The latest chapter in the NetFlix situation is a good lesson in the importance of the rule that it’s not just what you do, but how you do it, in terms of perception.
Specifically, the handling of the short-lived and now defunct “Qwikster” project, NetFlix’s attempt to split their DVD rental business off onto a separate brand has been an abject failure. Certainly it’s been a failure from a business and customer satisfaction point of view. NetFlix has had to completely reverse direction based on another wave of customer ire and dissatisfaction. Reversing direction on a major initiative like that is never a success.
Beyond that though, the entire Qwikster episode, from start to finish, has caused an important hit in terms of perception by making NetFlix look like they don’t have a plan and are making major decisions without thought, deliberation, and research. It’s one thing for your image to take hits around customer satisfaction and even “being out of touch”. But for people outside to look at you and start saying “What the heck is going on there? Who’s making these decisions and how are they making them” hurts a business’ image at very fundamental levels. It shakes or even shatters the trust people have in the leadership of the company. That’s particularly bad from an investor relations point of view: if these major decisions are being made in such a reactive, ad hoc manner, why should you expect the company will respond any better to future challenges?
All major reversals like this have some degree of reputational damage around leadership. Whether it’s “New Coke” or the Microsoft KIN, major reversals have led outsides to ask how those failed decisions were made. But the Qwikster episode has been executed in a way that makes these questions more acute. It was clear at the outset that the decision to spin off Qwickster was a rushed, reactive plan.
One need only look at the debacle around the Qwikster Twitter handle where the handle wasn’t under their control and in fact was already being used by someone Tweeting on topics no marketing person would want associated with a brand new brand. That said clearly that this wasn’t a planned launch at all: it was a reactive, ad hoc decision.
That misstep could have been overlooked and eventually forgotten if Qwikster had been a success. Sometimes companies have to move quickly and the furor that NetFlix was facing over their new fees was intense and clearly they felt they had to do something. But rather than quell the customer anger over the fee changes, this decision stoked it even more. And so in less than one month, they’ve had to suddenly reverse their previous hasty decision. And now, in addition to the customer anger over the fee increases (which still hasn’t abated), NetFlix now has to cope with serious questions about their decision making process and capability. That hit to their reputation comes through loud and clear in this Wall Street Journal article by Stu Woo and Shara Tibken:
While investors and customers expressed some relief Monday, concerns still remain about Netflix’s recent actions and future. Adam Hanft, chief executive of consumer marketing and branding firm Hanft Projects, said it is difficult to understand Mr. Hastings’s thought process in planning to separate its businesses.
“He’s usually a much better chess player than this,” Mr. Hanft said. “It’s a total blunder, and he misread consumer intentions and interest completely. … It’s clearly a company that’s lost its way, which is unusual for a CEO with a pretty firm grip on things.”
What should NetFlix have done differently? It goes back to planning and the original fee increase announcement. Delivering negative or potentially negative news should be carefully planned. The decision makers should work with those who work most directly with customers to understand the likely response. They should also work with industry experts and analysts to understand the likely response and pitfalls. Then, they should build a plan to mitigate the risks that are identified. In this case, a plan for what to do if customer response is so overwhelmingly negative that they suffer major losses in customers. And if the worst happens, you break out the plan and implement it. You show that you’re adaptable but that you are in control and have a direction. This underscores why it’s so important to involve people with expertise in crisis communications and reputation management in the planning for major announcements: we can help you identify the risks and plan for them.
In the case of NetFlix, I would have recommended that their recovery plan around the fee announcement involve giving customers options around the fees. Either more granular ability to limit the impact of the fee increases or a promise that they won’t raise fees for some set period of time. And if the fees are driven in part by fee increases by the content providers, they should have been more up front about that. Customers don’t like but understand when you have to pass on increased costs from your suppliers. And, anyway, there’s few industries that already have as bad an image as the large entertainment conglomerates.
NetFlix now has to start working to repair its relationships with its customers and rehabilitate its image around corporate decision making. A first step in that latter process will be to do all they can to make the next major step they take a success. Hopefully they’ll do better planning for that next step.