Surprise! Netflix Guessed Wrong

In 1998 Reed Hastings founded Netflix, the lar...

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Netflix Cuts Customer Forecasts

Not that long ago…July of this year…Netflix announced a new pricing structure; a 60% price increase.  Basically, they were discontinuing the popular $9.99 for DVD and Streaming combo and pricing the product offerings separately at $7.99 each.

If you recall, customers weren’t all that happy about the change as Mashable’s Poll at the time indicated.

Question:  Will You Stick With Netflix Now It Has Hiked its DVD & Streaming Rate?

Response:  Of 8,243 poll participants, a full 38% or 3140 participants were so upset they stated they would cancel Netflix altogether.

Today, it seems the magnitude of just how upset Netflix customers were or have continued to be has led to a decrease in the company’s subscriber forecast.  I million fewer DVD and streaming customers.

Forecast Comparison

Netflix Revised Forecasts

Never to let the facts get in the way, Netflix continues to feel splitting their services was a good move, yet Wall Street is not so sure.  Shares of the company are down more than 15% in pre-market trading.

Seems Netflix does a lot of Guessing

Per Netflix’s blog when they announced their price increase, the company introduced their $9.99 combo package in November of 2010 and 8 months later announced plans to change the package in July, 2011.  The section within that communication I found so interested are highlighted below.

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs.

Lessons from Netflix

Netflix should have anticipated offering DVD only plans and the demand for such a product offering shouldn’t have come as a surprise to them.  All they had to do was ask.  Their customers would have told them.

If you’re thinking about making major changes to the way you do business, do yourself a favor and avoid Netflix missteps and negative fallout.  Ask your customers first.  You’ll be a lot smarter and maybe you’ll manage to add to your customer base rather than drain it.

 

Sheila Hibbard

Sheila Hibbard takes the fluff, hype and confusion out of marketing and social media. She provides small business owners with straight forward, no nonsense marketing guidance and techniques that produce results based on her 35 plus years in advertising, communications, research, strategic planning and social media. Author of Marketing Online Made Simple - WHO.

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