On Wednesday, Netflix raised prices from 25% to 60%, setting off a tweetstorm of protests from consumers, with many threatening to cancel their subscriptions.
So first a couple of comments on what they did, before I address how they did it and my personal response.
It’s still a free market
Although there is a lot of speculation on why Netflix leadership felt the need to impose such a high percentage increase, we really don’t know, and it really doesn’t matter. Netflix is entirely within its rights to raise prices. And it is a legitimate decision. I once led a consulting project for a bank where we helped their small business customers understand the impact of a price increase on their bottom line and what percentage of customers they could afford to lose and still be more profitable. It is quite an eye-opening experience that I highly recommend.
At the same time the consumers are entirely within their rights to protest the increase and/or cancel their subscriptions. This is the market responding – and what the market says isn’t always what the market does. Financially, Netflix could still walk away with increased profitability. I doubt they’ll walk away with increased good will.
“Didn’t these guys take Psych 101?”
The above quote comes directly from Brad Berens’ insightful post on the same topic. If you read the post announcing this price increase, you can practically smell the condescension and marketing speak. No honest explanation, no humility, no “we know we’ll lose some of you and are sorry to see you go.” It’s almost as bad as the CEO, Reed Hastings’ ill advised NYT’s op-ed piece from 2009 bragging about the “eye-popping amount of money” he is paid and pleading for higher taxes.
Then, when the backlash begins, the entire company collectively sticks its head in the sand. I predict that this is going to inspire dozens of “How not to do social media” case studies within weeks if not days.
“Dear Netflix” is a trending meme on Twitter and there are over 11k comments on Facebook and 5000 comments responding to their blog announcement. It’s been over 48 hours, and there hasn’t been a public response to the backlash on any social media outlet I can find. The last tweet was at 10:22 July 12 announcing the price increase.
In today’s WSJ, Steve Swasey
… a Netflix spokesman, said the company isn’t surprised by customers’ reaction, though he argues the service is still a good deal even with the price increase. “We anticipated hearing from members about their concerns,” he said.
Really? You anticipated this?
Despite his protests to the contrary, these guys clearly did not see this coming and 48 hours late still don’t have a plan to address it. They did do two smart things however.
The first was not turn off the comments. I’m not sure if that is an insightful approach to making sure they receive unfiltered feedback from their consumers, or just a byproduct of having too much sand in their ears. I have my suspicions, but either way it was the right thing to do.
The second thing they did was to make the price increase effective after September 1 for existing customers. There will be some percentage of customers that will wait to cancel their services (since they don’t allow pro-rated refunds) and forget to do so before the deadline. Not sure it’s a good customer service move, but it will probably help them save a few dollars.
After reflection, maybe one of those is just dumb luck and the other is just calculating. Time will tell.
But what to do?
I’ve been a Netflix customer for years; since shortly after they opened. Often with 2 DVD’s gathering dust for months on top of my VCR. I thought for a while that I would wait and see if there was a rollback on this decision before deciding if I would cancel or not. However, to Brad’s point, upon examining the value I receive vs. what I pay for, I’ll be canceling my account just as soon as this month is out. I already pay for Xfinity, HBO, and Amazon Prime and I barely use Netflix.
Thanks Netflix! Now that you’ve brought it to my attention, I can use that $180 a year somewhere else!