When Netflix recently decided to change its pricing model, it set off a chain reaction that could ultimately result in the loss of nearly 3 million customers.
Why are so many customers leaving? Because Netflix implemented a major price hike that significantly impacted more than 75% of its core customers (with some of them forced to pay as much as 60% more a month, assuming they maintained the same rental plan).
The unfortunate part is it didn’t need to go down that way.
All Netflix actually did was recalibrate its pricing model, which is something everyday companies do on a fairly regular basis.
In fact, some of the new pricing options could’ve entitled members to substantial savings. The problem resided in the way Netflix managed (or failed to manage) the transition.
Here are three mistakes Netflix made, as well as tips for how every manager/company can avoid similar oversights:
1. Provided very little lead time: Netflix didn’t offer months of advanced notice, during which customers could explore which plan was best for them. Instead, it dropped the new price plans like a carpet bomb and billed existing customers accordingly.
A wiser strategy: When/if a price increase or change in service becomes necessary, contact customers ASAP to explain when the change will take place, how the change benefits them and why it increases the value of their investment.
2. No positive spin: Netflix took the approach of simply treating the subscription increases like business as usual, a tactic which infuriated loyal customers and made them feel as if the company’s only motive was profit.
A better strategy: Have salespeople contact loyal customers directly, acting as consultants to help them choose the buying option that offers them the most value. It also helps to have reps spotlight all the ways new pricing models can provide customers with superior ROI and/or more benefits than they’ve received in the past.
3. All take, no give: Netflix had no PR campaign or marketing strategy aimed at balancing the hikes by saying, “But here’s what you can look forward to!”
A better strategy: Capitalize on all the positives that come along with any changes the company makes. If the move is good for business, chances are there’s a reason why it’s also good for customers. The problem with Netflix’s low-profile approach was that it made it seem like the company was trying to squeeze loyal customers for more revenue. Despite what Netflix does going forward, that perception will always linger in customers’ minds.
(Based in part on “Netflix Shows How NOT to Raise Your Price,”
by Geoffrey James, BNET)
