Customer Management Debates for 2012: How Would You Have Handled the Netflix Fiasco?

Brian Cantor

As we prepare for 2012, Call Center IQ wants to encourage its members to debate and discuss some of the hot, controversial topics in customer management and marketing. Please use the comment section below to share your thoughts.

No matter how hard and for how long a company has worked to earn its customers’ trust, it can take a single incident to completely shatter that invaluable loyalty.

Just ask Netflix, which over the course of 2011, saw its reputation transform from that of one of the most customer-centric, savvy brands in the world into one of its most-repudiated. Customer management professionals have come to view Netflix as the "anti-Zappos," as the immaculate reflection of how not to treat one’s customers.

And it all stemmed from the sudden summer 2011 announcement that Netflix would no longer be bundling its DVD and streaming services for $10; those who wanted both would endure a 60% increase to $16.

Netflix, to this day, has yet to offer a compelling explanation for the pricing increase. It never truly demonstrated how the value of the product would increase by 60% to justify the increase. In fact, its first comprehensive "statement" on the matter came in a letter to investors, in which it arrogantly boasted that customers should still see the value in its product and that its business will not notably be hurt by the change. Amid a free fall in the price of its stock and ongoing customer complaints, the company even announced a baffling, soon-abandoned plan to spin its DVD business into a separate company that only amplified the customer anger and critical mockery.

Customer management analysts and professionals had a field day lambasting Netflix over virtually every decision it made in the wake of its pricing scandal—and, from all accounts, with good reason. And yet, one problem with the criticism has persisted: from day one, many critics have conflated Netflix’s price increase with the handling of the increase.

In trying to explain the customer outcry and vicious impact on the business, observers have framed their analysis as a commentary on how Netflix did not properly manage the introduction and impact of its pricing increase. They have attempted to contextualize the outcry as a product of errors like Netflix’s lack of transparency and lack of remorse, all the while forgetting that the real reason for customer frustration could be far simpler: customers simply do not want to pay $16 for something that cost them $10 earlier this year.

For an example of this phenomenon, look no further than the above recap—"it never truly demonstrated how the value of the product would increase by 60 to justify the increase." This type of logic—logic demonstrated universally in customer management circles—is downplaying the unavoidable reality that prices will, from time to time, need to significantly change due. Meanwhile, the logic espoused by critics has, more often than not, tended to overstate the role Netflix’s handling of the issue played in the outcry. Like it or not, some of the "disgruntled" would have been unhappy no matter how Netflix introduced its price increase. Their reaction was not simply, "how dare Netflix issue such an arrogant explanation for its price increase?" It was, "how dare Netflix increase the price of my service by $6/month?" And that latter sentiment can be far more difficult to shake.

Granted, companies change their prices all the time, and few encounter the firestorm that attacked Netflix. While there will be unavoidable disappointment when customers are asked to shell out more money for the same product, there is definitely a way to minimize the outrage, certainly in a way that prevents the corporate stock price from losing two-thirds of its value.

It is from this logical exploration that Call Center IQ asks you, the reader, to share your opinion. Assuming the price increase was unavoidable due to business constraints and that some resulting customer frustration would be equally unavoidable, how would you have handled the announcement and fallout if you represented Netflix?

Please share your comments in the section below.