Netflix: What Worked and What isn't Working

THE SITUATION: Netflix announced a new pricing plan over the summer that resulted in a substantial increase for most of its customers. CEO Reed Hastings recently sent customers an email acknowledging that he "slid into arrogance," and apologizing for the fact that "many members felt we lacked respect and humility" in making the pricing change.

Yet the company did not reverse its price increase. Instead, Hastings announced that Netflix would be split into two companies, with a new entity, Qwikster, assuming DVD distribution, and Netflix focusing exclusively on video streaming. Social media feedback suggests that many customers are still feeling alienated and hostile, due to the changes. The company's stock price is way down.

THE MARKETING TAKEAWAYS: 3 best practices to emulate and 3 mistakes to avoid.

BEST PRACTICE #1: Apologize when it's clear that the Voice of the Customer is signaling broad dissatisfaction with something you did. Netflix did this, and even though many customers felt that Hastings's apology didn't go far enough, the company deserves credit for issuing it.

BEST PRACTICE #2: Offer a human face when you apologize. Netflix did this too, and Hastings should be commended for putting himself front and center, rather than hiding behind a committee or logo.

BEST PRACTICE #3: Give customers the chance to keep the dialogue going. Although much of the feedback is still strongly negative, Netflix appears to be doing a good job of letting people express themselves. It is not, for instance, trying to lecture, or censor visitors to its Facebook page, like Nestle did.

MISTAKE TO AVOID #1: Not building the Voice of the Customer into the planning process. It is obvious that Netflix wasn't listening to its customers when it set up its new pricing. If they had been listening, then (at the very least) they wouldn't have been caught flatfooted by the intensity of the consumer anger.

MISTAKE TO AVOID #2: Not acting promptly when customers have identified a problem. Netflix took far too long to provide a high-visibility response to the immediate, widespread customer dissatisfaction. The months of inaction cost the company dearly, in terms of customer losses and stock value.

MISTAKE TO AVOID #3: Making up a strategic plan as you go along. There are disturbing signs that the huge new branding decision, namely splitting Netflix in two, was not thought through. The Qwikster web site is, as I write these words, a holding page with no content, and an embarrassing series of Twitter posts have spotlighted Netfix's failure to figure out who actually owned the handle @Qwikster. The company has been firing off initiatives with major strategic implications, but appears to be supporting them with minor-league planning. As a result, Netflix is creating, and then having to manage, a series of PR nightmares.

CONCLUSION: Netflix still enjoys a huge, largely loyal customer base. The current turmoil is not necessarily representative of all Netflix customers, but this sure isn’t helping the brand! The alienation, frustration, and hostility the company is currently navigating may be a short-term problem that eventually dissipates ... or it may signal a deeper disengagement from customers that creates major openings for the competition. Stay tuned.