The Netflix mea culpa: Did it work?

Oct. 10th, 2011

You can learn a lot about someone by how they apologize. The same is true of CEOs trying to save face.

Case in point: Netflix CEO Reed Hastings' recent letter and video to customers apologizing for how his company botched its service and pricing changes. Looking at the nearly 30,000 searing comments on Netflix's blog, I'm not sure his mea culpa did the trick.

So how did Netflix fumble, and did Hastings' remorseful communications achieve their objectives?

Recap

Netflix ignited a fury among customers over the summer when it announced plans to split its DVD-by-mail and streaming-movie services. The kicker was Netflix's decision to discontinue its free movie streaming, which until that point, had been bundled with its DVD-by-mail service. This meant that a Netflix customer paying $7.99 a month for one DVD and streaming movies would soon have to pay $15.98 for the same service. Ouch.

There are two issues at play here:

  • Netflix's business decision to change its service and pricing, and
  • How Netflix communicated (or didn't communicate) these changes to customers

Why the fury?

Like many loyal Netflix customers, I was annoyed to learn that my service—which I've paid for more than a few times without ordering a DVD, by the way—would soon double because, well, I didn't exactly know. Hence this blog post.

The problem with the price change is this: It's tantamount to Netflix backing out on an agreement—a deal—it made with customers. Now Netflix wants to change the terms of that deal because its fiscal situation changed. I know, It's only business and I respect that. But do you think Netflix lowered the price for all its customers who are out of work during these tough economic times? Because, you know, their fiscal conditions changed? I doubt it.

AT&T didn't raise its monthly data charges on its existing customers (like me) when unlimited data plans became untenable. AT&T honored its agreements with existing customers. Netflix should do the same.

Now for the letter

Hastings' communications offer some good takeaways on how NOT to apologize to customers. But he did one thing right, so let's give credit where it's due. Hastings came right out and admitted he screwed up. "I messed up," he said. "I owe you an explanation." Commendable. But from there, the letter went downhill. Here's my critique, framed in some familiar content categories.

Communications strategy

Grade: F

It doesn't appear that there was a strategy. Unless you consider a 151-word explanation in a press release a strategy. So in this category, Netflix fails.

Lesson learned: Have a rock-solid communications strategy before you double prices on your customers. See below for more details.

Communications execution

Grade: D

This near-failure on execution is a triumvirate: Netflix failed to anticipate the impact of its pricing and service change, overlooked the importance of communicating it well, and Hastings waited a full two months and five days before explaining it to customers. The PR battle was over before it began. If anything, this demonstrates a major ignorance of how today's social-media driven communications cycle works. Or it was arrogance. Either way, it was bad form on Netflix's part.

Lesson learned: Assume the very worst reaction when doubling prices on your customers. And if you have to do it, plan the smartest, most transparent and timely communications plan possible.

Voice and tone

Grade: D

Hastings' tone leaves something to be desired. It alternates from self-pitying and apologetic to defensive, cute and didactic. In a section about the new business model, Reed writes: "There are no pricing changes (we're done with that!)." His tone suggests that he and I are buddies and I'm supposed to think, "Oh Reed, you little devil, you!" He tried to work in some customer benefits, but that didn't work either.

Lesson learned: If you have to communicate bad news to customers, don't wait two months. The longer you wait, the more defensive you have to be. And don't try to diffuse the message with cute phrases or sarcasm. Be direct, honest, and to the point.

Style

Grade: D

Stylistically, Hastings' letter was standard fair: a straightforward apology written in first-person narrative—no imagery, creative fonts, etc.  Sure, it's important to communicate the apology in an unencumbered, humble fashion. But at the same time, it seemed bare and devoid of creativity. I didn't read a single phrase that resonated with me or made me sympathize with Netflix's plight.

Lesson learned: Eloquently written text can make the medicine—or the message—go down a bit easier.

Companies are run by humans and humans make mistakes, so it's understandable that Netflix "messed up" in dealing with a difficult business challenge. But the problem lies in how Netflix and its CEO communicated to customers in the aftermath. Yes, "what" you say matters a lot. But if this episode proves anything, it's that "how" and "when" you say something means just as much.

Update: The fall-out from the recent announcement continues. On October 10, Netflix announced that it's abandoning its plans for Qwikster, the intended spin-off of its DVD-by-mail service. Members were unhappy about the idea of two websites, so Netflix.com will remain the place to go for streaming and DVDs.

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