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Posted on 09.23.2011

Netflix Splits and So Do Their Customers

If you’ve talked to an active Netflix user lately or kept up with the latest social media headlines, you’ve probably learned that Netflix customers aren’t too happy. Netflix, which has offered a simple DVD  movie rental and streaming package for years, recently decided to separate these two services and raise the prices of each. Netflix will become a streaming only company, while a new company called Qwikster will offer DVD rental. Reed Hastings, the Co-Founder and CEO of Netflix, explains the need for specialization as the reason for the split in his recent apology email sent to Netflix customers. Hastings states that DVD and streaming services are different services with different cost structures that need to be marketed separately and grown independently. Why are Netflix customers so upset? Hastings announced these service and price changes through press releases instead of addressing customers directly. Hastings acknowledged his mistake and apologized to Netflix customers in an email in which he said, “I messed up. I owe you an explanation.” But of course, a lot of damage had already been done. So what can businesses learn from Hastings’ mistake? Always communicate major changes in your business with your audience directly. Customers will appreciate hearing about changes or mistakes from you instead of the media. And if your business does make a mistake, apologize publicly and directly. Though Netflix customers are still not thrilled with the separation of the DVD and streaming services, Hastings has done a good job of admitting his mistake, apologizing to Netflix customers and explaining the situation. But, as Hastings has learned, it is better to announce your changes to customers beforehand, avoiding  - or at least limiting - the need for crisis communications. What is your take on the Netflix split? Would customers have received news of the division and price hike better if they had heard from Hastings first? Do you think Hastings was effective in apologizing to customers? Would you have handled the situation differently?  

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