Wednesday, October 26th, 2011
Once upon a time there was a company that was successful.
They owned their category, made huge profits and had a clear growth plan for the future.
Then the category landscape started to shift…
And instead of thinking thoroughly and clearly about how to move forward – and how to communicate that path to their customers – they screwed everything up.
But this isn’t a story about the demise of a company (yet…) – this is a story about the importance of communication.
On Monday, the Netflix reported that their video subscription service lost 805,000 customers in the third quarter – biggest exodus in the company’s history.
Netflix lost its luster among consumers and investors by raising prices as much as 60 percent in the U.S. and bungling an attempt to spin off its DVD-by-mail rental service. The shift in business was something the company felt they needed to do to compete with the changing category – between doing nothing and doing something dramatic, the dramatic change seemed to be the lesser of two evils.
Despite the 60% price increase, Netflix notified shareholders that the impact of the price increase would be limited and the company would finish the Q3 with 25 million total subscribers.
In reality, the company finished its third quarter with 23.79 million U.S. subscribers.
Customers were not happy about the 60% price increase.
Investors were not happy about the loss in subscribers.
Netflix was not happy about the increased media attention.
It seemed that everyone was loosing.
But buried in that report was something interesting – despite the loss in subscibers, Netflix earnings rose 65 percent. Netflix reported $822 million in revenues for the quarter and earnings per share of $1.16, which beat estimates of $811.79 million and earnings per share of 96 cents, respectively.
So while the subscription loss was significant, a 60% increase in price and 4% loss in customers amounts to a revenue increase of approx 53.6%.
From a financial standpoint (a short term one at least), all is not lost.
Which makes me wonder why the apology letters to investors, the media interviews and the article headlines all read catastrophe when they could have framed strategy and future opportunity.
Netflix is a case study in communication. What are you doing and how are you going to talk about it? Will we phase the price increase? Will we frame the pricing changes in the context of improved, streamlined service? Will we ask the customers what the want and even – dare we ask – what they are willing to pay for?
A study in communication and a hard lesson for Netflix to learn.
But a lesson learned…we hope.
“It’s not just what you say that stirs people. It’s the way that you say it.” – B Bernbach
Tags: consumers, identity, influence, Insights, LaBarge Partners
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