Learn Two Business Lessons from Netflix’s Mistakes

Since July, Netflix has lost 1 million subscribers. Reed Hastings, CEO of Netflix, emailed and blogged an apology, an explanation of Netflix’s July price increases, and the announcement that they are splitting up the DVD and streaming businesses. Will Hastings’ apology pacify Netflix’s remaining consumers?

Mark Stiving, pricing expert and author of Impact Pricing: Your Blueprint for Driving Profits (Entrepreneur Press), believes forgiveness is unlikely. He explains, “Netflix broke severe pricing rules including one golden rule—not putting themselves in their customers’ shoes.”

Stiving urges businesses to learn from Netflix’s mistakes and offers these pricing lessons:

Avoid price increases to existing customers

“Customers HATE price increases.  When Netflix raised prices by up to 60 percent, they showed a disregard for their customers,” states Stiving.  “Read some customer comments on blogs about Netflix.  This is a great example that price increases, executed poorly, cause visceral reactions.”

Some of the customers Netflix lost are upset with the company, but others are logical consumers who decided Netflix was no longer worth it.  The lesson is:  price increases cause customers to revisit what used to be automatic decisions.  Most Netflix customers likely paid their bill monthly without thinking about it.  The price increase motivated customers to revisit that decision.

Don’t Destroy Value

According to Stiving, since the negative backlash of their price increase, Netflix has made their product worse.  “They make it so every customer who used to go to one web site for streaming and DVDs now has to go to two websites to manage their preferences.”

Netflix customers used to go to the Netflix site and see how their movie of choice was available.  Now customers have to start at the streaming site and then go to the DVD site if streaming doesn’t have it.

“Almost everything a company does should be intended to create value for the customer.  Price simply captures whatever value the company creates.  When companies destroy value, price has a hard time making up the difference,” says Stiving.  “It’s likely that Netflix will see another wave of customers unsubscribe.”

Mark Stiving, Ph.D., www.MarkStiving.com, is a pricing expert with 15 years of experience speaking, writing, coaching and consulting to help firms increase profits through value-based pricing.  He is the author of Impact Pricing: Your Blueprint for Driving Profits. Read more from Stiving at www.pragmaticpricing.com.

SOURCE Entrepreneur Press

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