Netflix’s 2011 case is an illustrative example of how customer communication errors can lead to unfavorable outcomes. Reed Hastings and Marc Randolph co-founded Netflix as an entertainment provider company in California in 1997 (Bigus & Seitjs, 2012). The company was initially successfully functioning as a rental service for VHC tapes and DVDs, mailing copies to customers (Bigus & Seitjs, 2012). Later, they added an online streaming service included in the total price with a mailing subscription, increasing customer satisfaction. However, everything changed in 2011, when the company announced splitting its DVD-mailing and online streaming options into two companies, Qwikster and Netflix, respectively (Bigus & Seitjs, 2012).
Furthermore, the company’s separation meant a rise in the cost of both services, totaling $16 for two services, which was about 60% higher than the old price (Bigus & Seitjs, 2012). Since all the company’s actions were poorly communicated, a wave of adverse reactions on social media arose, making the company’s officials publicly apologize for their actions (Bigus & Seitjs, 2012). However, many customers lost trust in the company and unsubscribed from its services.
The loss of customer trust can be detrimental to entertainment delivery services. In Netflix’s case, the increase in the price and not communicating this information to the subscribers caused massive refusal to use their services. The customers left thousands of excoriating comments and messages on Netflix’s social media pages (Bigus & Seitjs, 2012). Despite an apology letter and video from the company’s CEOs, the customers’ trust was not regained, which resulted in more than seven percent revenue loss in one day.
Indeed, the company was at the point of failure that originated from poor customer communication about monetary policy alterations. However, if the CEOs initially chose a different approach to this issue, reassuring subscribers that using Netflix services would benefit them could quickly resolve this problem in 2011.
Proper customer communication ensures firms’ success in the market and prevents misunderstanding about their policies. The term used to define a company’s strategies to increase customer network and increase profit is relationship marketing (González-Chans et al., 2020). The long-term goal of relationship marketing is to ensure that every current and future customer receives a sense of personalized approach through advertisement (González-Chans et al., 2020). Indeed, social media, in the present day, enables the success of relationship marketing.
Moreover, the timely announcement of any economic changes related to a company’s product with suggested steps to facilitate a comfortable transition to new prices avoids consumers’ dissatisfaction. For example, European Central Bank recommends that clarifying any alterations in financial operations in unconventional times allows for maintaining the bank’s transparency (Coenen et al., 2017). This approach applies to many other organizations that trade products or services. If Netflix considered the importance of timely announcements of price changes and relationship marketing in 2011, it could have prevented the scandalous boycott of their services at that time. However, since the incident was not stopped, it could have been managed differently afterward.
Customers always want to know about any changes in the price of a product they are accustomed to using. Therefore, the first strategy for Netflix to regain consumers’ trust could be an early announcement of the service cost alteration. However, it may seem impossible to make early notifications after changes have been made. One way to resolve this issue could be to postpone this increase in price for one month after the announcement and apology letter.
A delaying rise in price would allow the consumers to adapt to this situation and accept changes in streaming services costs more peacefully. A personalized approach is essential for maintaining community support for the brand (González-Chans et al., 2020). Therefore, Netflix should have sent an email notification to all subscribers to ensure that the company cares about a comfortable transition to the split of service and price change for every customer. A personalized approach with timely announcements could have prevented a wave of anger against Netflix on social media after the 2011 service fee alterations.
Another approach that could be used to resolve Netflix’s case is rewarding loyal customers for maintaining subscriptions. The rewards could vary from one month of free service to monetary bonuses transferred to the subscribers’ accounts. This strategy could help build a supportive consumer network on social media, balancing exaggerated adverse public reactions with positive ratings from awarded users. Demonstrating a high commitment to the consumers’ needs and concerns enables high customer retention (González-Chans et al., 2020).
Furthermore, engaging content and advertisement of the company’s services always capture attention, creating a network of interested users (González-Chans et al., 2020). Therefore, the promise of bonuses and rewards should have been done soon after an apology letter from the CEOs. An entertaining video with the announcement about additional bonuses for retaining Netflix’s subscription could overshadow the news about the price change, allowing to regain customers’ trust.
Overall, Netflix’s case of failed communication with the customers resulted in adverse outcomes for the company. Two possible ways could resolve this issue after Netflix increased the cost. The first is delaying monetary changes for one additional month after the appropriate announcement to allow consumers to accustom to the new price. The second way is to build a network of Netflix’s supporters on social media by providing loyal subscribers with bonuses. Furthermore, the notification of rewards and prizes for the customers delivered engagingly via social media could alleviate the negative reaction to the price alterations and service split.
References
Bigus, P., & Seitjs, J. (2012). Netflix: The public relations box office flop. Ivey ID: 9B12M049. Ivey Publishing.
Coenen, G., Ehrmann, M., Gaballo, G., Hoffmann, P., Nakov, A., Nardelli, S., Persson, E., Strasser, G. (2017). Communication of monetary policy in unconventional times (ECB Working Paper No. 2080). European Central Bank. Web.
González-Chans, C., Membiela-Pollán, M., & Cortés-Cuns, M. (2020). Relationship marketing and brand community: The case of Netflix. Revista de Marketing Aplicado, 24(2), 251-274. Web.