Netflix shows how to kill the Golden Goose – and win?

Netflix CEO Reed Hastings has made a number of really good moves over the past ten years. From knocking out Blockbuster (and nearly every other brick and mortar video store) to becoming THE default source for movie rentals, Netflix parlayed it all into a high flying stock offering and has continued to be a consistent performer. In fact the business even remained solid through the recent (since 2008) seemingly endless economic downturns.

And even more suddenly it all is coming crashing down. The rise in pricing for Netflix subscribers was more than eyebrow-raising but even more so was the creation of something Mr. Hastings is calling ‘Qwikster’. The plan was to have ‘customers’ have both a Netflix account as well as a Qwikster account. I cannot think of a single person that would want to operate two accounts when they only had to have one account before.

The result was that more than one million Netflix account holders cancelled their accounts. That’s a stunning number. A company known for being customer-friendly and really understanding their customers apparently does not have a clue at all.

Supposedly Netflix had 25 million customers paying $ 10 per month before the move, so by losing 1 million customers it would follow that there are now 24 million customers paying $ 16/month. Doing the math would make you think Mr. Hastings remains a genius. In fact there are reports that Netflix had figured in a certain amount of customer attrition in raising their prices.

I am not sure how many people have signed up for Qwikster. I can assure you that I am not one of them. In fact we had cancelled our Netflix account before Netflix made the changes as we were not watching enough to make it worth the expense.

Netflix has made it better for…. Netflix. They did not solve a customer problem at all and may have created some in the process.

But I cannot keep from wondering – was Mr. Hastings really that stupid for making the move? They now have fewer but more profitable customers.

What do you think?

About markkolier

Futurist, entrepreneur, left lane driver
This entry was posted in Best business practices, Customer Experiences, Entertainment and tagged , , , . Bookmark the permalink.

2 Responses to Netflix shows how to kill the Golden Goose – and win?

  1. Jim Fennell says:

    Mark,

    I believe that splitting the home delivery and streaming businesses is a defensive move.

    The home delivery business is highly dependent on the USPS, which is currently on the financial ropes. The Postal Service needs to cut costs and head count but any reduction in their service levels (reduced deliveries, elimination of Saturday delivery) will negatively impact home delivery customer satisfaction. It appears that the company is splitting its business in anticipation of degraded mail service and went as far as to rename the home delivery business Qwikster so the spillover on the parent brand will be minimized.

    The current Netflix business model is still highly reliant on the USPS so Hastings can’t come out and admit to this strategy. However, when the split is viewed in this context it makes much more sense.

    Best,

    Jim

    Like

    • markkolier says:

      Thanks as always Jim,

      A very astute observation and one I agree with. Sicne the USPS is set to do away with Saturday delivery they would then lose 16% of their possibly delivery days. And on one of the most important days to deliver what is for the most past an entertainment and leisure product. Also interesting is the deal that Netflix annnounced today with Dreamworks to stream content that would NEVER go to DVD. My initial negatige reaction was as a customer – but the more I look at it as a business person, Mr. Hastings may really be doing exactly the right thing.

      Like

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