Thursday, September 22, 2011

Netflix DVD-rental service to become Qwikster

This summer, Netflix announced a new pricing plan on its blog raising prices almost 60% for its unlimited DVD-rental and streaming services starting September 1 (that's an increase from $9.99/month to $15.98) without explanation. Just as loyal customers settled into the new pricing plan, after expressing discontent via social media including the company’s Facebook page, Netflix CEO Reed Hastings announced another major change on the company blog. In an attempt to explain the company’s last move, Hastings announced the division of the DVD-rental branch of the company. The rationale behind this separation was the branches’ diverging cost structures and marketing needs. The new DVD-rental company, which will also include a newly-developed video game-rental division, Qwikster, will operate separately from Netflix, requiring current Netflix customers to hold a different account with Qwikster.

While this announcement explained the company’s move this summer, it similarly generated widespread confusion and anger, driving customers to express their discontent via social media and investors to express their hesitance by selling stock. The posts range from anger to disappointment to confusion. The announcement has left many customers, including some of my own friends, with questions. Will current customers have to set up a new account with Qwikster or will Netflix automatically transfer customer information to Qwikster? Will customers’ current DVD queues and movie preferences (which some customers have developed for over 10 years) transfer to Qwikster?

Netflix’s behavior within the past few months has been criticized as reckless and insensitive. While Hastings’ has expressed legitimate concerns in the past about rising operations costs (citing costs of over $500 million just to mail DVDs to customers), the company’s statements and its launch of Qwikster present a PR shortcoming. The initial announcement this summer ignored the substantial price increase, failing to neither provide an explanation nor express discontent for such a drastic move. While Hastings tried to make amends for past wrongs with his latest blog post, the new blog left many customers feeling bitter toward the company and its newest endeavor. Moreover, the supplementary YouTube post did not fully deliver. Although normally a good strategy to build a more personal relationship with the customer and open up dialogue across more social media platforms, it felt scripted and was probably released too late. Furthermore, the company has yet to respond to customers’ questions and concerns via the blog, Facebook, Twitter or YouTube.

Many people have also questioned the branding of the new DVD and video-rental branch, Qwikster. The logic of the name is puzzling because this branch of the company actually provides a slower service. As many people turn to streaming alternatives, such as Amazon’s Instant Video, Hulu, and cable providers, Qwikster is not the "qwik"-est option. Additionally, the spelling of the new name is confusing—Qwikster could easily be confused as Qwickster or Quickster. To make matters worse, Qwikster, happens to be the Twitter handle of a drug-endorsing, girl-chasing man (whose Twitter backdrop displays Sesame Street’s Elmo smoking a marijuana cigarette), adding a few more layers to their brand reputation and social media dilemmas.

While Netflix has already committed some errors, there is still time to gain positive sentiment and improve customer relations:

· Return to the company’s roots: people love Netflix because the service is convenient. Netflix can help current customers transition to the new rental service by transferring account information including outstanding queues and movie preferences.

· Engage customers in a dialogue: utilize the blog, Twitter, Facebook and other social media tools to talk directly with customers and answer their questions. Netflix ought to take advantage of social media to mend hurting relationships with customers and remind them that they are valued.

· Be real: every business experiences financial woes and needs to take action, especially in a tough economic climate. Netflix ought to be honest with customers and give them legitimate support for their actions. By cueing customer in on rising operations’ costs, Netflix can establish transparency and help customers understand its situation.

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