If you have been following business news in the last few months you know that Netflix is going through rough times. Their loyal customers are cancelling accounts in droves and the stock price that was around $300 just 6 months ago is now hovering around $70, wiping out almost $10 Billion in market value. Ouch!!
So what happened? Well, everything that could go wrong did. On one hand, the business of movie rental is going through massive shift – from DVD to streaming video and the competition is increasing with large companies including Apple, Amazon and Google entering the market. On the other hand, Netflix picked wrong time to make changes to their business model and made big gaffes in communicating to their customers.
Make no mistake. Netflix was and still remains one of the most innovative companies. After all, they disrupted the movie rental business and drove Blockbuster, along with smaller rivals, into bankruptcy. What happened to them could happen to any company if they are not careful. But there are important lessons to be learned from their mistakes to ensure you don’t end up in similar situation. Let’s look at them one at a time.
- Run a pilot with focus group before making large-scale changes, especially the ones that directly impact your customers. It is a known fact that we humans don’t like changes to our established routine. When the changes are of the scale that impact large swath of your customer base it is paramount to run a pilot to understand what your customers think and where resistance is coming from.
- Prepare your customers for big changes. Granted that you cannot solely let customer focus groups determine direction of your business. However, if you do decide to move forward with the changes it is important to plan it well in advance and prepare them for the upcoming changes. Do not drop the bomb on them without advance warning.
- Do not make too many changes at once. Do small incremental ones and see how customers react. In short span of few days Netflix announced separation of DVD rental and streaming plans, increased the price and decided to split the company into two. Changes of this magnitude left their customers bewildered as to what the company they loved so much was up to.
- Communicate, Communicate, Communicate. We cannot emphasize the importance of communication during times of upheaval. When customers are in the dark about what your company’s plans are they will assume the worst and start abandoning you.
- Be prepared to apologize and take back the changes if there is a large backlash. Netflix did rolled back changes after learning about customer revolt, albeit only partially. Do not hesitate to swallow your pride, accept your mistakes and backtrack. History is rife with companies doing this. Remember the new logo Gap rolled out in 2010. How about New Coke fiasco that Coca-cola went through.
- Finally, under promise and over deliver. Netflix gave made its name by giving customers more than they had expected in terms of movie selection and customer experience. With the new plans and site the customers felt they were getting less, while paying more. Small business owners should never end up in this situation.
What do you think? What lessons can be learned from Netflix?
Netflix just arrived here in Ireland and I signed up, had I previously read this post, maybe not! If they failed so badly to listen to their customers, you have to wonder about the management, really?
Absolutely! Small businesses are in a much better position to listen to what their customers want — and since they’re so flexible, the can move much more quickly if they find they are deviating from what the market expects (rather than having invested a great deal in moving in the new, possibly unwise direction).
Wow, I had no idea Netflix was in so much trouble. But I guess we don’t have it in Australia.
At the end of the day, these are important lessons for EVERY business. Listening to what your customers want is paramount. And with social media now, it is possible to easily and affordably do exactly that.
It will be interesting to watch what happens next…