Published on: July 14, 2011by Kevin Coupe
Yesterday, MNB reported that Netflix announced in an email to its customers that it is raising prices by 60 percent, with much of the hit being taken by people who gets DVDs by mail, as opposed to streaming movies and TV shows via the internet.
As the New York Times
reported, “What cost $10 a month — online streams of movies plus one DVD by mail at a time — will now cost $16 a month, the company said, tacitly acknowledging the high costs of mailing physical DVDs, but also admitting that many people still want the skinny little discs. Online streaming alone will remain $8 a month. Netflix advertised the change as a new choice for consumers.”
It appears, just 24 hours later, that a lot of consumers are making a choice ... and it won’t be good for Netflix.
Many Netflix customers appear to believe that the company has gone too far in this price increase, that Netflix has somehow violated whatever levels of trust existed between it and its customers. And these customers are choosing to longer do business with the company.
As of this writing, more than 55,000 people appear to have registered their displeasure on the Netflix Facebook page. (I’ve scrolled through a number of pages, and I can’t find anyone who says the price increase is a good idea or defends the company.)
The Wall Street Journal
writes, “The price increase caused a firestorm among Netflix customers online, who jammed the company's corporate blogs with mostly negative reactions, until maxing out the number of comments allowed on the site at 5,000.”
Here at MNB, we got a number of emails responding to the story - and my suggestion that Netflix may be forced to backtrack - that were noteworthy for their passion.
MNB user Tom Devlin wrote:I could not agree with you more on Netflix may change their minds on this decision. This Netflix price increase and change in strategy is going to go down has one of the top blunders in marketing and bad financial decisions in business history. As of this morning I know four people already in my office are canceling all business with Netflix. The main issue I see is separating the streaming and the DVD rentals. The timing is not right because there are not enough good movies available to stream. Classic movies like The Godfather still have to be viewed by mail delivery. Consumers would accept a price increase in the old program but this is just not smart business. Only time will tell.
MNB user Claire Penn wrote:I just love your articles and enjoy them immensely. I am so glad you addressed the Netflix price increase. It seems to me that Netflix, about a year or so ago, had a price increase. Didn't they? I seem to remember it going up from maybe $7.99 to the present (and going away as well) $9.99. My memory probably is failing me, however I DO remember what I did yesterday when I got that email saying the price would be increasing by $6. I immediately clicked on the link in the email and canceled my DVD service. I thought to myself, I am NOT paying for DVDs when I can get what I want at Redbox, Blockbuster etc for $1. My last Netflix DVD is in the mailbox as I type this email and I will continue to enjoy the streaming for $9.99. I also am a member of Amazon Prime and get free streaming on a lot of movies/tv shows that way as well.
I have a Redbox available to me TWO minutes from my house and right now I am going up to my theatre room to watch "Insidious" that I rented yesterday. I think this is a decision that Netflix will live to regret, but I won't be running back to them if they do. They can have their DVD rental program. I (and I'll bet a lot more like me) won't miss them!
And, from another MNB user:I will probably discontinue my Netflix subscription unless they scale back the rates a little. All the articles mention how Netflix says a lot of people still like DVDs. What they don't say is that a very significant percentage of Netflix offerings are still "DVD only".
From yet another MNB user:I, as it seems you do, value the DVD's more, however, this is strange, I tend to use the online streaming more. I suppose the reason for this is I am lazy and do not return the DVDs in time to always have a choice at home. In addition, the DVDs I get tend to be for me, while my spouse tends to not like my choices (of DVDs) which leads us to stream a movie. Make sense? This is just reality getting in the way of my vision of what things should be. Other than perhaps that marital issue which I will not bother you with, I was without an unwatched DVD the other night, and my wife unexpectedly out with friends (this means I get to watch some I want). I was looking to watch something on my queue list. I spent about 30 minutes looking through new releases to watch instantly and I did not find anything that was enticing. There were many movies that were DVD only however the choice of streaming videos was not good. Therein, for me, lies the problem. I will be leaving Netflix in September, although I have been a member of theirs for about 6 years. I thought they had a great insight on the consumer at that time, however to me, they are now just another shark at my entertainment dollars. I have many more choices nowadays, especially since I have a dedicated computer hooked up to the flat screen and my DVR. Just a thought, and besides it gave me a chance to watch Kelly's Heroes again....
MNB user Dave Stoll wrote:All right Kevin – It’s a pretty sad commentary when I feel my blood pressure rise, and my anger swell within seconds of reading the name Netfllx, when legislature at the state and federal levels don’t get a second look from me, but I’m human and an American. I received my email yesterday at noon, and my first impulse was (and still is) that’s IT, I am done with these guys, how dare they. I’m canceling. They are taking what I have right now, and with not adjustment, charging me 60% more. Now, I probably wouldn’t mind an increase if the streaming library were expanded. If you had the option of DVD or streaming a movie for ALL titles not just some of them. I like the streaming aspect, but when I stream I’m usually “settling” for what’s available. I have not had a single moment when I went to find a video, and cheered because my first, second, or third choices were available via streaming. I usually end up adding it to my queue, bumping it to the top over my son’s latest Lego adventure and hope that I’m still excited to see it when it arrives.
Then the striking blow! I went last night to cancel Netflix, remember I’m still pretty peeved six hours later, about this increase AND the other increase they took earlier this year. I go to cancel, and they state that the cancellation would be immediate and NO REFUND for partial months. I’m not sure about the rest of your readership, but do you know when I was charged for my most recent month’s service? Yep, MONDAY, and Tuesday I get the email!?! Unbelievable. So it’s good-bye Netflix, I was a loyal and faithful customer for 6 years. I am leaving and I’m not turning back.
Now, to be fair, not everybody’s service was renewed on Monday; I checked my bill, for example, and it does not come up for monthly renewal until the 20th.
This is all, I think, an eye-opening lesson for every retailer and marketer. The connection to the consumer, no matter how profound, can also be fragile, requiring nurturing and care. Shoppers who have made your product or service a big part of their lives will go along with you as you increase prices or change formulations, but only so far. And if or when they turn on you, especially these days, they may do so with enthusiasm that will be instantly communicated to thousands or millions of other people.
Netflix clearly sees a strategic imperative. But sometimes, odd as it seems, pursuing own’s own strategies actually can get in the way of how one serves the customers. That seems to be what has happened here.
Will Netflix back off? Maybe. Will it be too late? Perhaps. Will this be an irreparable hit on its reputation and remarkable run of growth? Hard to say.
But it certainly won’t help. And it is hard not to think that when Netflix made this decision, it did not do so with its eyes wide open.
A mistake that other retailers and marketers need to be careful not to make.