Price increase do's and don'ts (thanks to Netflix)
On Tuesday of this week, Netflix announced a change in their pricing policies.
Instead of paying $9.99 for unlimited streaming video AND unlimited DVD via mail, now you can opt for the new unlimited streaming only for $7.99 or the unlimited DVD via mail for $7.99 but if you want to duplicate your current $9.99 plan -- it will cost you $15.98.
However, this post isn't to debate the price increase.
I want us to look at how Netflix handled both the announcement and the reaction online.
Let me give you an overview.
This morning around 10 am Netflix emailed their customers, put up a blog post about the pricing change and mentioned the blog post - with a link - on their Facebook fan page. As of midnight on Tuesday, the Facebook post had almost 20,000 comments and the blog post had well over 5,000. I have no idea how many e-mails they got in response to theirs. But bottom line -- they created quite a stir.
As you can imagine...99 percent of the comments were not in favor of the change. And they expressed themselves with vigor and sailor-like language. Over and over again. And from what I could tell (I have to confess, I did not read all 25,000 comments). Netflix is not responding to anyone on either Facebook or their own blog.
What lessons can we learn from the firestorm that Netflix is experiencing?
Don't spread bad news any wider than you have to: This was a pricing increase that only impacts their current customers. New customers will immediately see the new prices and either buy or not. There was no reason to broadcast it all over Facebook and their blog.
People react very differently to situations like this when they're by themselves. They don't have anyone to work them up or egg them on. It should have been dealt with in a way that did not incite a riot.
Respect the relationship hierarchy: If they felt they needed to make a public announcement, it shouldn't have been done on the same day as they informed their customers. The customers deserved to hear it first.
Even if there would have been a 12 hour delay before going public, it probably would have taken a lot of the wind from everyone's sails.
Don't drop the bomb and run: Obviously, they cannot reply to 25,000 comments. But injecting themselves back into the conversation now and again would remind the people who are spewing their anger that there are real people on the other side. It's much tougher to rant and rave when you're talking to a real person.
Handling a price increase always requires some sensitivity and common sense. And you need to be very mindful of respecting the relationships you have in place. Assuming you are providing a value and can demonstrate why the hike is needed, you'll probably be just fine.
But when in doubt just ask yourself "what would Netflix do" and seriously consider the alternative!
~ Drew
Hey Drew,
Very insightful article... I must admit I am not a Netflix customer but I can assure if I had been I would not have been a happy camper.
It never ceases to amaze me how many big companies continue to "not get it."
You are so dead on when you said their customers, their core, their backbone, needed to hear of the price increase first.
and they needed to hear why it was needed but also of the new pricing structure which could in fact SAVE them money.
Now, go read the rest of those 25,000 comments and report back to us... LOL
Have a great day my friend!
Steve O
Posted by: steve olenski | July 15, 2011 at 02:29 PM
Drew,
Your post is well written and to the point.
I was one that was quite angry at the price hike (although I did not resort to sailor language).
I took issue with the seemingly unjustifiable and sudden price increase. No reason was given for this increase, instead they just look like a greedy, investor driven company.
I would have probably not tweeted my opinion had they written the email differently. Heck, I may have even liked them more! I would have written something like:
"Dear Justin, We value you and are thankful for your business. Our Online streaming has been quite popular, but we want to make it even more beneficial for you. We believe online streaming is the future, and in an effort to make more titles and shows available online, we must increase our rates to cover the costs associated with purchasing the licenses.
We know a price increase isn't favorable, but we hope to offer you more selections that will quickly justify the increase.
If you have any questions, we welcome a phone call. We are happy to explain this process in detail."
Posted by: Justin Brady | July 16, 2011 at 12:06 PM
Steve,
Netflix had been a darling for so long that I find it staggering that they would have blown the basics the way they did. We're not talking MBA level marketing smarts here --
Tell your customers first
Explain it in terms of their perspective
Show them the why
Be open to the conversation
All at the "duh" level. What will be very interesting is to see how/if they try to escape from this free fall that they're in.
Drew
Posted by: Drew McLellan | July 17, 2011 at 04:43 PM
Justin,
They should have asked you to draft their e-mail! No one welcomes a price increase. But there are certainly more delicate ways to handle the announcement.
The way they handled it -- pretty much felt like they could care less about their customers. It was almost as though their attitude was... we're really the only game in town so if you don't like it, too bad.
I suspect they regret taking that stance now!
Drew
Posted by: Drew McLellan | July 17, 2011 at 04:45 PM