The Great Consumer Companies, When They Screw Up, Admit To Their Customers They’ve Done So. Does This Video Supplier Have the Guts to Say ‘Mea Culpa’ To Its 23 Million Subscribers?

Aug 8, 2011

[Editor's Note: This commentary first appeared on Jeff Grimshaw's The TV News, which can be found at www.tvnews.com, and we appreciate Jeff letting us reprint it.]

It wasn’t so long ago that we were singing the praises of Netflix, calling them a game-changer for their foray into original programming and their exemplary customer service. It seemed to be a time when they couldn’t get out of the way of their own great publicity.

Well, that all changed in a hurry, when, without warning, Netflix announced a new pricing structure that represents a 60, that’s 6-zero, percent rate hike for customers who want to keep the same video-streaming and DVD-mailing service they already have. Reaction was predictably swift and fierce. Reports were that almost 5,000 customers posted negative comments on the Netflix blog the day of the announcement, and 20,000 more were posted on its Facebook page.

Some representative samples: “Great idea to kick people when their down.” “So much for customer statisfaction.” “Can you imagine how much champagne was flowing at the Redbox, Hulu and Amazon offices today?” Stephen Colbert tweeted his dissatisfaction, Jason Alexander posted a Funny or Die video entitled, “Help white people keep Netflix,” and, just this week, Dish Network told the LA Times that it now plans to become a Netflix rival.

Certainly, people understand that, if the economics are not working for Netflix, the Company has every right to make adjustments. Setting higher rates for new customers is not a problem. But a 60 percent rate hike for existing customers, with just six weeks notice, is asking for trouble, and trouble is what they got. In light of the social media backlash, the Company had to warn Wall Street that subscriber growth would cool down in the third quarter, and shares promptly fell ten percent.

In its letter to shareholders, Netflix said quote, “We hate making our subscribers upset with us.” Well, then, I say, “Try harder not to.” Netflix has done a great job of creating an image of the cutting-edge place to be, but this announcement was handled clumsily and callously. Despite that, it’s not too late for Netflix to come back and say, “Oops. We misstepped,” and ease the pain for existing customers with either a more gradual price increase, or postpone the increase till the first of the year, or come up with some other incentive to allay the anger of their loyal followers and make them feel the Company really cares about keeping their business.

Companies pay lots of money to build the kind of reputation that Netflix has successfully forged, and Netflix should absorb a short-term hit now in exchange for the long-term gain of demonstrating its commitment to its existing customer base. In this extremely competitive environment, when consumers are counting every penny and can abandon ship at a moment’s notice, Netflix should spend every day protecting its PR image.#

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