Say You’re Sorry; Don’t Sell Me

September 22nd, 2011

It seems that Netflix is getting things wrong left and right these days. First, they decide to raise prices during an economic decline. Second, they haven’t been listening to their customers who are leaving in droves to other services like HuluPlus and Amazon Instant Video. Third, the separate entities that subscribers will now have to deal with are not integrated into one another – meaning there will be two completely separate sites with zero cross-functionality and zero benefit for using both services. And if that weren’t enough, Hastings apology to Netflix’s users was half-hearted and misguided to say the least.

Instead of apologizing for the 60% price increase, Hastings apologized for not communicating the changes to his users more clearly. The backlash was instantaneous, generating 18,000+ comments on the blog. Consumers felt that his apology was thoughtless and insincere.

Dear Daniel,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the and websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

Hastings showed especially poor crisis communication skills when he wrote,

“When Netflix is evolving rapidly…I need to be extra-communicative…This is the key thing I got wrong…I messed up.”

When an individual feels the need to apologize, he should consider the person/people he’s harmed, the action that caused the harm and the healing process when all is said and done.  Apologies are meant to be used as a way to express genuine regret; however, Hastings’ apology backfired. His apology came off as a promotional tool for a service that customers aren’t sure they really want. Instead of apologizing outright to Netflix users and asking for forgiveness, he tries to sell them on the idea that two companies are better than one and that the price increase is for the companies’ own good.

Industry leaders like Hastings need to know that apologies should be used sparingly, not as selling tools. Hastings failed to realize this, which is why we’re offering a few extra points on how Hastings’ apology caused more harm than good:

1. His apology came a little too late. Hastings should have issued some statement justifying the price increase when it was first announced in July instead of giving customers two months to stew in their own anger.

2. He never fully explained why Netflix had to increase its price, leaving customers scratching their heads and closing their accounts. And his justification was geared more toward investors, not customers.

3. And to add insult to injury, he offers his current customers nothing for the inconvenience of the changes. Nothing to retain the users Netflix has, nothing to solidify the actions of his apology, such as a free movie rental, a discount, a free month of service. Nothing…

The only thing he did do was admit that he failed to communicate. But that isn’t enough to prove to your audience that you are a customer-oriented company and that you do care about having their business and keeping them happy.

Here at Braithwaite, we pride ourselves in having over 25 years of providing our clients with hands-on, crisis communication planning. Our three principles when handling a crisis and dealing with the media are: Validate the Concern, Control the Narrative, and Take Action. In Hastings apology, he does acknowledge that there has been a concern brewing for two months. What he doesn’t do is specify the right concern which is the price hike, not the failure to communicate. Also, he failed to control the narrative through his own blog. Netflix users have had time to think about the recent changes and were at the helm of their keyboards to give Hastings much needed feedback. And as was pointed out in #3, he took no action. He is leaving his customers high and dry, ignoring their anger and eagerly charging ahead with the DVD/streaming split.

Speak Up: What do you think the future holds for Netflix? How should have Reed Hastings broken the news to his customers?

Posted Under: Crisis Communications
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