).
Did I mention Mr. Hastings sold off $41M worth of stock before all the changes?
Business Lesson #2 on how to Destroy your Customer Base: Skirt around the issue, apologize about it, and continue skirting around the issue (we get it, you’re going to sell off the DVD business).
Business Lesson #3 on how to Destroy your Customer Base: Sell $41M worth of your stock when you are CEO before making widespread changes to your business model that send the share price into the ground.
Business Lesson #4 on how to Destroy your Customer Base: Bash your customers enough times to wake them from their subscription autopilot-paying coma to say “OK, I’m done now”.
If you are a Netflix customer, was this the last straw for you?