shannonsloan

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The Netflix Example: How Bad PR Can Lead To A Failed Company October 23, 2011

Filed under: Uncategorized — shannonsloan @ 4:04 PM

I have a feeling future PR students will be hearing this example come up a lot in their classes. The recent communication failures by the Netflix team is a perfect example of how a lack of a communication strategy and not addressing customer concerns can lead to a big financial hit and kill a company before it starts.

I was always a happy Netflix customer, streaming through the random assortment of watch instantly options between study sessions, anxiously waiting for the mailman to deliver my latest red envelope. Unfortunately, one of those discs got lost in the mail while I was changing addresses. Rather than pay for the mix up I decided to end my membership.

I was sad about this fact until I started hearing rumors that Netflix was going to start charging separately for their mail-in and online services. Not being a customer anymore, I wasn’t too concerned with the issue. But it sounded like Netflix was about to make a big mistake…turns out they were.

Because they did not clearly communicate their plans and the reasons for the changes, they had a major crisis on their hands. Members were outraged, stock rates were plummeting and so the Netflix team did a little crisis communication and posted an apology on there blog  along with a welcome video explaining the new company Qwikster.   Had this video been implemented and the customers informed in  the beginning stages, we may have seen a different outcome for the Qwikster company. The customers saw it as too little, too late.

Their first mistake was not clearly communicating their plans with their customers, while they did apologize for this mistake, they obviously didn’t learn from it. In her blog post, Smart Apologies Should Be Strategic, Rosanna M. Fiske dissects the Netflix case and the error’s in the half-hearted apology.  She points out that ‘most reputation blows require a clear, strategic message, explaining two things: (1) what went wrong, and (2) what you are doing to rectify the situation.’ While they did apologize and explain the new plans for the future of their company, they did nothing to address the concerns of their customers.

The main outrage was that splitting the services left customers paying almost twice as much had they had been previously. In the apology video, Netflix  insists that the price increases were necessary and focuses on the fact  that splitting the services will allow them to focus and improve on each process individually.

Netflix obviously put a lot of thought into this plan. For all we know it had the potential to be very lucrative for the company. It may have led to a better service and happy customers. Unfortunately, because of the backlash from this communication disaster, the world will never know.

On October 10, Netflix announced that they were no longer going forward with their plans.  Announcing on their blog that they were keeping things the same. Basically stating OK, we are finally listening to you…we cave. Oh, and even though those price increases were necessary….we cave on that too.

Now Netflix is exactly as it was before. Same company structure, same name and same prices. Too bad their reputation and stock prices may never recover.

 

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