By Jim McCarthy Oct 10, 2011 0 comments

I wonder how much I could buy the domain ‘qwikster.com’ for?

Not that I’d really want it.  I’m just gob-stopped at the way Netflix has handled itself over the last couple of months.

Netflix is a strong company with a clear sense of the future and a vision for how to get there.  I’m a fan, though not as much of the product itself as I am of the business.  I want businesses like Netflix to exist and succeed.  These days, especially, we need the strength that an innovative company who’ve achieved some scale can bring to the economy.

But I have to say, the communication about the price change has been stunningly amateur, and it’s a worthwhile lesson.  Let’s look back at what happened:

-In July, Netflix announced that the price for DVDs and streaming was going up about 40%.  Wailing and gnashing of teeth ensued.  The company explained in the announcement that it was “better reflecting the underlying costs and offering our lowest prices ever for unlimited DVD” by raising the price.  True, though naturally people hated that.  Suddenly, Netflix, which had been a customer favorite, was getting bashed from every side, and even the stock suffered.

-So in September, Reed Hastings offered an apology for all that.  Well, kind of an apology.  At least, at the beginning, it sounded like an apology because he said “I messed up. I owe everyone an explanation.”  What you would expect to follow, if he had ‘messed up’ was some kind of corrective action.  Yet, rather than corrective action, he was in fact announcing that not only would you pay more for both services, but you’ll also have to do that on two separate websites, Netflix and the unfortunately named Qwikster.  A better opening line to the letter might have been “Things are worse than I even told you back in July.”  It was truly disingenuous to frame the letter as an apology when in fact he was not only NOT redressing anyone’s grievances but actually throwing an unexpected second handful of salt in the wound.  Truly, this was shocking to me.  It compares so unfavorably to well-handled mistakes like the Tylenol re-launch or the New Coke debacle back in the 80s.  These were monumental screw-ups, but when the companies said they were sorry and would fix it, they showed they were serious.

-And then today, the announcement came down that Qwikster is dead.  Good riddance, I suppose, but this episode feels dishonest and weird.  Even in today’s post, something bothered me, and it’s this: “While the July price change was necessary, we are now done with price changes.”  Are you sure you want to say that, Netflix? What happens in a year or two if you need to make another change?

With due humility and the benefit of hindsight, here perhaps is how the price change should have been announced:

“Thank you for your support and patronage over the years.  Without our customers, Netflix wouldn’t exist.

I have the unfortunate obligation to tell you that we’re increasing our prices because the cost of delivering physical DVDs is so great that selling the combination of streaming and DVDs by mail costs more than we’re currently charging.  We believe that over time, we’ll be able to deliver more and more content online so that the cost to most consumers won’t be more than it is today, but until that time, it will cost more if you want both of these services.  We hope you understand, and we’re sorry that this step is necessary.”

Yes, people would have freaked out, and yes, they’d have been mad that the price is going up, but if it’s the sensible truth, it’s the truth and people would at least feel they’ve been dealt with honestly and given a reasonable explanation.

The lesson I take away from this episode is the following: if you have bad news, deliver it all, quickly, in as unadorned a fashion as possible, with a straightforward explanation and your sincere regrets.  Then put on your hard hats and seat belts to weather the storm, if there is one.

If it turns out you were wrong, here’s the lesson for me there: admit you were wrong; say you’re sorry, and then say what you’re going to do to fix it.  Don’t say you’re wrong, but…

Netflix, I hope, will recover from this, but they have tarnished the trust customers have in them (as brutally evidenced by this graph), and that’s bad.  We don’t strong companies getting weaker.  If you were building an economy on RedBox or Netflix, which would you choose? One’s a reductive step backwards (with a sharp business model, no doubt), and the other’s an amazingly bold attempt at something new and better.

We’re still rooting for you, Netflix, but this is the kind of thing you need to avoid doing again.

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