Losing your customer focus: What you can learn from the Netflix fiasco

Netflix made headlines again last week and for all the wrong reasons. Strong customer criticism forced them to drop the ill-conceived plan announced just last month to break the company into two parts. Customers instantly recognized that splitting the company would have forced anyone who wanted both DVD delivery and streaming video to have two accounts, two bills and two websites to visit. The question on my mind is how could a company get that far removed from its customers that it couldn’t anticipate the strong negative reaction this decision was destined to bring.

The decision to spin off the DVD delivery service under the name of Qwikster (another questionable choice that brought jeers from the blogosphere) appears to have been made solely to help soothe the concerns of shareholders. Netflix’s stock has fallen by more than half since the company made its first big blunder in mid-summer, when it announced a 60% price hike for customers who wanted both DVD delivery and streaming video. Something had to be done to cheer up shareholders and the notion of spinning off the less profitable DVD delivery business seemed like the answer – for about 30 days until reality hit home last week.

Within the space of just a few months, Netflix has gone from a company that customers adored to one that is now the corporate poster child for dumb decision making. I contend this is all because it lost its customer focus…lost it so badly that it didn’t even realize how its decision to divide the company in two would impact customers. The idea of having to deal with two separate companies had absolutely nothing in it that would appeal to customers, yet Netflix’s leadership didn’t recognize this. Nor, apparently, did they bother to do any customer research. Surely, one quick focus group would have told them all they needed to know about the idea of Qwikster.

So what can you learn from the Netflix fiasco?

1)    It doesn’t take long to trash a company’s reputation. As recently as June, Netflix was beloved by its customers. Now, it’s in the throes of losing an anticipated one million customers. Just because your customers adore you doesn’t mean you can afford to trifle with them. Nor can you afford to take the cavalier and sometimes arrogant tone in communicating with them, another fault the Netflix executive team exhibited over the past few months.

2)    When you stop thinking like a customer, bad things will happen. It appears that nobody sitting around the conference table put their customer hat on when the idea of dividing up the company arose. If they had, the huge inconvenience of that idea to customers would have been immediately apparent. So before making changes, always remember to ask, “How will this affect my customers? How are they likely to react?” Some decisions that may impact customers negatively may be unavoidable, but is there something you can offer to help offset the pain to customers? Think through all the repercussions before making the type of kneejerk choice Netflix made last month.

3)    Thanks to social media, customers have a very public platform to dis you. The prevalence of social media empowered tens of thousands of Netflix customers to immediately express how much they hated the plan to divide up the company and how much they hated the price hike before that. In such an atmosphere, mistakes in how you treat customers become amplified like never before. So now there is a much higher price to be paid each time you lose your customer focus.

With Netflix, it feels to me that they got too big for their britches. They had a full decade of high-flying success that led to a great IPO and untold wealth for the founders. In such a heady atmosphere, it is more than possible that they forgot to dance with the one that brought them – their customers. Don’t let that happen to you. Don’t lose your customer focus, for if you do, you risk losing everything.

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