The answer — it’s quite possible.
You may have read at some point over the past few weeks about the slow unfolding of Netflix’s new brand direction and subsequent blow-up. The company raised its rates by 60 percent and created two separate companies (Quikster and Netflix). Public backlash was immediate, and the damage control ultimately led to a near reversal of the changes (save for the rate increase).
The result? Customers are leaving in droves, some estimate 700,000 or more this quarter. The stock is dropping, and the company doesn’t look like it can stop the fall. Or can it?
Netflix lost sight of its brand’s real strength at some point along the way. The company delivered the message that rates were going up by way of a scrambled brand split … followed by an ineffective apology when customers responded negatively to the changes.
Some may be surprised to know the company has been around as long as it has (more than 10 years). Throughout that decade, Netflix could do almost no wrong. The business model managed to kill off a great deal of competition in that time. Brick and mortar movie rental stores, from Blockbuster to the mom and pop shops on every corner, dramatically went out of business.
What was it that made Netflix so appealing? Was it just the cost, or was it the ability to have a much larger catalog available than any local shop could manage? Remember trying to rent a new movie at Blockbuster and they were all out? That is rarely the case with Netflix — the business experience itself changed the way we looked at rentals. We moved to a queue mentality and were provided transparency on how long it would take until we would get what we wanted. Being able to build a list always provided a title on our doorstep, whether it was immediate or not. Netflix supplied our demand and made it very easy to do business with the company.
Blockbuster didn’t make money on the rentals; it made money on the late fees. Not the case with Netflix. Customers can keep the DVD as long as they want, and the subscription model allowed heavy users to add value to the monthly fee by turning the DVDs around frequently, a barrier that would have been a problem if you had to pay for shipping, which Netflix also included.
Netflix turned the entire experience of renting movies on its head. The company makes it convenient (delivery to your door), no penalty for forgetting or being unable to return the movie (fitting to customer lifestyles), provides a much wider range of available titles and allows customers to create their own price model (through various levels of subscriptions).
It’s generally ok to lose people over price if your brand position isn’t just being the cheapest in the market. Netflix’s real strength isn’t the cost — it’s the experience. Loyalty based on a dollar or two isn’t really loyalty at all. Compared to the other available media delivery services, Netflix is still a great choice.
Nobody is sure yet where those 700,000 plus customers are going, but I’m willing to bet a large number will come back after trying other sources. Sometimes it’s worth a couple of dollars to have the best option.
Is your company afraid to raise its rates, or position itself as a premium brand? Providing great value, great experience, and/or a unique product can build loyalty that will survive a small increase.
What are your thoughts — agree or disagree?
This post was co-authored by Brent Eastman, vice president creative at Identity.
