Netflix price increase brouhaha: unnecessary outrage amplified

Thanks to Matt Wilson of Ragan Communications for getting me to think about Netflix and the tempest they created with a bungled service change announcement:

Did Netflix just throw their entire franchise away by bungling a price increase announcement? As I write this “Dear Netflix” is one of the top trending topics on Twitter and the comments on Netflix’s own blog post about the price increase makes it clear that their customer base is not happy and may well be a former customer base.

What went wrong? And how could this have been avoided?

First, I think it is important to understand that the lens of social media does not necessarily reflect reality very accurately. While it appears that Netflix is in deep trouble over this, I’m not certain this is the case. At the same time, the social media reaction also colors the response of others who may not be so exercised over this.

As Netflix customers we also received the email notice about the price increase. My wife relayed it to me and we briefly discussed that this seemed excessive and whether or not we would continue. But when I looked at the online comments my very moderate negative reaction became more like outrage. Yes, how could they do this to me, a loyal customer! Not only that, I found out what others were turning to as alternatives.

So not only does social media reaction tend to give a distorted picture of reality, it tends to feed the outrage. All the people who are upset are telling why they’ve wanted to cancel Netflix for a long time—like limited selection, not having the latest and greatest, etc. What may be worse they are informing those watching the discussion as to the alternatives and creating a sense that this is where the herd is heading next.

Summary:

1)     Social media outrage gives false picture of reality. I doubt that the reaction we see on social media right now is at all representative. I doubt that Netflix’s customers overall are reacting as strongly as it seems by looking at the comments. That means in an event like this you have to keep your cool, not over react, and keep an eye on the big picture without allowing the lens of social media which gives a distorted picture to cause a distorted response.

2)     Social media outrage feeds outrage. While the picture may be distorted, the outrage reaction amplifies feelings. My moderately negative reaction is much deepened when I look at how others are reacting. We certainly have seen this in other events including the Gulf Spill when outrage fed outrage. That’s why these reactions or over-reactions are still very dangerous and very important to avoid and deal with.

3)     Social media greases the skids of change. By that I mean it makes it much easier for me as a customer to consider alternatives. Those who are angry are telling me all kinds of reasons for dissatisfaction with Netflix—reasons I never had before. Plus, they are telling me where they are going. Redbox is going to see some big increase in business, just like some hosting companies did after Godaddy’s CEO stepped on himself over the elephant shooting business. Social media tells people why to be unhappy and creates a herd mentality relating to where they are going now.

So, what went wrong and how could this have been avoided?

1) Explain yourself. Their email explaining the change was pitiful. Here’s how its starts: “We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:”

Their blog post does much better but still comes across as incomplete and perhaps less than completely honest. It starts out this way: “First, we are launching new DVD only plans. These plans offer our lowest prices ever for unlimited DVDs – only $7.99 a month for our 1 DVD out at-a-time plan and $11.99 a month for our 2 DVDs out at-a-time plan. By offering our lowest prices ever, we hope to provide great value to our current and future DVDs by mail members. New members can sign up for these plans by going to DVD.netflix.com.”

Once I understood what they were doing, unbundling their service, I realized that my price was actually going down because I will use only the streaming service. But, when we got the email we discussed cancelling because it looked as if they were doubling the price overnight.

2) Involve your customers. It is hard to believe that a company like Netflix, born on the Internet, would do something like this without involving the social media crowd. Something like this should not be sprung on an unsuspecting customer base. Politicians call it raising a trial balloon, but social media makes it very easy to engage customers in big changes like this. They could have said, hey, we’re thinking about doing this, what do you guys think? Here are our problems and challenges, if you were in our shoes, what would you do about it? That would have smoothed the way, given them important information, and created defenders of those people who participated.

3) Offer to grandfather those who want it to stay the same. For many, the change may be good and well accepted. But for those who strongly object, offering to grandfather for even six months would ease the anger. But they probably would have figured that out if they had involved the customers in the first place.
The upshot: Netflix will survive just fine. Competitors like Redbox will see some gains but will only really see long term if they offer significant added value and communicate it aggressively. But this will cost them, in loyalty, in brand value, in loss of customers—and from my perspective, unnecessarily because of failing to either understand or think through carefully the implications in the era of social media amplified outrage.

9 thoughts on “Netflix price increase brouhaha: unnecessary outrage amplified”

  1. I don’t understand any defense of this nonsense. Currently, I stream ($7.99) and have one disc in the mail($2.00), for a total of $9.99 month. To remain under this plan I will now owe Netflix $15.98. That’s a 60% raise in price. Name me a company that can raise their prices 60% and NOT receive a huge pushback from your customers.

    I knew something was amiss: last week I called Netflix and asked them to explain their pricing. If I can stream unlimited for $7.99 and the first disc is $2.00, does that not establish the price of a disc in the mail at $2.00? Yes it does. So why, I asked would 4 discs in the mail (last week remember)+ streaming=$27.00? He had nonsense but no answers.

    I am certainly going to cancel. Gotta send them a message. Oh, and by the way, nice job on the phones, Netflix. After I got the email yesterday I tried to call them and the outgoing message was basically, “Call volume heavy, please call back. Click”.

    You cannot send them an email. You can send them an email from a templete but that templete did not include my disdain for their choices. Hey, pal, it was a good deal and you were getting over $120/year from me. Now? Not so much.

    Might I come back? I might. But this is a perfect example of a company losing their way. Like I said, you gotta send them a message. The stock is near $300 and it went up today. That’s fine. Stockbrokers and investors don’t comprise the bulk of the reported 23 million Netflix subscribers. And the world I live in does not readily accept 59%+ price increases.

    JOIN ME! CANCEL THE CREEPS! CANCEL YOUR NETFLIX SUBSCRIPTIONS!

    1. Well said. I cancelled right after I read the arrogant and dismissive comments made by the CEO. I keep reading articles saying netflix will b fine. But I truly wonder after their stock price has plummeted 34% in only one month.soon there will be much greater competition for streaming video. Blockbuster once thought they were invincible…look at them now.

  2. Hello.

    I have to say that I agree with you about the herd mentality. However, I would like to add that although all of Netflix’s current customers are just that, customers, sometimes customers choose between the lesser of two evils.

    My husband and I chose Netflix because it offered instant streaming over our game console and DVD by mail for a very good price. With this “unbundling package” we now have to decide between going with one service over another or increasing our costs 60% (when we are already on a tight budget). We had our reasons for choosing Netflix, but we also had our wishes/complaints (which were mostly met/solved with the DVD portion).

    For instance, the streaming portion is limited and a lot of choices are only offered through DVD. This becomes an even bigger issue, in that I have two hearing aids. Less than a 1/3 of the streaming selection comes with subtitles. This makes it very difficult to almost impossible for me to watch any of the streaming options. Hence why we need the DVD portion.

    So as much as we like the current package (streaming is a wonderful addition), the limited availability of both titles and then titles with subtitles means that if we continue our service, it will have to be DVD. And at that point, we need to question if the selection of older DVDs vs. only the newer releases (RedBox being our fall-back) is worth the cost.

    And you are right that if Netflix had asked for customer feedback it might have gone over just a little better. But I doubt it.

  3. I cancelled Netflix’s service upon receipt of their E-mail. No media involved in my decision! “It’s the economy stupid”, is a phrase worth pondering!

  4. I have the unlimited streaming and 1 dvd at at time deal at Netflix – since the announcement I’ve gotten a bad taste in my mouth. This all seems suspicious considering Blockbuster filed for bankruptcy late last year. From a business perspective – I’m trying to ponder such a crazy change they made.. . there are only two reasons I can think of:
    1. Their original product offering was losing money and they had to make a change to become profitable – if they did this on purpose to put Blockbuster out of business – it was a big mistake because they couldn’t sustain the price and then shocked their customers when they had to adjust to the price to actually make a profit.
    2. They got greedy and took their customers for granted.

    I’m inclined to believe option 2 since they have been a very profitable company and underpricing themselves to gain marketshare and attempt to monopolize the market would be a very costly business plan…

    At this point I’ll probably switch to the unlimited streaming only and then rent DVD’s from Redbox while looking for other alternatives over the next year….

    1. Netflix stock price nearly tripled in the last year. Certainly they were not living money. CEO arrogantly announced his projections of 1 billion dollars in the 4th quarter….after the price increase was announced. Their stock has already lost 1/2 of the gains previously stated. Are they planning on using some of that billion to address issues for their hearing impaired customers? I seriously doubt it.

  5. My Wife and I started using Netflix about 9 months ago. I had little use for online streaming at first because I am hearing impaired and the subtitles rarely worked. Although more subtitles are now available, I started using the streaming more often. I was very happy with my 2 DVD-per-month and streaming plan. But a very abrupt announcement about unbundling and a 60% price hike really left me with a feeling that I was being taken advantage of. This is not a Lords vs peasants country and making a change like like without even as much as a “by your leave” or a decent explanation behind it soured me on the service. I cast my vote and canceled my Netflix account this week. I will be using Redbox for the time being and it will be cheaper for me as well.

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