Netflix Takes a Deep Breath

Neflix CEO Reed Hastings announced today that Netflix has retreated from its strategic move to spin off its DVD mail business under the Qwikster moniker. Netflix shares immediately rose 6% in premarket trading following blog post.

In his blog post, Hastings admitted that customer complaints were the driving force. “This means no change: one website, one account, one password… in other words, no Qwikster,” Hastings wrote.

Presumably, this also means that the reconstituted Netflix is less attractive as an item in Amazon’s shopping cart – if Amazon was even seriously looking at the Netflix streaming business.

Is Netflix out of the woods? Not by a long shot.

Following the July price increase (60% if you wanted both the streaming and DVD options combined) and last month’s surprise announcement of Qwikster, customers were furious. They felt betrayed and confused, given voice to their anger through subscription cancelations that topped 1 million – or 4% of Netflix’ subscriber base. This move is not likely to quiet them down.

It takes considerable time and effort to build a loyal customer base. Customers must acknowledge the promise of value, experience that value, and come to trust the integrity of that promise. Isolated situations can cause a customer to experience a letdown with a company (a poor service experience, or a billing dispute); but companies can, if on top of their game, restore the customer’s confidence. When a customer feels betrayed by the company (a change in policy or offering that sharply “breaks the promise of value”) though, it is more than a matter of a poor customer experience; it is severing an implicit bond of trust.

Companies don’t consciously seek to unravel customer confidence, but when they fail to understand the nature of their value proposition, they risk taking actions that later prove reckless.

Netflix needs to do something significant this quarter to restore that confidence and re-establish the value promise that many customers believe to have been broken. Dumping the Qwikster option won’t cut it.

Written by Michael

Michael Douglas has held senior positions in sales, marketing and general management since 1980, and spent 20 years at Sun Microsystems, most recently as VP, Global Marketing. His experience includes start-ups, mid-market and enterprises. He's currently VP Enterprise Go-to-Market for NVIDIA.