Netflix: What Went Wrong?

February 13, 2012  |  Posted by in Sales Training
 

Reed Hastings of Netflix

Traditional wisdom holds that we learn from our mistakes, but it is much less painful to learn from the errors of others.  One such opportunity came this past year when Netflix showed the world just how wrong things can go when an individual/company forgets or ignores some very basic rules of successful selling.

At the beginning of the summer of 2011, Netflix was on top of the world. In 2010 its stock price had gone up 219% and between March 2010 and April 2011, it had increased its list of subscribers from 14 to 23.6 million. And then…

On July 12, Netflix announced it would be separating its streaming video and DVD-by-mail services into two completely different entities, with separate pricing, billing and registration. Customers who had been paying $7.99 for streaming video with a $2 add-on DVD-by-mail option would now have to sign up for two separate services, costing $7.99 EACH.

To add insult to the 60% price increase and major added inconvenience, these changes were introduced and justified in the Netflix corporate blog, which read, “…the $2 add-on to our unlimited streaming plan neither made great financial sense nor satisfies the people…”  Clearly the author was completely oblivious to the customer outrage that was about to follow.

What was Netflix thinking? At Carew, we’d say that Netflix leadership failed to recognize or acknowledge their customers’ “Operating Reality;” instead, they were functioning in their own “Odds Are.” Customers were clearly happy with the service and frankly did not care about Netflix’s poor financial sense. Netflix failed to Explore in order to identify what really mattered to their customers: convenience, a fair price, and integrity. Instead, Netflix focused on what was important to them.

As could have been predicted, the customer outrage began immediately.  To quell the outrage, Netflix management started Listening to customers and taking them seriously, right? Nope. In September, Netflix CEO Reed Hastings posted an explanation/justification for his actions via a rambling corporate blog. Hastings spent 1,127 words to essentially convey two points: “You might have misunderstood why we did this…” and “Maybe we should have said ‘Pretty Please with Sugar on Top!’”  On the company’s behalf, Hastings Responded without Acknowledging customers’ grievances or Exploring to uncover the depth and power of their objections. As evidenced by 27,969 negative comments to his blog, Hastings’ response was perceived as arrogant and completely unacceptable. The internet was quickly filled with derisive comments about the new product structure and feedback by irate customers over what they saw as a callous non-apology.

By late October, Netflix had lost 800,000 US subscribers and about two-thirds of its stock price… as well as an unnamable amount of trust and good will. That’s an incredibly high cost (and predictable result) of failing to focus on the customer.

In Carew sales training programs, we focus on the communication skills of each individual sales professional, as we understand the impact of these skills on his or her overall sales performance.  This cautionary tale illustrates that these same communication principles apply at the organizational level and all the functional areas therein.

Can you recall a situation with a customer which required some serious anger diffusion? Were you able to resolve the situation by placing yourself in your customer’s “Odds Are”? Did a process of Listening, Acknowledging and further Exploring the conflict allow you to Respond, rather than react, to the situation?

As part of our ongoing commitment to professional development, Carew International publishes a regular blog to provide timely advice for optimal sales performance.  To learn more about Carew’s incomparable sales training programs, sales leadership training and customer service training, visit our website at www.carew.com.

All content and training concepts are the intellectual property of Carew International, Inc., and any reference to these concepts must include a statement of express ownership by Carew International, Inc.

 
 
 

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