If you ever needed a case study on why customer satisfaction is important and what havoc lack of customer satisfaction can have on a company, look no further than the recent situation with Netflix.


In prior post Netflix responds to customer social media outrage, I told you about how Netflix had raised its prices significantly (60%). That led to consumer backlash.

Then the Netflix broke the company into two, Netflix and Qwikster,  requiring their largest set of customers (over 50%)  to deal with two separate companies rather than just one.  More consumer angst.

Then the company backtracked on the break up, so consumers could continue to work with only one company (see `Customer Ire forces Netflix Business Model Change`).

But the customers were still unhappy.

800,000 Fewer Subscribers

According to article in the New York Times, How Netflix Lost 800,000 Members, and Good Will,  Netflix “told investors that it ended the third quarter of the year with 800,000 fewer subscribers in the United States than in the previous quarter, its first decline in years”

Stock Price Plummets

The stock  price  dropped  more than 25 percent in after-hours trading after its earnings announcement and even more the following day.

Root Causes:

According to the New York Times

1. Part of Netflix’s business was growing quickly (streaming).

2. The cost structure for streaming was becoming more and more expensive.

3. The cost change to consumers was too much, too fast.

4. Management Overconfidence and hubris.

5. Netflix was out of touch with its customers.

6. There was a failure to communicate the rationale for the price increase (eg. wider selection of streaming movies). There was no perceived benefit for the customer for the price increase.

Summary

This will go down as one of the classic stories of how companies who fail in customer satisfaction are negatively impacted, both in sales and in its market valuation. The big question is whether or not Netflix can regain its customer base over time.

What is your opinion?

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Adele Berenstein

Adele Berenstein is an Experienced Customer Satisfaction Executive, recently retired from a Large Global IT Organization after a long productive management career including Sales, Marketing, Services, teaching and education center management and most recently, 19 years in customer satisfaction management. She turned around divisions with customer satisfaction problems, implemented measurable improvements and management systems, and implemented programs to prevent problems from ever affecting customers.

4 Responses to “What is the value of Customer Satisfaction? Netflix Case Study”

  1. Yvonne A Jones Says:

    The New York Times identified several key points but the simple point that Netflix was out of touch with it’s customers spoke volumes.

    Companies must communicate with customers in order to know what their needs are and how to satify those needs. I don’t know if Netflix did customer surveys to get customer feedback. Whatever the case large and small companies can benefit from this case. Thanks, Adele

  2. Adele Says:

    Thank you for your comment. Yvonne,

    I agree with your assessment. Netflix was out of touch with its customers.

    I also believe that Netflix failed to communicate the rationale or additional benefit for its price increase. The relationship between Netflix and its customers sprialed down from there.

    Adele

  3. Netflix Customer Satisfaction Drops in e-Commerce Survey | Customer Satisfaction and Reputation Management Says:

    […] earlier in 2011.  See  earlier posts: Customer Ire forces Netflix business model change and What is the value of Customer Satisfaction? Netflix Case Study.  In the What is the value of Customer Satisfaction? Netflix Case Study  […]

  4. Netflix Customer Satisfaction plumets | Customer Satisfaction and Reputation Management Says:

    […] For more on the Netflix story see What is the value of Customer Satisfaction? Netflix Case Study […]

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