Netflix and the cautionary tale of insufficient research

I am a Netflix fan. For my kids, streaming Netflix is their version of Saturday morning cartoons (remember those?) without having to wait. And I can personally thank Netflix for catching me up on Man vs. Food, No Reservations, and a slew of other shows I might have missed had they not been available for streaming.

So this is not coming from a hater.

Netflix has become the poster child for ignoring their most important Failure Point – Pricing. They are a cautionary tale in the making. It is hard for me to imagine that Netflix actually conducted any Market Research on their price changes, and if they did, I would love to see the research that said the pricing increase would not lead to the catastrophe at hand, let alone success.

Failure Points are those places that offer a tremendous downside if ignored or done poorly. Think of a section of pipe used in plumbing. Unless something is terribly wrong, the tubing does not offer many failure points.  But the openings where one pipe is joined with another, that is where the failure points are. If the threading is off, if the seal between the pipes is poor, if the gasket cracks, these all lead to failure.  For businesses, Failure Points are harder to see.

For Netflix, their Failure Point management up till the pricing fiasco was fantastic.

• Their User Interface (UI) was well designed. They innovated and borrowed from best practices to create an amazingly fluid experience.
• Their Input/Output (I/O) was brilliant…seriously brilliant. It felt amazing when I could skip late fees by keeping a DVD for as long as I wanted. Their shipping  I/O made me feel like I was gaming THEM (true or not, that is how it felt). And once Netflix added in streaming and made the whole rental process 100% frictionless…forget about it. They’d won the hearts and minds of millions…just over 25 million to be exact.
• Their Real Live Person Interface (RLP) was invisible till needed, then easy and seamless and easily forgotten when called upon.

The point is, they’d been doing everything correctly. Including price. Their pricing used to be simple enough to understand and flexible in a way that allowed me to feel like I was coming out ahead. I knew that I was spending more on movies monthly than pre-Netflix, but I also felt like I was GETTING considerably more.

Of all the Failure Points listed, the most important one is obviously pricing. Yes, the others are crucial. But if the UI changed and all of a sudden Netflix was harder to navigate, the backlash would not have been nearly has bad as it was for the pricing debacle. Quite simply, by not conducting proper market research into this one Failure Point, above all others, Netflix made life for themselves a whole heck of a lot harder…pretty much overnight.

And then to try fix things  by splitting into two separate businesses with two separate names and two separate billing systems? That took their problem free UI Failure Point and completely muddled it up. I can’t imagine the research, if any, that went into that one.

So where does this leave them? They are down more than 800k subscribers and their stock price is down 37%. They fully acknowledge that they messed up and are looking to move on. I sincerely hope they do. But the lessons for this should not be limited to the utterly obvious (Don’t double your prices and then confuse the heck out of your customers by renaming half your business.) Instead, Netflix should be working as closely as possible with their market intelligence group to ensure that they are listening as closely as possible to the market, their customers, and even their haters.

I still think Netflix has tons going for it. But they need to make sure they get back to executing like they used to. Any more mistakes with their key Failure Points could undo the slow gains they will likely start making as the market again starts loving Netflix and their Man Vs. Food episodes. Next up, the Atomic Bomb Challenge right here in Rochester!

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Failurepoints is an occasional series on the points where organizations are at risk of failure. As a seasoned technology market research professional, Scott Stamper can help your organization understand your Failure Points. Email scott@acivica.com to learn more.