How NOT to Manage a Brand 101: The Netflix Fiasco

by Faisal Al Hinai

netflix-quickster-500x231

Introduction: Unprecedented Price Hikes

On July 17th, 2011, Netflix, A company that offers online video streaming, Blu-Ray Disc and DVD rental via mail at a flat rate and a fierce competitor for On Demand cable and Video rental stores like Blockbuster, announced a significant price hike for its services effective September 1st, 2011. Customers who experienced a flat-rate of $9.99 per-month for Netflix’s unlimited DVD rental and online streaming were told to expect a price increase to a new monthly rate of $15.98 for the same combo plan, raising its customers’ monthly bill by 60%! Otherwise, customers were being given the option of choosing between a DVD rental plan and an online streaming service, with each separate plan costing $7.99. Netflix Chief Service and Operations Officer, Andy Rendich, attributed “underlying costs” to the price increase.

Further Confusion

In addition to this unprecedented price hike, Netflix confused its customers even further when, shortly after the price hike, Netflix’s CEO Reed Hastings announced that Netflix’s DVD rental service by mail will now become an independent company, Qwikster. Customers will be sent two separate bills, one from Netflix and another from Qwikster! This last decision by Hastings appeared mind-boggling to consumers who adored Netflix for its simplicity of service.

Aftermath

Hastings and Netflix failed to convey a clear message to its customers as to why the prices were hiked, why the DVD rental and online streaming services were now separated and why Qwikster was created. Thus, it came to no surprise that since the first announcement in July, Neflix has lost over 1 Million customers. In addition, the current price of Netflix’s stock is $114.90, showing an alarming drop of 62% from its height of $298.73 prior to the July announcement.

PR Disaster

In response to consumer outrage and Netflix’s stock price plunge, Hastings sent an email to Netflix consumers to apologize for and explain Netflix’s separation plans. However, this apology may have complicated things further!

Below, are two excerpts from Hastings’s email:-

“I messed up. I owe everyone an explanation. 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. In hindsight, I slid into arrogance based upon past success.”

“A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa.”

On September 18th, 2011, The Netflix account on YouTube named “NetflixPublic”, released a video titled “An explanation and some reflections”, where Hastings and Rendich offer a very casual and insincere apology for the mishandling of the price hike announcement and the Qwikster confusion. This can be seen in the video below:

As a response to this apology, the popular show “SNL’s” Fred Armisen and Jason Sudeikis posed as Hastings and Rendich in an unaired Netflix “SNL” skit (video below), which offered a humorous rendition of the apology offered in the video above.

While the futures of Netflix, Qwikster, Nutflix (NOT Nutflicks), Qwakster and/or Nutqwakflikster remain uncertain, it is evident that the lack of transparency, greediness and poor PR cost the company its prolific stock price and most importantly, the loyalty of its customers.


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