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Ideas aplenty on how Netflix could win back customers

by Michael Tomko
Nov 01, 2011

When Saturday Night Live starts to poke fun at you, it’s either because you have done something incredible or because you have floundered.

For Netflix Inc. CEO Reed Hastings, it was because his DVD and video-streaming company has fallen into the latter category after making several serious missteps, beginning with a July announcement it would be hiking prices by 60 percent.

Since then, Netflix has lost 800,000 subscribers and found itself lambasted by customers and the media. The mess has left experts in marketing flabbergasted and the company in a desperate position to win back  customers. Everyone from crisis managers to marketers has an opinion about the best way to fix Netflix’s quandary, which has been compared to other marketing fiascos such as Coca-Cola Co.’s introduction of New Coke in 1985.

Some experts believe Netflix should humble itself further, while others think discounts and perks will lure customers back. But some may not return as competitors of Netflix look to pounce on every lost subscriber.

“The question to me is whether they can regain customer trust at a time when Amazon, Apple, and Google are upping the ante,” said Phil Simon, author of “The Age of the Platform: How Amazon, Apple, Facebook, and Google Have Redefined Business,” in an email interview.

While experts differ in the approach, the overall goal remains the same: regain lost subscribers.

“Tell consumers you're not looking to be a behemoth,” said Richard Laermer, CEO of RLM Public Relations in New York. “Show them you are a grassroots company still, or at least vying to be one. And ask customers what they want, run online contests and give away as much as plausible. Stop apologizing.”

David Koehler, a clinical assistant professor of managerial studies at the University of Illinois at Chicago, agrees that Netflix needs to offer discounts or perks and ask customers what they want.

Koehler would like to see the company offer a free month of the service to new subscribers while presenting a gift card to current subscribers who stuck with Netflix through the price increase. The company might even consider roll back the recent price hike to help regain customers.

While Laermer thinks Netflix needs to stop apologizing, others take the opposite approach.

“Netflix and their CEO specifically have to make personal gestures for loyalty and credibility. Public announcements and even apologies without a personal touch will not be as effective,” said Scott Sobel, president of Media & Communications Strategies LLC, in an email interview. The Washington D.C. company deals with crisis management.

Among Sobel’s solutions are offering discounts and having Hastings field questions and answers from customers.

Koehler agrees. “He has to admit that he made mistakes, and I think that moving forward, for shareholders, he has got to be able to craft a message that offers first of all stability and second of all managed growth.”

In Netflix’s defense, it has shown a willingness to listen to customers’ complaints. While still refusing to lower the cost of subscriptions, Hastings has backtracked on splitting Netflix into two separate companies for DVD and streaming.

In a note to shareholders last week Hastings said, “What we misjudged was how quickly to move there. We compounded the problem with our lack of explanation about the rising cost of the expansion of streaming content and steady DVD costs.”

But these admissions haven’t necessarily helped the company’s brand with customers.

“The back and forth screwed them,” Laermer said. “All its strategies for growth are out the proverbial window.”

Moving forward Netflix must develop a brand strategy, according to Rob Frankel, author of “The Revenge of Brand X: How to Build a Big Time Brand on the Web or Anywhere Else.”

“You've seen what happens when there is no brand strategy,” Frankel said in an email interview. “You're held hostage by rudderless, reactive tactics that have no perceptual rhyme or reason, with severe consequences.”

While Koehler notes that Hastings is no Steve Jobs, he did build a successful company that became the leader in the DVD and streaming industry. Along the way, Netflix’s stock price soared to more than $300. It closed Tuesday just above $80 per share.

“He always knew what the customer wanted, even when the engineers said no,” Koehler said. “The guy had an innate ability to provide something the market was looking for, and the other thing he did well was he cut his losses when he made mistakes.”

Which is why in hindsight the current missteps are shocking, though experts can still see a light at the end of the dark tunnel.

“I think they can get it back,” Koehler said.