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Netflix: Lessons From the Big Boys Series

In the wake of Netflix’s highly publicized foul ups, successes, and blunders, here are two quick lessons every small business should note:

  1. The appearance of greed, is just as bad as greed
  2. Convenience is king

DOES THIS OUTFIT MAKE ME LOOK GREEDY?

Whether upset or indifferent, any reasonable person can see it’s cost-effective for Netflix to transition from DVD-by-mail to streaming, Netlflix’s decision to separate the two businesses is designed to give both a better chance to grow, one becoming Quikster (DVD) and the other remaining Netflix (streaming). But when they tamper with the very reason why people “love” them in the first place, it's very dangerous.

While a reasonable price point helped Netflix stock soar to a $304.79 high, the recent changes brought it down to a $129.37 low. It's now Netflix's task to keep pricing reasonable, while still being competitive in providing content.

Reasonable explanations tend to fall on deaf ears when confronted by sudden change. Speaking as a customer, change is hardly ever good. But most small businesses are too focused on acquiring new customers, and satisfying old ones to be so brazen, as to increase costs by 60% as Netflix did. In a Fidelity.com article Caris & Co. analyst David Miller explains how Netflix now finds themselves stuck between perception and reality.

Extraordinary success can dull even the sharpest competitive edge. Any small business owner may relish their location and their cornering of their market. But they should never make a move (business or otherwise) that gives customers room to think they’re being taken advantage of. It may make all the business sense in the world, but the customer doesn’t want to empathize. They really just want things to never change. They were happy the way it was.

If it’s necessary to increase the costs for your products or services, it is absolutely imperative that you figure out how to break it to the consumer gently and clearly. Anticipate the resistance, and strategize your handling of fallout. Don't just raise prices and stand back to see what happens. Prepare yourself with answers to inevitable questions. How can this be advantageous to the consumer? How will they see immediate benefits from the price increase? Decide what's the best delivery method for such a message.

Whatever you do, don’t pull a Netflix and raise the prices while decreasing the service. At least find a way to mask such "raw deals". Basically, the handling of their recent changes proves that: (taking away services + charging more money + no explanation) = extreme customer dissatisfaction.

KEEP IT SIMPLE, STUPID

But in spite of the price increase, I don’t believe that's the most significant reason for Netflix stock’s 57% drop. It was its convenience that was its real cache. The consumer value of having Netflix as a one-stop shop for subscribers, whether DVD fans, streaming fans, or a hybrid of both was not accurately measured.

According to TheStreet.com, "users are complaining that by not integrating the two services it will make it more complicated to manage queues."

Any small business that enjoys the type of brand positioning that Netflix has, their first priority should be to know their customers. 'Why would or wouldn’t Sam the landscaper like it if my containers were centrally located? It sure would save a lot of time and money.'

The problem isn’t that a brand new way of doing business constitutes a “betrayal” per se, but the average customer doesn't care about the brilliant plan for decreasing overhead and increasing profits. Like a husband that wooed his gorgeous fiancée, sparing no expense, only to “drop the act” once the honeymoon was over. No explanation will matter when you suddenly become an inconvenience or an annoyance.

Inconvenience is a business liability that can crumble empires, and handicap startups. Truly understanding and studying your business, and its attractiveness to consumers is key. It may not be your grandmother’s Russian dressing recipe on that Reuben sandwich that keeps your lines moving through lunch. It could be that the bottled sodas, for the $3.50 sandwich and soda special, are by the checkout counter. It would really bug customers if you decide fountain drinks on the other side of the room would be more cost-effective. May seem small, but the customer annoyance factor is never appreciated until it’s too late

 
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