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And they almost got away with it: lessons learned from a Netflix reversal

Published: October 14, 2011
Section: Opinions


There’s something sinister about the recent Netflix decision to abandon Qwikster, a decision that, upon its face, appeared to be a gesture that consumers were right after all.

It’s a lesson that Bank of America CEO Brian Moynihan would do well to heed. It’s a lesson that applies quite well to Mayor Setti Warren of Newton, Mass. It’s a lesson well learned by administrators who oversaw the Rose debacle at Brandeis.

But consumers aren’t buying the Netflix apology. And that’s why Netflix’s ploy will ultimately fail.

If you are like most Americans, you probably let out a sigh of relief last week when Netflix announced it was abandoning plans to split its service in two, with streaming to remain part of Netflix and DVD shipments to be re-designated as Qwikster.

I certainly did.

Signing his blog entry from Oct. 10 simply as “Reed,” the CEO of Netflix, Reed Hastings, wrote, “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs. This means no change: one website, one account, one password … in other words, no Qwikster.”

Score one for consumers, right? Well, not exactly.

On Sept. 18, Hastings apologized for something completely different, a price increase of up to 60 percent by charging separately for streaming and the DVD service. Hastings wrote:

“In hindsight, I slid into arrogance based upon past success. … But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.”

But in another hasty decision, Hastings then announced an even larger change, two separate Netflix entities, and without much justification, attempted to convince consumers that they would be required to pay for the services separately and sign in separately.

What was so clever about the Netflix announcement was that the aim was to confuse, plain and simple, and confused consumers are exactly what any corporation wants. “Want a refund, you’ll have to call Qwikster—here at Netflix, we can’t help you.”

And, of course, any future price increases would have been independently announced, so if Netflix had raised its prices followed by Qwikster the month after, the ensuing outrage would have been diluted.

Netflix customers were up in arms. The blog post that Hastings framed as an apology was filled with nasty comments from customers canceling their subscriptions and switching to—well, they never really said. Because, as we know, Blockbuster’s offerings are lackluster compared with Netflix and who really wants to use those silly supermarket “red boxes” anyways?

A few weeks passed. Then the surprising announcement on the AP news feed: Qwikster plan abandoned.

But the summer price hike? No reversal on that one. Not by one cent. Now there’s nothing set in stone with Netflix right now, that’s for sure. And consumers have been voting with their feet, with Netflix’s subscriber base falling steadily during the last month.

But Netflix has continued to apologize while threatening to make consumers lives miserable and the end result has been no actual changes.

Consumers should be outraged.

CEOs, on the other hand, should be paying careful attention.

Bank of America during the last year has raised its fees for checking and savings accounts across the board, angering consumers. But in the last month, they announced a $60 per year fee for debit card transactions, which has caused a number of customers to announce they’ll be switching banks.

Here’s the hypothetical: Bank of America says “sorry” and drops the debit card fee; they would appease consumers and help improve their brand name.

But the fees for standard accounts remain, even though they were once free. Thus the question: Would consumers ever accept an apology in such a circumstance?

Another, slightly different, example: Mayor Setti Warren from the great city of Newton, Mass., announced a number of months back that he would run for senator, despite a notable lack of experience in politics. In 2009, when he was elected, Warren won the election in Newton by an incredibly thin margin, highlighting his inability to draw a wide group of voters especially when held up against a political insider, State Representative Ruth Balser.

Newton was furious. Having just elected Warren after years under the David Cohen regime—years no one in Newton would want to repeat—the mayor seemingly abandoned his city.

That is, until another candidate with a similar name, Elizabeth Warren, announced her candidacy. Within just a few weeks, Setti Warren withdrew from the race. He apologized he asked us to move on. But he did so knowing very well that he had no chance at winning.

The key question now is whether constituents will forgive and forget.

The Netflix apology strategy is a good one but let me emphasize: It will not prevail. Setti Warren will one day need to answer to the people of Newton. Bank of America will lose consumers if they continue to raise fees on services we all used to receive for free. And Netflix’s CEO will soon be out of a job.

Why? Because, while apologies work in the short term, consumers never forget. And half-hearted apologies, such as the one Netflix has offered, just aren’t good enough.

At Brandeis, we had our own lesson in the utility of apologies three years ago. The Rose Art Museum debacle proved that although apologizing helps, major decisions that anger consumers—in our case, students, alumni and donors—have far-reaching consequences. The resignation of former President Jehuda Reinharz was only the start of a cascade of changes that resulted from the ill-fated decision. Although our board of directors has remained largely unchanged, the decisions that resulted after the Rose Museum announcement represent a complete shift in priorities and goals, all of which are more aligned with the expectations of the community.

The future of Netflix is guaranteed as long as they continue to produce a product that is better than the competition—and they do. But that doesn’t mean that they can ignore consumers in the process.

After all, it is consumers—not executive officers—who ultimately pave the way for the successes and failures of corporations.